Japan

In today’s briefing:

Softbank Group – A Strong Dollar Is Good News with 87% of Assets Overseas

Softbank Group – A Strong Dollar Is Good News with 87% of Assets Overseas

By Kirk Boodry

Shares are now up 1% in the quarter despite investment losses as 87% of assets are US$-linked
A recovery for Alibaba, reports of ARM monetization and the $2bn sale of its stake in Cruise has eased leverage concerns with LTV back to 22% and CDS prices falling
This report includes detail on Softbank dollar exposure, calculations for LTV on a quarterly and daily basis and updates to our usual NAV discount/VF performance tables

Before it’s here, it’s on Smartkarma

Mar 29

Japan: Mazda Motor, Monex Group Inc and more

In today’s briefing:

Mazda – A Buy As The Yen Weakens With The BOJ Trapped
Japan’s Governance: About the Article on Monex Group (8698)

Mazda – A Buy As The Yen Weakens With The BOJ Trapped

With the BOJ being forced to step in to hold 10 year rates under 0.25% today the yen is under increasing pressure.
There are naturally a variety of stocks which are likely to benefit from this multi-decade breakout of the yen dollar.
Mazda is one of the best plays here in our view and we lay out the rather simple case below.

Japan’s Governance: About the Article on Monex Group (8698)

By Aki Matsumoto

In the previous “About the Article on Activist,” I mentioned a little about the Monex Group, and will focus on Monex Group again regarding the coverage of the Nikkei article.
Monex Group is generally aligned with its shareholders’ objective of sustainable growth in shareholder interest, and Oasis will remain static for the time being to see if stock returns materialize.
Monex also has generally strong board practices, plans its growth policy on a balance between investment in growth and shareholder returns, and is open to communication with investors.

Before it’s here, it’s on Smartkarma

Mar 28

Japan: Daiho Corp, Toshiba Corp, Appier Group Inc, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Daiho Corp (1822) A GIANT Transaction Which Is Not What It Looks Like. Smells Bad.
Toshiba (6502 JP): National Security Overrides the Interests of Speculators
Appier (4180 JP) – Eating the Cookie Crumbs
Japan’s Governance: About the Article on Activist

Daiho Corp (1822) A GIANT Transaction Which Is Not What It Looks Like. Smells Bad.

Daiho Corp (1822 JP) has announced a deal which is not quite what it looks like.
And despite a buyback of more than 50% of shares outstanding, and an “accretive” sale to another party at a higher price, it is a governance disaster.
And existing shareholders have an out, but it is complicated. If you own the stock, or you look at risk arb, or activism, this may be worth a read.

Toshiba (6502 JP): National Security Overrides the Interests of Speculators

By Scott Foster

Toshiba possesses technologies of vital importance to Japan’s economic competitiveness and national security: nuclear power, quantum cryptography and discrete semiconductors.
Any changes in ownership or management that would undermine or leak these technologies would probably not be tolerated.
LightStream’s Mio Kato writes that Toshiba itself is attractive but the drama surrounding it is decidedly looking bad for business. He remains negative on the stock.

Appier (4180 JP) – Eating the Cookie Crumbs

By Mark Chadwick

The stock is down 54% over the past year despite 41% revenue growth. We see 3 key drivers in 2022.
Appier is growing rapidly in the US, a much bigger market than its home market of North Asia.
Appier is at the forefront of digital transformation, benefitting from structural DX of marketing functions and increased use of 1st party data.

Japan’s Governance: About the Article on Activist

By Aki Matsumoto

This article will discuss points with reference to the March 16 Nikkei article and focused on the corporate governance practices of companies in which activists have recently raised their shareholdings.
It isn’t reasonable to link the investment activity of activists to the number of M&As, nor is it reasonable to discuss their performance over a short period in their mandate.
Looking at the corporate governance status of the portfolio companies, excluding Monex Group, which generally responds well to many of the criteria, these companies are facing some challenges.

Before it’s here, it’s on Smartkarma

Mar 27

Japan: Toshiba Corp and more

In today’s briefing:

Last Week in Event SPACE: Toshiba, Mapletree, Link Admin, Cayman’s Headcount, Razer, Crown Resorts

Last Week in Event SPACE: Toshiba, Mapletree, Link Admin, Cayman’s Headcount, Razer, Crown Resorts

By David Blennerhassett

Toshiba (6502 JP)‘s activists are stuck. So are management. 3+ years since the last big buyback, 3 new CEOs and we are back to the drawing board for both management/activists.
Quarz and Mapletree North Asia Commercial Trust (MAGIC SP) holders “win” to get a Cash-Only Consideration bump to 1.0x Price/Sep2021 NAV at S$1.1949/unit. This gets them out at NAV.
Regulatory overhang sees Link Administration Holdings (LNK AU)‘s spread to terms trading wide.

Before it’s here, it’s on Smartkarma

Mar 26

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

In today’s briefing:

First News of Toshiba “Studying a Privatisation Plan”
Rakuten Bank Financial Highlights
JTower Inc – DoCoMo Tower Agreement Is a Milestone

First News of Toshiba “Studying a Privatisation Plan”

A Nikkei article overnight displays the first buds of “spring” around Toshiba management’s tilt towards trying to get shareholders what they want after the Separation Plan failed at the EGM.
The article doesn’t say much, but it is a sign the Toshiba Board are not “lying flat.”
However it doesn’t mean a deal is coming much less anywhere near doable. This is a long road. But it encourages more proactive portfolio resconstruction.

Rakuten Bank Financial Highlights

By Kirk Boodry

We have put together the historical financial data for Rakuten Bank going back to FY14 as reported by parent Rakuten Group, which uses IFRS and is on a December year-end
As a separate company, Bank looks more local using J-GAAP accounting and a March year-end. So when the IPO filing comes our data will need to be updated/converted
As we discussed last week, the IPO of Rakuten Bank could help surface the value of fintech assets although heavy losses for the mobile business keep us on the sideline

JTower Inc – DoCoMo Tower Agreement Is a Milestone

By Kirk Boodry

JTower (4485 JP) has signed a deal to buy 6,002 DoCoMo towers for ¥106bn validating its long term growth potential and its central position as Japan’s infrastructure-sharing company
The headline numbers are maximums and could take years to realize as JTower grows to the scale required
Conversely it is not a large deal for DoCoMo but the first mobile tower sale/leaseback transaction in Japan highlights an industry shift towards more efficient capital deployment

Before it’s here, it’s on Smartkarma

Mar 25

Japan: Toshiba Corp, Yamaha Motor, MonotaRO Co Ltd, Shimadzu Corp, Nikkei 225 and more

In today’s briefing:

Toshiba Coin Toss Is Neither Heads Nor Tails as Both Proposals Fail
Toshiba – Both Proposals Voted Down
Yamaha Motors Buyback (7272) – Medium-Bigly Buyback Complicated by TOPIX FFW and Cross-Holdings
MonotaRo: A Rare Winner in E-Commerce
Shimadzu (7701 JP): Excessive Valuation Gone, Business Doing Well
Nikkei 27k Pivot Hangs in the Balance – Fresh Buy/Sell Levels

Toshiba Coin Toss Is Neither Heads Nor Tails as Both Proposals Fail

Toshiba EGM fails to provide a positive result as both Toshiba’s own Separation Plan and 3D Investment’s proposal to enhance privatisation bidder engagement and transparency fail.
Activists are stuck. Management is too. 3+ years since the last big buyback and 3 new CEOs and we are back to the drawing board for both management and activists.
But both have a head start. The Shareholder Return Plan, eventual disposition of Kioxia, and non-core asset sales would be a start. And Raymond Zage’s letter is worth a re-read.

Toshiba – Both Proposals Voted Down

Votes at Toshiba’s EGM ended up being cast in the most likely fashion with both management’s and 3D’s proposals being voted down.
There was nevertheless considerable uncertainty and it will be interesting to see what the voting breakdowns were.
For now, however, this just pushes out the prospect of any true resolution and we view that as negative.

Yamaha Motors Buyback (7272) – Medium-Bigly Buyback Complicated by TOPIX FFW and Cross-Holdings

Yamaha Motor (7272 JP) announced a short-term buyback. 3 months, 3%. It isn’t huge but it helps with the TOPIX FFW changes to come in two weeks.
It also helps with the extra overhang from last year’s selldown and the significant cross-holding overhang which exists.
But the shares are very inexpensive vs peers when one looks at consensus forward earnings and EBIT, and better growth is expected too.

MonotaRo: A Rare Winner in E-Commerce

By Oshadhi Kumarasiri

Among many e-commerce names, MonotaRO Co Ltd (3064 JP) is one of the most promising with operating profitability predicted to improve by 200 bps to 14.0% by 2023.
Unlike many e-commerce players, the company doesn’t strain itself financially while pursuing revenue growth through expansion.
At 35.8x OP, MonotaRo is not cheap to be outright bullish. However, it is a reasonable long hedge to allow you to short a lot of other names in e-commerce.

Shimadzu (7701 JP): Excessive Valuation Gone, Business Doing Well

By Scott Foster

Sales of analytical and measuring instruments, medical systems and industrial machinery are all doing well. Aircraft equipment lags, but should improve next fiscal year.
Guidance has been raised three times and now calls for an 8% increase in sales and a 23% increase in operating profit in FY Mar-22.
Not compellingly cheap, but worth looking at from a long-term perspective.

Nikkei 27k Pivot Hangs in the Balance – Fresh Buy/Sell Levels

By Thomas Schroeder

Japan’s Nikkei pushed above out 27k pivot and is now tactical buy support with 28,200-400 the fresh sell zone. Impulsive squeeze needs the dust to settle.
Fresh sell/short resistance lies at 28,200/500 where price, trendline and the 50 dma coincide. Expect a dip and rally sequence in order to build a secondary top.
The impulsive rise from 25k to current levels was stronger than we expected and got this rally extension wrong.

Before it’s here, it’s on Smartkarma

Mar 24

Japan: Kadokawa Dwango, SCREEN Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Kadokawa – 12m Unit Sales and the Prospect of Live Service
Screen Holdings (7735 JP): Book-To-Bill 1.2x in 3Q
Japan’s Governance: About the Articles on Record-High Total Dividends Paid

Kadokawa – 12m Unit Sales and the Prospect of Live Service

As widely expected From Software’s Elden Ring title has proved a smash success selling 12m units within its first 17 days.
That puts the game in rare territory and establishes the Kadokawa subsidiary as one of the premier global developers.
There is also some potential for live services here which could add to the appeal for Sony.

Screen Holdings (7735 JP): Book-To-Bill 1.2x in 3Q

By Scott Foster

The share price has bounced back from the Ukraine war sell-off. Attention should now shift to orders, sales and profits. 26% potential upside to our price target
New SPE orders exceeded sales by 20% in the December quarter, taking the backlog to a new high and pointing to further sales and profit growth next fiscal year.
Management’s FY Mar-22 guidance remains unchanged, with sales up 41% and operating profit up 2.2x. Upside potential of 26% to our price target.

Japan’s Governance: About the Articles on Record-High Total Dividends Paid

By Aki Matsumoto

The Nikkei published articles about the fact that the total dividends paid by companies for FY3/2022 is expected to reach a record high. I would like to discuss the topics.
Market capitalization shows a different trend from the increase in total net profit, and the movement in market capitalization and dividend payout ratio has strengthened over the past 2 years.
Examining separately for pre-COVID-19 pandemic and post-COVID-19 periods, dividend payout ratios are more inversely correlated with total net income and more positively correlated with market capitalization in the post-COVID-19 period.

Before it’s here, it’s on Smartkarma

Mar 23

Japan: Toyo Construction, Nomura Research Institute Ltd, Monex Group Inc, Capcom Co Ltd, ABHotel Co Ltd, Tosho Co Ltd and more

In today’s briefing:

Infroneer (5076 JP) Tender Offer for Toyo Construction (1890 JP) Could Get Funky
Nomura Research Placement – Has Sold Before, Deal Might Be More Reflective on the Parent’s Results
Monex – Coincheck SPAC Unlocks Value
Capcom – The Prospects for Street Fighter 6
AB Hotel (6565): Raising TP; Profit Recovery Ahead of Industry; New Store Development to Restart
Tosho (8920): Earnings Forecast Update; Recovery in Membership Just Beginning

Infroneer (5076 JP) Tender Offer for Toyo Construction (1890 JP) Could Get Funky

INFRONEER Holdings (5076 JP) is the new name of the holding company which was comprised of Maeda Corporation, Maeda Road Construction, and Maeda Seisakusho.
Infroneer owns a 20% stake in smaller construction company Toyo Construction (1890 JP) through subsidiary Maeda Construction. It has launched a Tender Offer for the rest at a 28.5% premium.
This could get complicated. If you own, I would not sell at terms.

Nomura Research Placement – Has Sold Before, Deal Might Be More Reflective on the Parent’s Results

By Sumeet Singh

Nomura Holdings is looking to raise around US$486m via selling 2.5% of Nomura Research.
This is not the first sale by Nomura and hence, might not come as a complete surprise.
In this note, we will run the deal through our ECM framework and talk about the recent updates.

Monex – Coincheck SPAC Unlocks Value

Coincheck and Thunder Bridge Capital Partners IV announced today that an SPAC deal would occur to list Coincheck on the NASDAQ.
With a pre-money valuation of $1.25bn the deal values Coincheck noticeably more modestly than Monex’s prior SOTP presentation.
Nevertheless, in combination with the announced TradeStation SPAC it starts to make the extent of Monex’s holdco discount apparent.

Capcom – The Prospects for Street Fighter 6

A month ago Capcom announced Street Fighter 6 with a small trailer featuring no actual gameplay footage.
Given the somewhat haphazard launch of Street Fighter 5 expectations for the title are likely to be moderate.
However, there has been much progress since the launch of Street Fighter 5 and there are some promising signs to consider.

AB Hotel (6565): Raising TP; Profit Recovery Ahead of Industry; New Store Development to Restart

By Mita Securities

We updated our earnings forecast for AB Hotel (6565, the company) and raised our target price to 1,600 yen from 1,400 yen. We reiterate our Buy rating.
On January 31, the company announced 1-3Q (Apr-Dec) FY3/22 OP of 667m yen (+757.0% YoY; OPM 14.1%), 74% progress toward the company’s full-year guidance of 900m yen
We raised our OP forecasts from 681m yen to 929m yen (+1,995.4% YoY; OPM 14.7%) for FY3/22, 1.355bn yen to 1.495bn yen (OPM 21.2%) for FY3/23

Tosho (8920): Earnings Forecast Update; Recovery in Membership Just Beginning

By Mita Securities

We updated our earnings forecast for Tosho (8920, the company) and maintained our target price at 2,300 yen. We reiterate our Buy rating.
On February 3, the company announced 1-3Q (Apr-Dec) FY3/22 OP of 1.616bn yen (+55.0% YoY; OPM 10.6%)
We changed our OP forecasts from 2.464bn yen to 4.403bn yen (+307.7% YoY; OPM 16.2%) for FY3/22, 4.466bn yen to 2.732bn yen (OPM 12.6%) for FY3/23

Before it’s here, it’s on Smartkarma

Mar 22

Japan: Toshiba Corp, Premier Anti-Aging, ASICS Corp, PHC Holdings and more

In today’s briefing:

Toshiba – The New CEO And The Company Culture
Premier Anti-Aging Company: Getting to an Interesting Level
ASICS (7936): Time for a Bounce
PHC Holdings (6523 JP): Eyeing a Bigger Pie of Global Diabetes Management Solution

Toshiba – The New CEO And The Company Culture

The Nikkei had an interesting article today on Toshiba’s new CEO and the company’s underlying culture.
It addresses some inconsistencies we have seen in terms of demonstrated competence at lower levels vs. a certain lack thereof at the top.
Ultimately though we suspect that what it reveals points to a lower chance of a privatisation

Premier Anti-Aging Company: Getting to an Interesting Level

By Oshadhi Kumarasiri

We last wrote on this relatively small Japanese cosmetics company in September 2021 suggesting that it could be worth keeping an eye on given its cheaper valuation compared to peers.
Premier Anti-Aging (4934 JP) shares are down 80% from the peak, mostly because it was sold-off alongside the low quality names in Mothers.
It seems early to turn outright bullish on Premier Anti-Aging yet. However, if you are short other unprofitable names in Mothers, we think Premier Anti-Aging is a sensible long hedge.

ASICS (7936): Time for a Bounce

By Mark Chadwick

Demand for ASICS running shoes remains strong. That should become clear as factories reach full capacity and shipping problems recede.
Profit margins will expand due to less discounting and an improved channel mix.
We turn bullish following a 30% decline from 52-week high. The stock is now trading at undemanding multiples versus peers.

PHC Holdings (6523 JP): Eyeing a Bigger Pie of Global Diabetes Management Solution

By Tina Banerjee

PHC Holdings (6523 JP) is a diversified healthcare company, which serves ~$25 billion broader end-market, of which global glucose monitoring is the largest end-market.
The company’s diabetes management business is the highest margin earning segment and is poised to grow through expanding presence in continuous glucose monitoring system.
PHC can be an early investment idea as a passive play on the fastest growing segment of the global diabetes management segment ahead of its global launch of next-generation CGM.

Before it’s here, it’s on Smartkarma

Mar 21

Japan: Tobila Systems Inc, Loadstar Capital, Softbank Group and more

In today’s briefing:

Tobila Systems: The Monopoly that You Probably Never Heard Of (Even as Its Customer)
TOPIX Inclusion: Loadstar Capital (3482 JP)
Softbank (9984) Strong Bull Elements off of 4,200 Big Support

Tobila Systems: The Monopoly that You Probably Never Heard Of (Even as Its Customer)

By Steven Chen

With less than 60 employees, Tobila Systems is the absolute dominator in the space that can make a significant impact on Japan’s society;
The valuation starts to look attractive while the fundamentals remain sound;
Partly benefiting from being the first entrant to this niche with a robust flywheel business model, the company now “monopolizes” both the supply side and the distribution side.

TOPIX Inclusion: Loadstar Capital (3482 JP)

By Janaghan Jeyakumar, CFA

On 11th March 2022, Japan-based real estate investment business Loadstar Capital (3482 JP) announced they had received approval to move from TSE’s Mothers Section to the First Section.
Today, they completed this move. This will trigger inclusion into the TOPIX Index at the end of April 2022.
In this insight, we take a look at the Index Inclusion Parameters to evaluate the upside potential of the TOPIX Inclusion Event.

Softbank (9984) Strong Bull Elements off of 4,200 Big Support

By Thomas Schroeder

Softbank (9984) exhibits a number of bull elements of off 4,200 macro support with bullish price and indicators supporting a big turn around play.
4,200 macro bull support induced a reversal and upside gap. Buy volumes improved on recent strength.
Bull conviction rests with bull divergence noted in the RSI and MACD amid a bullish price wedge that is maturing.

Before it’s here, it’s on Smartkarma