Japan

In today’s briefing:

Renesas (6723 JP) – On Top of Peer-Beating Growth, and Valuation… Watch for Buybacks
Euglena (2931 JP) | Flying High on Sustainable Aviation Fuel
Beenos Valuation: SOTP Suggests Plenty of Upside Potential
Rakuten (4755 JP) | Time to Cover the Shorts

Renesas (6723 JP) – On Top of Peer-Beating Growth, and Valuation… Watch for Buybacks

A bit over a year ago Renesas Electronics (6723 JP) announced its transaction to buy Dialog Semiconductor (DLG GR) for €4.8bn (roughly ¥624bn) and the transaction closed end-August 2021.
In September, Renesas announced a “Progress Update” covering various business segments, expectations for supply in the sector, and eventual “shareholder return” policy.
This past week the Nikkei carried an article talking about a possible stock buyback later this year. I explore.

Euglena (2931 JP) | Flying High on Sustainable Aviation Fuel

Euglena could be the most important sustainable aviation fuel company in Japan and a world leader in using micro algae as a feedstock
The company looks set to become the largest provider of SAF in Japan by 2025
Assuming the company can hit its commercial SAF production target, we think the stock could easily double

Beenos Valuation: SOTP Suggests Plenty of Upside Potential

By Oshadhi Kumarasiri

Leading up to the GoTo IPO, Beenos Inc (3328 JP) shares rallied more than 80% to ¥2,364 per share, possibly expecting substantial listing gains from the “conservatively” priced GoTo IPO.
GoTo (GOTO IJ) opened around 18% above its IPO price on 11th April 2022, but Beenos fell by around 7% and 8% on 11th and 12th April 2022 respectively.
It may be too late to ride the GoTo IPO rally, but exposure to a high-profile company like GoTo brings visibility, resulting in a much narrower NAV discount.

Rakuten (4755 JP) | Time to Cover the Shorts

We have a non-consensus Bullish call on Rakuten and see over 60% upside to the share price
The key driver will be a recovery in the Mobile Business
We expect losses to gradually improve as roaming fees and customer acquisition costs start to decline

Before it’s here, it’s on Smartkarma

Apr 18

Japan: Shimano Inc, Demae-Can Co., Ltd. and more

In today’s briefing:

Shimano (7309): Bumpy
Japan’s Governance: Demae-Can (2484) 2QFY8/2022 Briefing

Shimano (7309): Bumpy

By Henry Soediarko

Giant Manufacturing (9921 TT) , one of Shimano’s top customers, is reportedly having a production issue and can only sort it out by the end of this year.
Shimano Inc (7309 JP) is no longer Japan-centric but a global company with customers all over the world.
Low valuation gives an illusion that it is cheap historically but expects a bumpy road ahead.

Japan’s Governance: Demae-Can (2484) 2QFY8/2022 Briefing

The E-Commerce Model, which is a source of revenue, is seeing a decline in profit margins while marketing costs remain high.
In the Delivery Model, the profitability of Outsourced Delivery is improving, but it has yet to break even. Demae-Can intends to seek opportunities in retail delivery to accelerate break-even process.
Demae-Can plans to achieve the operating loss for FY8/2022 to 50 billion yen, but hasn’t indicated when it returns to black-ink due to the competitive environment in food delivery business.

Before it’s here, it’s on Smartkarma

Apr 17

Japan: Toyo Construction and more

In today’s briefing:

Asia-Pac Weekly Risk Arb Wrap: Excelpoint, Tri Stage, Toyo, Uniti, Western Areas, Suchuang Gas

Asia-Pac Weekly Risk Arb Wrap: Excelpoint, Tri Stage, Toyo, Uniti, Western Areas, Suchuang Gas

By David Blennerhassett

There are 35 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals this week: WT Microelectronics (3036 TT)‘s tilt for Excelpoint Technology (EXLP SP); Bain’s MBO for Tri Stage Inc (2178 JP).
Key updates took place for: Toyo Construction (1890 JP), Uniti Group Ltd (UWL AU), Western Areas (WSA AU), and Suchuang Gas Corp (1430 HK).

Before it’s here, it’s on Smartkarma

Apr 16

Japan: Fast Retailing, Square Enix Holdings, SanBio Co Ltd, Money Forward and more

In today’s briefing:

Fast Retailing (9983) – Summer Is the Time for Shorts
Square Enix – Kingdom Hearts 4 and the Implications for Next Year’s Pipeline
SanBio (4592 JP): Marketing Approval of First Product Expected This Year in Japan
Money Forward Q1 22 Results: Mixed Quarter but Underlying KPIs Solid
Fast Retailing: New Growth Pillar May Not Be Strong Enough to Support the Weight of Valuation

Fast Retailing (9983) – Summer Is the Time for Shorts

Interim results were surprisingly strong considering the headwinds from China and rising costs
2H guidance looks optimistic. China remains a key risk and we still see risks to the gross margin
The “R” word. Rising inflation, Rising Interest rates = Recession. Probably not good for consumers and certainly not good for high stock multiples

Square Enix – Kingdom Hearts 4 and the Implications for Next Year’s Pipeline

By Mio Kato

Square Enix held their 20th anniversary event for Kingdom Heart over the weekend announcing a number of mobile titles as well the next mainline title Kingdom Hearts 4.
While a release date was not offered we would expect a launch during the next fiscal year.
Just as importantly, the announcement lends added weight to already leaked information on the company’s upcoming pipeline.

SanBio (4592 JP): Marketing Approval of First Product Expected This Year in Japan

By Tina Banerjee

SanBio Co Ltd (4592 JP) is expected to receive approval for its first regenerative cell medicine SB623 for treating chronic motor deficit from traumatic brain injury in Japan this year.
SB623, with current and future indication approvals, is targeting a large patient population of more than 50 million in major pharmaceutical markets globally. The indications have large unmet need.
SanBio has a pipeline of five other pre-clinical drug candidates, entailing visibility beyond SB623.

Money Forward Q1 22 Results: Mixed Quarter but Underlying KPIs Solid

By Kirk Boodry

Money Forward (3994 JP) posted solid Q1 financial results as revenue growth rebounded and EBITDA losses were within management’s forecast
But revenue guidance for Q2 was weaker than expected and represents the lowest YoY growth to date which has raised questions on the effectiveness of marketing spend
Full year guidance remains intact and the company expects that underlying growth in recurring revenue to remain robust which is positive for the long term thesis

Fast Retailing: New Growth Pillar May Not Be Strong Enough to Support the Weight of Valuation

By Oshadhi Kumarasiri

Even though 2QFY22 results were broadly in line with consensus, Fast Retailing (9983 JP)’s share price rose 8.8% as markets expected the worst amidst the Russian controversy and Shanghai lockdowns.
However, this price movement seems unwarranted given the impact of Shanghai lockdowns could only be seen in the 3QFY22 financial statements.
During earnings, FR introduced North America & Europe as new growth drivers to replace the declining Chinese market. But we are not convinced that they are up to the task.

Before it’s here, it’s on Smartkarma

Apr 15

Japan: Toyo Construction, Visional Inc, Lawson Inc, Mitsubishi Electric, Baycurrent Consulting, SolarEdge Technologies Inc, Tokyo Stock Exchange Tokyo Price Index Topix, S Foods Inc and more

In today’s briefing:

ToyoKen (1890) Mystery Bidder Is Yamauchi No. 10 Family Office – And That Changes Things
Visional IPO Lock-Up – Shares Have Performed Well, a Small Lock-Up Expiry to Look At
Lawson Considering IPO for Seijo Ishii
Mitsubishi Electric (6503 JP): Buy on Weakness for the Long Term
BayCurrent: Strong Results but Guidance Seems Too Conservative
ClearBridge International Growth ADR Strategy Portfolio Manager Commentary Q1 2022
BayCurrent (6532) A Consulting Powerhouse Growing in the Double Digits
Japan’s Governance: About the Article on Outside Directors
ClearBridge International Growth EAFE Strategy Portfolio Manager Commentary Q1 2022
S Foods (2292): Record Profits in FY2/22; FY2/23 Guidance Calls for NP of 10bn Yen and Dividend Hike

ToyoKen (1890) Mystery Bidder Is Yamauchi No. 10 Family Office – And That Changes Things

By Shifara Samsudeen, ACMA, CGMA

A Nikkei article this morning says the mystery bidder behind WK1/2/3 Limited is Nintendo founding family’s Yamauchi No.10 Family Office. This changes things more than just knowing their identity does.
To start, their website is the most fun investment management company website I have come across. It’s great. https://y-n10.com/. It’s also well worth reading. It’s also worth noting their history.
Understanding the parameters here is key to understanding possible next steps.

Visional IPO Lock-Up – Shares Have Performed Well, a Small Lock-Up Expiry to Look At

By Clarence Chu

Visional Inc (4194 JP) had raised US$609m in its Japan IPO in April 2021, where it had been priced at the top end after books were reportedly multiple times covered.
Visional is a HR technology company based in Japan. The company operates BizReach, an online recruiting platform that helps to connect professional job seekers to direct employers and third-party recruiters.
The Pre-IPO shareholder, YJ2 Investment, will be released from its lockup on 16th Apr 2022, 360 days post-listing.

Lawson Considering IPO for Seijo Ishii

By Michael Causton

Lawson Inc (2651 JP) acquired the upmarket supermarket operator, Seijo Ishii, in 2014 for ¥55 billion.
It is now considering plans for an IPO for Seijo next year following a boom in the company’s fortunes during the pandemic.
Net profit rose 13% last year and the potential for growth remains strong given the expansion of the wealth market in Japan.

Mitsubishi Electric (6503 JP): Buy on Weakness for the Long Term

By Scott Foster

Investing in factory automation, power semiconductors and electric vehicle motors on a long-term view while interest rates rise and the economy weakens.
Difficult operating environment now: Factory automation turning down; automotive hit by high materials costs and the semiconductor shortage.
Share price down 25% from its 52-week high. Selling at 14x FY Mar-22 EPS guidance after a downward revision, which compares with a 9x – 20x 5-year P/E range.

BayCurrent: Strong Results but Guidance Seems Too Conservative

Baycurrent Consulting (6532 JP) reported 4QFY02/2022 results today. Revenue grew 30.9% YoY to JPY16.2bn while OP increased 61.3% YoY to JPY6.8bn.
Full-Year FY02/2022 revenues grew 34.4% YoY to JPY57.6bn and OP increased 58.7% YoY to JPY21.5bn. Both revenue and OP beat guidance by 1.9% and 2.4% respectively.
BayCurrent’s shares are down 30% since its peak in September 2021, and we think current share price offers a good entry point.

ClearBridge International Growth ADR Strategy Portfolio Manager Commentary Q1 2022

By Fund Newsletters

International equities were faced with numerous risks in the first quarter, ranging from resurging COVID-19 cases in large geographies like China to inflation and potential monetary tightening globally
Europe was most directly impacted by the conflict as crude oil and natural gas prices spiked and already-challenged supply chains were further pressured
One of the key drivers of the rotation from growth to value stocks was action in the bond market

BayCurrent (6532) A Consulting Powerhouse Growing in the Double Digits

Another excellent set of results which supports our bullish view on the stock
BayCurrent is a key enabler of DX in Japan and a beneficiary of the tight labour market
The stock is down around 30% from its all-time high. Growth investors should be picking up stock

Japan’s Governance: About the Article on Outside Directors

I would like to consider the issues in the Nikkei article regarding outside directors, based on a survey by Ministry of Economy, Trade and Industry.
Compensation for outside directors is on the rise, but it’s higher for larger companies and differs from that of medium-sized companies. There are also issues regarding the disclosure of compensation.
Personal ties to management is the motivation for 22% of respondents to become outside directors. There is also gap between what the company seeks and what the outside director thinks.

ClearBridge International Growth EAFE Strategy Portfolio Manager Commentary Q1 2022

By Fund Newsletters

ClearBridge is a leading global asset manager committed to active management.
ClearBridge believes Europe has the support structures and spending capacity to avoid a recession and keep an incipient post-COVID-19 recovery intact.
We were active in repositioning the portfolio to better manage the volatile risk/reward environment in international markets.

S Foods (2292): Record Profits in FY2/22; FY2/23 Guidance Calls for NP of 10bn Yen and Dividend Hike

On April 14, S Foods (2292, the company) announced FY2/22 sales of 358.8bn yen (+9.6% YoY) and OP of 17.4bn yen (+38.2% YoY, OPM 4.9%)
The company’s full-year guidance for FY2/23 is sales of 375.0bn yen (+4.5% YoY), OP of 14.8bn yen (-15.1% YoY; OPM 3.9%), and NP of 10.0bn yen (-16.3% YoY)
The company’s strong performance in the U.S. should make it a relatively strong performer among major meatpackers.

Before it’s here, it’s on Smartkarma

Apr 14

Japan: Suzuki Motor, Softbank Group, Money Forward, Honda Motor, Tokyo Stock Exchange Tokyo Price Index Topix, Shift Inc, Koshidaka Holdings, KOMEDA Holdings Co Ltd and more

In today’s briefing:

Suzuki’s NAV Discount And Implied Stub Plumb New Lows. Again
Softbank Group Sale of TMUS Shares Helps Modestly With Leverage Concerns
Money Forward (3994) – Surprisingly Strong SaaS Sales
Honda – EV Briefing Raises Some Interesting Questions
Japan’s Governance: About the Article on the March Shareholders’ Meeting Companies Update
Shift 2Q Results: Earnings Beat with Further Upgrade to Full-Year Guidance
Money Forward (3994): 1Q SaaS ARR on Steady Growth, Upfront Investments Lagging
Money Forward: SAAS Model Begins to Take-Off but Interpret 1Q Results with Caution
Koshidaka Holdings (2157): 1H OP Turns to Positive; Significant Store Expansion
Komeda Holdings (3543): FY2/22 OP Achieved Guidance

Suzuki’s NAV Discount And Implied Stub Plumb New Lows. Again

By David Blennerhassett

Suzuki Motor (7269 JP)‘s implied stub and simple ratio (Suzuki/ Maruti Suzuki India (MSIL IN)) are currently at all-time lows.
This bifurcation has become endemic in the relative value space, especially in Japan.
Maruti is trading rich amid its ongoing support for hybrid vehicles. That scenario won’t play out well.

Softbank Group Sale of TMUS Shares Helps Modestly With Leverage Concerns

By Kirk Boodry

Softbank has raised $2.4bn (¥300bn) from the sale of TMUS shares to DT with proceeds likely earmarked for VF2 and possibly supporting ongoing share buybacks
The sale price is below market but surfacing cash is the more positive takeaway and should ease concerns on leverage that have lingered as tech valuations fall
The impact on the discount to NAV is likely to be weaker than the reaction to the TMUS/DT monetization in August/September

Money Forward (3994) – Surprisingly Strong SaaS Sales

Q1 results are better than expected, achieving record-high quarterly growth in SaaS revenue
Growth is driven by Corporate Customer ARR, which rose by 47% YoY
For growth investors, Money Forward is out top pick in Japan

Honda – EV Briefing Raises Some Interesting Questions

By Mio Kato

Honda’s Briefing on its Automobile Electrification Business yesterday laid out a reasonably aggressive EV rollout plan emphasising some existing partnerships.
It also highlighted that they would procure batteries domestically from Envision AESC.
That is another move that takes Honda a step closer to Nissan’s supply chain and has us pondering a potential merger/partnership once again.

Japan’s Governance: About the Article on the March Shareholders’ Meeting Companies Update

By Shifara Samsudeen, ACMA, CGMA

Regarding the Nikkei’s article on the survey of companies with December fiscal year end shows that companies shifting to prime market have noticeably improved corporate governance, I considered the issues.
The reason of lifting % independent directors is because the prime market listing criteria included the ratio be at least 1/3, and many companies have raised it to that minimum.
The objective of the skills matrix isn’t to create a skills matrix, but rather that it’s a means to identify and recruit the human resources required for the future growth.

Shift 2Q Results: Earnings Beat with Further Upgrade to Full-Year Guidance

Shift Inc (3697 JP) reported 2QFY08/2022 results last week. Revenue grew 43.5% YoY to JPY15.6bn (vs consensus JPY15.2bn) while OP 99.2% YoY to JPY1.9bn (vs consensus JPY1.1bn).
Both enterprise and entertainment markets saw strong growth in revenue while GPM of enterprise biz further expanded during the quarter.
Shift’s share price has moved up by about 16% since its results announcement and we think there is further upside.

Money Forward (3994): 1Q SaaS ARR on Steady Growth, Upfront Investments Lagging

By Shifara Samsudeen, ACMA, CGMA

On April 13, Money Forward (3994, the company) announced 1Q (Dec-Feb) FY11/22 sales of 4.756bn yen (+37.2% YoY), EBITDA of -1.159bn yen (vs. 358m yen for 1Q FY11/21)
Our 1Q earnings forecasts were sales of 4.363bn yen, EBITDA of -2.239bn yen, OP of -2.683bn yen, and SaaS ARR of 12.537bn yen
SaaS ARR of 12.904bn yen includes 8.727bn yen for Business domain corporate customers (+46.7% YoY), 1.264bn yen for Business domain sole proprietors (+35.0% YoY)

Money Forward: SAAS Model Begins to Take-Off but Interpret 1Q Results with Caution

Money Forward (3994 JP) reported 1QFY11/2022 results yesterday. 1Q revenue grew 37.0% YoY to JPY4.8bn and beat consensus estimates by 4.4%.
Operating losses for the quarter was JPY1.6bn and accounted for around 34.7% of revenues during the period.
MF’s SAAS model has started taking-off, we would highlight that string user growth comes at the cost of heavy advertising and subsidies.

Koshidaka Holdings (2157): 1H OP Turns to Positive; Significant Store Expansion

On April 13, Koshida Holdings (2157, the company) announced 1H FY8/22 sales of 16.533bn yen (+36.5% YoY), OP of 275m yen (-2.644bn yen loss in 1H FY8/21)
2Q (Dec-Feb) OP was 1.406bn yen (-1.661bn yen loss in 2Q FY8/21), a significant improvement from 1Q OP of -1.131bn yen
The total number of stores for the karaoke business at end-2Q was 584 (+7 from end-1Q; +25 from end-FY8/21)

Komeda Holdings (3543): FY2/22 OP Achieved Guidance

On April 13, Komeda Holdings (3543) announced FY2/22 full-year IFRS sales of 33.317bn (+15.5% YoY) and OP of 7.305bn (+32.6% YoY; OPM 21.9%)
4Q (Dec-Feb) OP was 1.458bn yen (+17.9% YoY, -28.8% QoQ), with OPM of 16.8% (16.3% for 4Q FY2/21; 24.8% for 3Q)
The company’s full-year guidance for FY2/23 is sales of 37bn (+11.1% YoY) and OP of 8bn yen (+9.5% YoY, OPM 21.6%)

Before it’s here, it’s on Smartkarma

Apr 13

Japan: Park24 Co Ltd, Tri Stage Inc, Tokyo Electron, Toyo Construction, Sony Corp, Lawson Inc, Goldwin Inc, Tokyo Stock Exchange Tokyo Price Index Topix, Ohsho Food Service and more

In today’s briefing:

Park24 Placement – Large Deal to Digest and a Long Settlement Period
Tri-Stage (2178 JP) MBO by Bain – Another Lowball Takeover Likely To Get Done
Tokyo Electron (8035 JP): Delays and Uncertainty
Toyo Construction (1890) – Mystery Holders Now 17% (Or More)
Sony – An Epic Funding Round
Lawson: Profitability Held Back by Growth Investments
Goldwin Expecting Record Sales
Japan’s Governance: About an Article on Board Chair
Ohsho Food Service (9936): Earnings Forecast Update.

Park24 Placement – Large Deal to Digest and a Long Settlement Period

By Clarence Chu

Park24 Co Ltd (4666 JP) aims to raise around JPY25.5bn (US$210m) via selling 16m new shares at a fixed price of JPY1,644, representing a 9.9% discount to last close.
Proceeds from the deal will be geared towards digital investment towards improving the firm’s business efficiency and for expanding its mobility fleet.
In this note, we will talk about the firm’s track record and run the deal through our ECM framework.

Tri-Stage (2178 JP) MBO by Bain – Another Lowball Takeover Likely To Get Done

Bain is getting the major execs to tender, and rolling Sojitz Corp (2768 JP)‘s 23% into the post-Tender EGM vote. That gets them to 57+%. No majority of minority here.
But the equity check appears to be about 0.06x revenue, 4-5x PER, and takeover price EV at 4+ish years of forecast EBITDA. It’s a good rollup for its ads business.
Too cheap, but not much you can do about it. Foreigners and financial holders own less than 0.5% of shares out.

Tokyo Electron (8035 JP): Delays and Uncertainty

By Scott Foster

As of February, TEL expected the global wafer fab equipment market to grow by nearly 20% in calendar 2022. This seems increasingly unlikely.
Japanese data shows equipment demand leveling off while the economic situation deteriorates and semiconductor capacity expansion projects are delayed.
The shares have dropped 22% since the beginning of January and are now selling at 20x management’s EPS guidance for FY Mar-22. Not cheap in historical terms.

Toyo Construction (1890) – Mystery Holders Now 17% (Or More)

WK 1-3 Limited are now (as of a week ago) 17.34% of Toyo Construction’s share register. They bought 40+% of volume in the relevant period, as I suggested they might.
On a realtime basis, they could be 20+%, but because no single entity is there they would not become top shareholder as a triumvirate.
I offer consolidated thoughts and like the idea of buying the dip.

Sony – An Epic Funding Round

By Mio Kato

Sony and LEGO’s investment in Epic comes shortly after the official release of Unreal Engine 5 which promises to significantly improve efficiency for game designers and visual effects artists.
We had predicted that Sony and Epic would continue to drift closer and would eventually dominate the metaverse and this does nothing to change that view.
We discuss below the impact on some popular metaverse plays which investors seem to fail to realise are only metaverse plays because they can be shorted.

Lawson: Profitability Held Back by Growth Investments

By Oshadhi Kumarasiri

The fourth quarter was again a disappointing one for Lawson Inc (2651 JP) with operating income falling short of consensus by 14.6%.
The next year’s OP guidance of ¥53.0bn (12.5% YoY) is around ¥10.0bn below the pre-COVID level, but Lawson’s lower profitability could be due to heavy upfront investments.
Further out, there is substantial upside to Lawson’s profitability and consensus could be unjustly penalizing Lawson’s growth investments by valuing the company at a discounted FY+2 OP multiple.

Goldwin Expecting Record Sales

By Michael Causton

Goldwin Inc (8111 JP) has risen to hold a leading share in outdoor wear retailing on the back of the success of The North Face.
It has developed considerable retail and marketing skills in the process and is now applying these to its own brand with hopes of going global.
Demand for new forms of sports and outdoor brand remain strong in Japan and globally and Goldwin’s mix of technical fabrics and quality could give it an edge.

Japan’s Governance: About an Article on Board Chair

This article will explore the differences in Metrical Universe 1,798 companies depending on whether the board of directors is chaired by an independent director referred to Nikkei’s report.
Companies where an independent director chairs the board of directors have had mixed responses, with some practices considered not always positive in board practices.
In key practices, these companies are commendable in their approach, but many of them are not linked to profitability in terms of ROE and ROA, which doesn’t enhance the valuation.

Ohsho Food Service (9936): Earnings Forecast Update.

We update our earnings forecast for Ohsho Food Service (9936, the company) and fine-tune our target price to 7,200 yen
On January 31, the company announced 1-3Q OP of 5.0bn yen (OPM 8.0%), +8.6% YoY despite the pandemic, progressing 72% toward the full-year guidance of 7.0bn yen
We lower our FY3/22 OP forecast from 7.5bn yen to 6.6bn yen (+8.8% YoY; OPM 7.8%; company guidance 7.0bn yen), but raise our RP forecast significantly from 8.8bn yen to 12.7bn yen (company guidance 11.5bn yen) assuming an upturn in subsidy income

Before it’s here, it’s on Smartkarma

Apr 12

Japan: Japan Post Insurance, NTT (Nippon Telegraph & Telephone), PHC Holdings, Kohnan Shoji, MonotaRO Co Ltd, Monogatari Corp, KOMEDA Holdings Co Ltd and more

In today’s briefing:

Topix FFW Transition – Insurance Sector a Big Net Sell
Strong Telecom Flows in TOPIX FFW Transition Months
PHC Holdings IPO Lock-Up – Stock Might Be Cheap but It’s Stuck with a US$1bn Overhang
Kohnan Shoji (7516) Buyback – Shareholder Return? Activist Defense? Future MBO? All of the Above?
MonotaRO (3064): Neutral Impression on March Sales; Effects of Price Hikes Appearing
Monogatari Corporation (3097): Signs of Recovery Among Senior Customers at Yuzuan
Komeda Holdings (3543): Wholesale Sales on a Recovery Track in March; Food Service Industry Update

Topix FFW Transition – Insurance Sector a Big Net Sell

The TOPIX Insurance Sector sees the worst net flows as a percentage of index weight among the 33 sectors in the April-June FFW Transition.
On a net basis, rebalance flows favour Japan Post Insurance (7181 JP) vs T&D Holdings (8795 JP) (finishing a buyback) and Dai Ichi Life Insurance (8750 JP) (just finished).
JPI has underperformed both over the last three years despite growing BVPS by more. And earnings should be a blowout.

Strong Telecom Flows in TOPIX FFW Transition Months

The April-June TSE FFW Methodology Revision moves favour certain sectors over others. There is nearly ¥500bn of telecom stocks to buy with 60+% of that in four names.
Other factors may support some of the names as well.
There is enough excess buying to warrant trading tilts and keeping fundamental positions even as forward earnings multiples have expanded to multi-year highs.

PHC Holdings IPO Lock-Up – Stock Might Be Cheap but It’s Stuck with a US$1bn Overhang

By Sumeet Singh

PHC Holding had raised US$645m in its Japan IPO in Oct 2021, after the deal was downsized and priced at the low-end.
PHC is engaged in the development, manufacturing and sale of healthcare devices and services. The company has three main segments: Diabetes Management; Healthcare Services; and Diagnosis/Life Science.
The pre-IPO shareholders will be released from the lockup today on 11th Apr 2022. Its largest shareholder is KKR, who still owns a 39% stake in the company.

Kohnan Shoji (7516) Buyback – Shareholder Return? Activist Defense? Future MBO? All of the Above?

Yesterday after the close, 500+ store home centre operator Kohnan Shoji (7516 JP) announced full-year earnings (revs -0.2%, OP -16.6%, NP -16.4%yoy) and a buyback.
The buyback is for up to 1.2mm shares and up to ¥4bn to spend from here to end Sep 2022.
The shareholder register is interesting, diverse, and makes one wonder whether the buyback is to soften the blow of lower income, defence against an activist, or something else.

MonotaRO (3064): Neutral Impression on March Sales; Effects of Price Hikes Appearing

Parent company sales in March were 19.771bn yen (+17.4% YoY), slightly below the company’s monthly target
The number of business days was 22, one day less than in March 2021. The sales growth rate per business day was +22.7% YoY (+21.4% for February).
Sales to SMEs (monotaro.com) increased by around +13% YoY, below the company’s target.

Monogatari Corporation (3097): Signs of Recovery Among Senior Customers at Yuzuan

Same-store sales for directly-owned stores were 108.2% vs. March 2021 (102.9% for February), 94.0% vs. March 2020 (70.2% for February)
The business environment was unfavorable for the company which mainly operates all- you can-eat restaurant formats, as requests for shorter operating hours continued until mid-March
However, we have the impression that the company did well despite the difficult business environment

Komeda Holdings (3543): Wholesale Sales on a Recovery Track in March; Food Service Industry Update

Wholesale sales to franchisees (same-store basis) in March were 103.0% vs. March 2021 (97.2% for February)
We have the impression that in-store dining sales have been improving generally due to lifting of the shorter operating hours requests
It appears that the market responded positively to the lifting of the shorter operating hour requests in late March

Before it’s here, it’s on Smartkarma

Apr 11

Japan: NTT (Nippon Telegraph & Telephone), Fanuc Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

TOPIX FFW Transition – Big Flows from April to June
Fanuc (6954) – Forget Yaskawa…a Slowdown Is Coming
Japan’s Governance: About an Article on IR Disclosure

TOPIX FFW Transition – Big Flows from April to June

By Brian Freitas

On 7 April, the JPX announced the changes to the Free Float Weights (FFW) for the TOPIX Index. There are some big changes due to the updated FFW methodology.
From April to June, we see a one-way turnover of 2.87% and a one-way trade of ¥2,285bn. Some stocks have opposite way flows in different months.
Stocks with inflows outperformed stocks with outflows from Oct-Dec 2021 before giving up all the gains. These stocks have started to outperform and could continue outperforming over the next quarter.

Fanuc (6954) – Forget Yaskawa…a Slowdown Is Coming

We are bearish on Fanuc. Yaskawa’s robotics orders were strong but Fanuc is more correlated with machine tool orders
Machine Tool orders have already turned south and Fanuc is losing momentum in its order growth
If we are right on the cycle, we expect Fanuc to trade down to 2.3x book value, 20% downside risk from here

Japan’s Governance: About an Article on IR Disclosure

Trust banks enhance their services to support IR-disclosure for mid-sized companies. These services include surveying institutional investors and reporting their opinions to the company, as well as searching substantial shareholder.
Medium-Sized companies have been reluctant to make IR disclosures and are eager to deepen their access to institutional investors.
This is due to the fact that companies that have not been able to meet the prime market listing criteria are faced with the need to increase their market capitalization.

Before it’s here, it’s on Smartkarma

Apr 10

Japan: NTT (Nippon Telegraph & Telephone), Toshiba Corp and more

In today’s briefing:

The BIGLY TOPIX April 2022 Rebalance – $20bn One-Way Split Over 3 Months
Last Week in Event SPACE: Toshiba, Pendal, HDFC Bank, YZJ Shipbuilding, BHP, Virtus

The BIGLY TOPIX April 2022 Rebalance – $20bn One-Way Split Over 3 Months

The TSE launched its new cash equity market structure earlier this week. The TOPIX Index changes include a one-off FFW Methodology Review, where results were announced today.
The changes announced today go part-way to fixing float issues, but there will be follow-on changes in October, and one should expect companies to react with share cancellations.
The big gainer in this TOPIX rebal is NTT (Nippon Telegraph & Telephone) (9432 JP). There are a fair number of “losers.” The 3-month total trade is about ¥2.3trln one-way.

Last Week in Event SPACE: Toshiba, Pendal, HDFC Bank, YZJ Shipbuilding, BHP, Virtus

By David Blennerhassett

#2 shareholder and erstwhile activist 3D Investment Partners writes a letter to Toshiba Corp (6502 JP)‘s Board demanding 3 measures before the AGM.
Pendal Group (PDL AU) is assessing Perpetual’s cash/scrip Offer provides an indicative price of $6.23/share; however, the wording in the announcement suggests the bid is opportunistic and will be rejected.
Because of rising regulatory requirements for NBFCs, a HDFC Bank (HDFCB IN) /HDFC Limited (HDFC IN) was to be expected at some point.

Before it’s here, it’s on Smartkarma