Japan

In today’s briefing:

Asics (7936) | Stepn into the Metaverse
Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now
JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips
Japan’s Government: About an Article on Wage Disparity Between Men and Women
Aisin – Low Margins But Volume Is Key
MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

Asics (7936) | Stepn into the Metaverse

Asics reports Q1 results on 11 May – we expect a beat to consensus numbers
We are bullish on Asics for the long term market share opportunity in China and margin expansion driven by digital
The rather amazing tie-up with STEPN for NFTs highlights potential new ways to monetise Asics brand value

Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now

Tokyo Electron reports FY3/22 results on 12 May. We expect the company to meet guidance and analyst expectations
But the outlook may disappoint. Management may guide FY3/23 more conservatively than analysts who are looking for operating profit to grow 20% to ¥700 bn
Despite favorable industry conditions and strong outlook for WFE, we think that the stock could continue to de-rate

JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.
Bank Of Iwate (8345 JP) is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.
The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.

Japan’s Government: About an Article on Wage Disparity Between Men and Women

The Nikkei Newspaper on April 15 published an article about wage gap between men and women. I would like to discuss this issue, referring to surveys conducted by the government
The direct cause of this issue is that there is disparity between men and women even among regular employees, and that large percentage of women are employed in non-regular labor.
Indirect factors can be attributed to the working environment and legal system that tolerates the above. This problem is also connected to issues of human rights and diversity.

Aisin – Low Margins But Volume Is Key

Aisin’s 4QFY22 was weak on margins with revenue of ¥1,049bn (+3.9% vs. consensus) and OP of ¥43bn (-33.4% vs. consensus).
Guidance had a similar tone with the company projecting ¥4,450bn in revenue (+2.4% vs. consensus) but OP of ¥190bn (-29.6% vs. consensus) which we think is too conservative.
While results were disappointing we expect volume growth to be the key catalyst next year and cheap valuations should support strong upside.

MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

Merger synergies such as integrated purchasing will result in higher gross margins. A more efficient cost structure and sales synergies will boost the bottom line
We expect consumption to normalize in Japan as people get used to “living with covid.” Higher foot traffic will drive a resumption of high margin cosmetics
Inbound travel should be partially normalized this year and we believe the market will quickly price this in once borders reopen. We see 21% upside

Before it’s here, it’s on Smartkarma

May 08

Japan: Misumi Group, Hitachi Transport System and more

In today’s briefing:

Misumi Group (9962 JP): Watch Out for Recession
Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

Misumi Group (9962 JP): Watch Out for Recession

By Scott Foster

The shares look cheap on FY Mar-23 guidance, but operating profit has dropped back after a surge and 1H looks difficult.
On the positive side, the VONA e-commerce business is catching up with Factory Automation as a source of profit. Annual sales and profitability have reached new highs.
Management has rebalanced the business. The main risk now is macro-economic.

Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

By David Blennerhassett

There are 37 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal this week: Qantas Airways (QAN AU) has entered into a Scheme to buy smaller airline Alliance Aviation Services (AQZ AU).
Key updates took place for: AGL Energy Ltd (AGL AU), Virtus Health (VRT AU), Suchuang Gas Corp (1430 HK), Yashili International Holdings (1230 HK) & Hitachi Transport System (9086 JP).

Before it’s here, it’s on Smartkarma

May 07

Japan: Yamada Denki, Hitachi Metals, Hoya Corp, Ohsho Food Service and more

In today’s briefing:

Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE
Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio
Hoya – Getting Towards Genuinely Bullish Levels of Cheapness
Ohsho Food Service (9936): Solid Sales for April; Announced Price Hikes

Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE

Yamada Denki (9831 JP) reported earnings (Revs -7.6% (slight beat), OP -28.6% (slight miss), NP -2.4% (slight miss)), and slightly upbeat forecasts to Mar-2023 (Revs +4.6%, OP +12.5%, NP +2.9%)
They also announced an unchanged dividend at ¥18/share, and a VERY BIG BUYBACK. This is one of the largest, most aggressive, on-market buyback programs I have ever seen.
Previous buybacks have been duds. Yamada Denki is not playing around this time. This time it will be a buy.

Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

Last week Hitachi Metals (5486 JP) reported decent earnings and strong forecasts against what is probably significantly stale consensus expectations.
“The Consortium is not aware of any significant problems with procedures/responses under the Competition Act and will continue to strive to complete these procedures and responses as early as possible.”
That caused a jump, but that is the same language used in the 30 Nov 2021 release. Yes, I think this gets done, but Reward/Risk is smaller now.

Hoya – Getting Towards Genuinely Bullish Levels of Cheapness

Hoya’s 4Q beat slightly with revenue beating consensus by 2.2% and PBT beating by 7.0%.
Those beats were better than peers such as Advantest and Lasertec and qualitative guidance suggests that YoY growth is likely driven by the Lifecare segment in particular.
That contrasts with our negative outlook for peer momentum and we expect Hoya’s recent underperformance to reverse in short order.

Ohsho Food Service (9936): Solid Sales for April; Announced Price Hikes

By Mita Securities

All-store sales of 6.649bn yen (107.7% vs. April 2021) were the record high for April. In-store dining sales were 118.4% vs. April 2021, and delivery sales were 111.8% vs. April 2021.
In April, the company opened two new stores (two directly-owned stores) and closed one store (one franchised store)
The company announced that it would raise the retail price of approximately 20% of all items on its grand menu by 20 to 30 yen excluding tax, effective May 14

Before it’s here, it’s on Smartkarma

May 06

Japan: Komatsu Ltd, Pan Pacific International Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, Yamaha Motor and more

In today’s briefing:

Komatsu – Sensible Top Line Guidance But Margins Too Conservative
Pan Pacific International: A Reasonably Strong Third Quarter Warrants Further Upside
Japan’s Governance: About an Article on Human Rights Due Diligence
Yamaha Motors (7272 JP) | Staying the Course in Choppy Macro Waters

Komatsu – Sensible Top Line Guidance But Margins Too Conservative

Komatsu reported 4QFY22 results on the 28th of April and recorded revenue of ¥787bn (6.2% above consensus) and OP of ¥94.5bn (13.1% above consensus).
They also guided for revenue to increase 7.1% YoY vs. HCM which guided for a 6.3% fall driving a significant and premature share price decline.
The market has corrected some of that fall as it appears to increasingly agree with our call that HCM’s guidance was nonsense conservatism.

Pan Pacific International: A Reasonably Strong Third Quarter Warrants Further Upside

By Oshadhi Kumarasiri

Although consensus looks a bit challenging, there could be a decent OP beat yet again in the third quarter.
Meanwhile Pan Pacific International Holdings (7532 JP)’s valuation is still cheap and has decent potential for multiple expansion.
Thus, there could be more upside to PPIH if the company dismisses whatever the remaining concerns over profitability through a reasonably strong third-quarter performance.

Japan’s Governance: About an Article on Human Rights Due Diligence

On November 30, 2021, Nikkei Shimbun published article titled “Human Rights Risks in Supply Chains, 52% of Listed Companies Understand.” I would like to consider the issues in the article.
The METI survey shows that only a small number of companies have developed human rights policies and conducted human rights due diligence.
It’s clear that progress will not be made unless management itself takes the initiative and takes action to root a corporate culture of respect for human rights within the company.

Yamaha Motors (7272 JP) | Staying the Course in Choppy Macro Waters

The share price of Yamaha Motors has sunk to a low of 1x book on concerns that the marine business has peaked
Recent results and commentary from Brunswick suggest that the market remains as buoyant as ever
We would be buying the stock ahead of earnings, expecting a similarly bullish outlook from Yamaha

Before it’s here, it’s on Smartkarma

May 05

Japan: Nihon M&A Center, Takara Bio Inc and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

Nihon M&A: Earnings Drop Due to New Revenue Recognition Criteria; Guidance Seems Unrealistic
Takara Bio (4974 JP): FY23 Looks Uncertain as COVID-19 PCR Testing Number Decline Is Inevitable

Nihon M&A: Earnings Drop Due to New Revenue Recognition Criteria; Guidance Seems Unrealistic

Nihon M&A Center (2127 JP) reported 4QFY03/2022 results last week. Revenue declined 20.5% YoY to JPY6.1bn (vs consensus JPY7.6bn) while OP decreased 60.3% YoY to JPY889m (vs consensus JPY3.1bn)
Revenue for FY03/2022 increased 16.1% YoY to JPY40.4bn (vs guidance JPY39.bn) while OP increased 7.1% YoY to JPY16.4bn (vs guidance JPY18bn).
The company also announced in December last year that there were irregularities in recording sales and the share price has declined 47% since then.

Takara Bio (4974 JP): FY23 Looks Uncertain as COVID-19 PCR Testing Number Decline Is Inevitable

By Tina Banerjee

Takara Bio Inc (4974 JP) reported 55% y/y growth in revenue during the first nine months of FY22, mainly driven by 129% y/y surge in COVID-19 PCR test reagent revenue.
Although Takara Bio is likely to beat its FY22 guidance, uncertainty is prevailing for revenue earning potential beyond FY22, when the COVID-19 test demand will fade away.
We would stay away from this idea for now and wait on the sideline for a clarity of growth potential and recovery in the base business in FY23 and beyond.

Before it’s here, it’s on Smartkarma

May 04

Japan: Hitachi Transport System, MonotaRO Co Ltd and more

In today’s briefing:

Hitachi Transport (9086 JP): Trading Too Wide
MonotaRo: Not a Pandemic Stock

Hitachi Transport (9086 JP): Trading Too Wide

The Hitachi Transport System (9086 JP) deal announced last week was a big win for minorities, discussed in Hitachi Transport System (9086) Shareholders Get the BIG Win in This VLBO.
Market ructions and the Hitachi Metals saga have this trading wide.
This deal looks different in terms of approval risk and timing risk than Hitachi Metals and is worth a closer look now.

MonotaRo: Not a Pandemic Stock

By Oshadhi Kumarasiri

Monotaro’s 1Q22 topline was broadly in line with expectations but OP overshot consensus and company guidance by ¥355m and ¥396m respectively as SG&A fell short of the plan by ¥435m.
Although the market treated MonotaRO Co Ltd (3064 JP) as a pandemic stock, it has stronger fundamentals than most pandemic winners.
Shares are not cheap enough to be outright bullish but it is still a decent long hedge to short many other low-quality names.

Before it’s here, it’s on Smartkarma

May 03

Japan: Shiga Bank, Chugoku Bank, Square Enix Holdings, Japan Tobacco and more

In today’s briefing:

JAPAN ACTIVISM: Silchester Goes After Shiga Bank
JAPAN ACTIVISM: Silchester Goes After Chugoku Bank
Square Enix – Eidos Sale Removes Downside Risks
Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

JAPAN ACTIVISM: Silchester Goes After Shiga Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto (8369 JP) is the biggie, Shiga Bank (8366 JP) is another one with significant equity holdings.

JAPAN ACTIVISM: Silchester Goes After Chugoku Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto is the biggest equity portfolio, Chugoku Bank (8382 JP) is a relatively large, provincial, regional bank, with middling equity portfolio. Different shape. Different situation.

Square Enix – Eidos Sale Removes Downside Risks

Square Enix announced the of sale Eidos Interactive, Crystal Dynamics, Square Enix Montreal and associated IPs to Embracer for $300m.
We had been puzzling over Square Enix’s strangely low guidance despite excellent momentum in its MMO business for some time.
Considering the underperformance in HD Games profitability and this sale we think we can now put two and two together.

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

By Oshadhi Kumarasiri

Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%.

Before it’s here, it’s on Smartkarma

May 02

Japan: Hitachi Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Hitachi Results, Special Gain on Asset Sale, and Semi-Bigly Buyback
Japan’s Governance: About an Article on the Introduction of Electronic Voting for the AGMs

Hitachi Results, Special Gain on Asset Sale, and Semi-Bigly Buyback

Hitachi Ltd (6501 JP) results were salutary but noisy and the year to March 2023 is forecast similar (salutary but noisy). Service integration and growth to external customers is key.
Forecast growth in main businesses ex- to-be-sold listed subs is decent, but could be better.
A SEMI-Bigly buyback will help cushion any selling, but it has recently outrun Siemens on a like-for-like basis.

Japan’s Governance: About an Article on the Introduction of Electronic Voting for the AGMs

The number of companies participating in electronic-voting platform increased, but most of them are prime market companies. This is because “participation in electronic-voting platform” was included in the listing criteria.
According to a survey conducted by METI, there are issues that are not user-friendly, such as the need to resolve the issue of “procedural duplication” when voting electronically.
This issue isn’t a matter of an electronic-platform, but requires change in the overall institutional design for electronic shareholder meetings, together with the computerization and online-accessibility of documents for AGMs,.

Before it’s here, it’s on Smartkarma

May 01

Japan: Hitachi Transport System and more

In today’s briefing:

Asia-Pac Weekly Risk Arb Wrap: Hitachi Transport, SPH Reit, Toyo Construction, True/DTAC

Asia-Pac Weekly Risk Arb Wrap: Hitachi Transport, SPH Reit, Toyo Construction, True/DTAC

By David Blennerhassett

There are 36 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Five new deals this week involving Hitachi Transport (9086 JP), Lanzhou Zhuangyuan Pasture (1533 HK), Beijing Enterprises Urban (3718 HK), SPH REIT (SPHREIT SP), and Shin Keisei Electric Railway (9014 JP).
Key updates took place for: Western Areas (WSA AU), Guodian Technology & Environment Group (1296 HK), Toyo Construction (1890 JP), True Corp (TRUE TB) / Total Access Communication (DTAC TB).

Before it’s here, it’s on Smartkarma

Apr 30

Japan: Bank of Kyoto, Lasertec Corp, Shin Keisei Electric Railway, Advantest Corp, Pan Pacific International Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

JAPAN ACTIVISM: Silchester Goes After Bank of Kyoto
Lasertec – A Miss At Stratospheric Valuations But That Isn’t Even The Biggest Problem
Keisei-Shin Keisei: Merger Seems like a Done Deal
Advantest (6857 JP): Orders Unsustainable, Cyclical Risk High
Donki: New Formats, More Growth
Japan’s Governance: About an Article on Companies to Which Transitional Measures Are Applied

JAPAN ACTIVISM: Silchester Goes After Bank of Kyoto

Silchester International Investors has owned Bank of Kyoto (8369 JP) for 16 years and is now the largest shareholder in the bank.
They have been dissatisfied, become vocal behind the scenes with their dissatisfaction, and BoK management disagrees so they will go to the mattresses. Gently.
This could get some investors excited, but it is unlikely to be a successful activist effort.

Lasertec – A Miss At Stratospheric Valuations But That Isn’t Even The Biggest Problem

Lasertec’s 3Q disappointed as revenue of ¥16.6bn materially undershoot consensus estimates of ¥26.6bn but given quarterly volatility in deliveries and acceptances that is understandable.
What is more concerning is the emerging picture of gross margin decline which the company had previously warned about.
Given inflated valuations these small negatives together with no guidance raise could drive a continued correction.

Keisei-Shin Keisei: Merger Seems like a Done Deal

By Janaghan Jeyakumar, CFA

Japan-Based Railway Company Keisei Electric Railway Co (9009 JP) (“Keisei”) and its 44.64%-owned equity method affiliate Shin Keisei Electric Railway (9014 JP) (“Shin Keisei”) have signed a Share Exchange Agreement.
Shin Keisei Shareholders will receive 0.82 Keisei Shares per Shin Keisei Share. Following the completion of this Deal, Shin Keisei will become a wholly-owned subsidiary of Keisei.
Below is a closer look at the details of this Transaction and the likelihood of Deal Completion.

Advantest (6857 JP): Orders Unsustainable, Cyclical Risk High

By Scott Foster

The recent surge in IC test equipment orders is unsustainable. Only service orders maintain a positive trend.
After peaking this fiscal year, sales and profits are likely to show double-digit declines. When earnings might hit bottom is not clear, but cyclical gearing is high.
Earnings could rebound in 2 or 3 years, but visibility is poor. Don’t forget that Advantest has dropped into the red three times in the past 20 years.

Donki: New Formats, More Growth

By Michael Causton

PPI has begun roll out of new, specialty food stores designed to slot into a variety of shopping malls.
On the surface, these stores look like mini-Don Quijote stores, emphasising low prices and a dazzling density of product, but focused on sweets, liquor, cosmetics, or a combination.
Expansion will help reach new customers, reduce the expense of opening new stores, and help with building scale for private brands.

Japan’s Governance: About an Article on Companies to Which Transitional Measures Are Applied

Since all 9 companies have low foreign shareholding ratios due to the presence of large shareholders, a shortcut to increasing stock price performance is to increase the foreign shareholding ratio.
Unless it’s feasible to reduce stake of major shareholders, the key will be to raise ROA, which is correlated with valuations, so growth policy and capital allocation must be clarified.
For long-term investors, continued increase in the % independent directors is also helpful. The stock performance of these companies will likely vary in the future depending on the measures taken.

Before it’s here, it’s on Smartkarma