Japan

In today’s briefing:

Deciphering the Dynamics of a Tachiaigai Bunbai Offering
Gungho Is Gungho for Gungho (3765 JP)
SBI Sumishin Net Bank (7163 JP) IPO: Listing in March, TPX Inclusion Possibly in April
Japan Post Insurance – Why This Could Double… In Charts
Appier – Baby Thrown Out With the Bathwater Number One
Japan’s Governance: Considerations for Takeover Defense Measures (3)
SBI Sumishin NetBank (7163 JP) IPO Details, Fundamentals Tearsheet, and Likely Index Treatment

Deciphering the Dynamics of a Tachiaigai Bunbai Offering

In Japan, there is a type of offering called a tachiaigai bunbai offering which is used by companies to conduct small, relatively low-cost, offerings to increase liquidity or shareholder breadth.
These are conducted with a bit over a week of warning, and there are usually very low limits of shares purchasable per applicant.
There are certain dynamics surrounding such tachiaigai bunbai which are worth understanding.

Gungho Is Gungho for Gungho (3765 JP)

Gungho on Monday announced results, with both revenues and earnings up.
They also announced a buyback, which at current price means about 2.8% of shares out.
That doesn’t sound like a lot, but context matters. It may matter a great deal.

SBI Sumishin Net Bank (7163 JP) IPO: Listing in March, TPX Inclusion Possibly in April

By Brian Freitas

SBI Sumishin Net Bank (7163 JP)‘s listing has been approved by the JPX and the stock is expected to start trading on 24 March.
News reports indicate a raise of US$1bn (JPY 115.5bn). This translates to an IPO price of JPY 1,920/share, valuing the company at JPY 300bn (US$2.59bn).
The stock should be added to the TPX INDEX at the close on 27 April where trackers will need to buy over 14% of the stock issued in the IPO.

Japan Post Insurance – Why This Could Double… In Charts

Japan Post Insurance beat consensus 3Q estimates by 77% at the NP level and the company revised up FY guidance 30.5% to ¥365.49 in EPS.
Consensus still forecasts EPS to drop to ¥234 next FY but we see little reason to not expect a further increase.
If so, the name is likely to be close to 5x PE vs. peers at over 10x creating a significant opportunity.

Appier – Baby Thrown Out With the Bathwater Number One

Appier reported 4Q21 results on Monday with revenue beating consensus by 5% and EBITDA beating by 323%.
The company guided for ¥17.5bn in revenue, above consensus at ¥16.2bn but significantly below our guesstimate of ¥20.8bn.
However, a close look at trends in the US suggest that our initial estimate remains reasonable enough.

Japan’s Governance: Considerations for Takeover Defense Measures (3)

This article focuses on whether or not a company has takeover defense measures, and conducts further analysis in the evaluation items of Profile, Key Performance Indicators and Corporate Governance Practices.
Since the presence or absence of anti-takeover measures wasn’t significantly correlated with other board practices, they stand apart from improving efforts in other practices and maintain as an independent policy.
Companies with anti-takeover show negative correlations with asset/capital efficiency, capital allocation and communication with investors, so companies should be watched if this is related to their inferior ROE and ROA.

SBI Sumishin NetBank (7163 JP) IPO Details, Fundamentals Tearsheet, and Likely Index Treatment

On 15 February, SBI Holdings (8473 JP) and Sumitomo Mitsui Trust Holdings (8309 JP) announced the likely details/schedule of the IPO of their joint venture online bank.
Pre-Announcement media commentary had suggested an IPO of US$1bn in size and a potential market cap in the range of ¥300-400bn.
The stock is likely to see significant interest because of its growthy business model, and non-negligible index buying at end-March and end-April, especially if it prices at the high end.

Before it’s here, it’s on Smartkarma

Feb 16

Japan: SMC Corp, Persol Holdings, Dentsu Inc, Dowa Holdings, Nihon M&A Center and more

In today’s briefing:

SMC (6273) Buyback – Small Short Sharp
Persol Holdings Placement – Selldown by Cross-Shareholder
Dentsu BIG Buyback – Both Larger and Smaller Than It Appears
Conviction Call Dowa – On Track for a Blowout and Growth Next Year
Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?

SMC (6273) Buyback – Small Short Sharp

SMC Corp (6273 JP) announced better Q3 and an upward revision to still-below consensus for this year. Consensus is for up-and-to-the-right the next few years (but implied Q4 looks light).
The company raised its dividend so now it is 1% yield.
And the company announced a small but intriguing buyback. If you own the stock or trade in the space, it is worth understanding

Persol Holdings Placement – Selldown by Cross-Shareholder

By Clarence Chu

Kelly Services Inc A (KELYA US) aims to raise around US$200m via selling its 3.8% stake in Persol Holdings (2181 JP).
Kelly Services mentioned that it was looking to end its cross-shareholding with Persol Holdings in its earnings announcement. The two share a JV in PersolKelly.
In this note, we will run the deal through our ECM framework and comment on other deal dynamics.

Dentsu BIG Buyback – Both Larger and Smaller Than It Appears

Yesterday 14 February, Dentsu announced bte profits, and guidance for 2022 which appears in-line to slightly strong in terms of revenue, slightly weak/conservative in terms of IFRS/GAAP OP.
The company also announced what appears to be a BIG buyback.
Looks are deceiving, but somehow not, but there are catches in both directions. If you have a flow axe, it is worth knowing the flow details.

Conviction Call Dowa – On Track for a Blowout and Growth Next Year

By Shifara Samsudeen, ACMA, CGMA

Dowa Holdings’ 3Q numbers PBT beat consensus by 18% putting the company on track to hit out ¥84bn FY target though its upward revision was only to ¥72.5bn.
A new concrete recycling facility, recovering rhodium prices and a rebound in silver powder sales should help momentum going forward.
We believe the current price implies sustainable PBT generation of under ¥40bn creating a lot of upside potential.

Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?

Nihon M&A Center (2127 JP) reported 3QFY03/2021 results yesterday alongside publication of investigation report over false recording of sales contracts on the internal system between FY03/2019 to 2QFY03/2021.
The company announced on 20th December 2021 that it has commenced an investigation over the above issue and postponed the announcement of its 3Q results.
Revenue for 3QFY03/2021 increased 14.6% YoY to JPY10.85bn (vs consensus JPY12bn) while OP dropped 5.1% YoY to JPY4.0bn (vs consensus JPY6.0bn).

Before it’s here, it’s on Smartkarma

Feb 11

Japan: Mazda Motor, Digital Holdings Inc, Shiseido Company, HS Holdings, Tokyo Electron, Narumiya International Co Ltd, Yamaha Motor, Tokyo Stock Exchange Tokyo Price Index Topix, MonotaRO Co Ltd, Monogatari Corp and more

In today’s briefing:

Mazda – Profitability Is Surging
High Premium Hakuhodo DY TOB for SoldOut (6553 JP) – Could Be a Catalyst for Digital Holding (2389)
Shiseido: China Is Still a Question Mark But The Rest of The Business Deserves Plaudits
Sawada/HS Holdings (8699) – A Quite Salutary Development.. And We Wait…
TEL – Great Results but Some Warning Signs
World to Absorb Narumiya
Yamaha Motor – Lowballing Guidance on Material Costs
Japan’s Governance: Considerations Regarding the Percentage of Foreign Shareholders
MonotaRO (3064): January Sales Achieved the Target.
Monogatari Corporation (3097): 2Q OP Exceeded the Company Target

Mazda – Profitability Is Surging

We have been consistently saying that the sell side is utterly clueless about Mazda’s profit structure.
The company just missed top line by 13.2% but beat on OP by 26% even excluding a reclassification of some costs to extraordinary losses.
The thesis here is simple – consensus projects a 3% OPM next FY and we believe Mazda will double that.

High Premium Hakuhodo DY TOB for SoldOut (6553 JP) – Could Be a Catalyst for Digital Holding (2389)

By Janaghan Jeyakumar, CFA

Japan-Based advertising/marketing services company Hakuhodo Dy Holdings (2433 JP) launched a Tender Offer to acquire all the shares in small-cap digital marketing company SoldOut (6553 JP) on 9th February 2022.
The TOB Price is ¥1,809 per share in cash which translates to an implied market capitalization of ¥19.5bn (~US$170mn) for the Target company – a 101% premium to previous close.
The Tender Offer has a minimum acceptance condition and is expected to be completed in March 2022. Below is a closer look at the Deal Details.

Shiseido: China Is Still a Question Mark But The Rest of The Business Deserves Plaudits

By Oshadhi Kumarasiri

Shiseido Company (4911 JP)’s share price is up more than 6% today following the yesterday’s strong Q4 results with 2021 EBITDA surpassing the November 2021 guidance by ¥17.6bn (11.3%).
The China business is still not completely out of the woods, although the like for like growth rate accelerated from 2.0% YoY in 3Q21 to 7.0% by 4Q21.
Nonetheless, strong performance across skin and beauty care in all regions suggests that the company is on track to become the world’s number 1 skin and beauty care brand.

Sawada/HS Holdings (8699) – A Quite Salutary Development.. And We Wait…

Sawada/HS Holdings (8699 JP) yesterday announced it would receive a large dividend from its namesake brokerage business, and then announced it would sell it to its own 2nd largest shareholder.
Then HS Holdings said it would buy back up to 23% of its shares out this morning in a ToSTNeT-3 transaction.
The sale of what was its second most important remaining asset is good. Buying back shares below book is normally good.

TEL – Great Results but Some Warning Signs

TEL’s 3Q results were strong as expected with revenue of ¥506bn beating consensus by 6% and OP of ¥156bn beating by 14%.
Guidance was raised from ¥550bn to ¥570bn but could still prove about ¥20bn too light.
While TEL expects 20% market growth in 2022, that may not justify current multiples and there are some other concerns.

World to Absorb Narumiya

By Michael Causton

World Co Ltd (3612 JP) is desperate to diversify its portfolio and find new growth assets as it continues to slash the non-performing parts of its sprawling business.
While childrenswear might not seem like a growth market, there are still opportunities, including at the premium end, explaining the rationale for buying Narumiya International Co Ltd (9275 JP).
Narumiya expanded in the four years up to the pandemic and could provide a new growth division for World.

Yamaha Motor – Lowballing Guidance on Material Costs

Yamaha Motor’s 4Q21 beat on margins with revenue of ¥450bn (+1.2% QoQ, +11.3% YoY) and OP of ¥27.7bn for an OPM of 6.2%.
The reported OP was 8.6% higher than consensus estimates while revenue was relatively in-line.
Yamaha’s FY OP generation was ¥182.3bn, right in the middle of our ¥180-185bn estimate and 2022 guidance was more or less in-line with consensus.

Japan’s Governance: Considerations Regarding the Percentage of Foreign Shareholders

This article explored what kind of companies overseas investors are investing in in terms of Key Performance Indicators and Corporate Governance Practices by focusing on the percentage of foreign shareholders.
The group of companies with the higher percentage of foreign shareholders tend to have higher ROE, ROA and Tobin’s q, as well as better values in many corporate governance criteria.
The difference in Key Performance Indicators and corporate governance practices between the group with >30% and =< 30% in foreign shareholding suggests that there is a watershed around 30% shareholding.

MonotaRO (3064): January Sales Achieved the Target.

Parent company sales in January 2022 were 16.356bn yen (+17.6% YoY), achieving the company’s monthly target
Sales to large corporations increased by around 37% YoY, slightly below the company’s target.
Cost control may attract more attention than sales growth

Monogatari Corporation (3097): 2Q OP Exceeded the Company Target

Monogatari Corporation (3097) announced 1H (Jul-Dec) FY6/22 consolidated results
In 2Q (Oct-Dec), sales were 19.813bn yen (+11.0% YoY, +26.0% QoQ), OP was 1.542bn yen (+5.9% YoY, vs. -32m yen in 1Q)
The number of stores at the end of 1H was 605 (+21 from end-FY6/21)

Before it’s here, it’s on Smartkarma

Feb 10

Japan: Toyota Industries, Nippon Road, I O Data Device, Renesas Electronics, Toyota Motor, SUMCO Corp, Honda Motor, Internet Initiative Japan, Monogatari Corp, IBJ and more

In today’s briefing:

Toyota Industries Back To Covid Lows Vs. Toyota Motors
Shimizu Corp Partial Offer for Nippon Road (1884 JP) May Get Interesting
I O Data Device (6916) MBO – Not as Clean And Nice As One Would Like
Renesas – Accelerating
Toyota – In-Line 3Q Sets Up Strong 4Q Beat
Sumco – Consensus Probably Too Timid on Price Hikes
Honda – Back and Forth OP Guidance Revisions
IIJ (Buy) – Q3 21 Results Reaction: Core Business Drives Record Quarter
Monogatari Corporation (3097): Japanese BBQ Extremely Popular in January.
IBJ (6071): Neutral Impression on the Results.

Toyota Industries Back To Covid Lows Vs. Toyota Motors

By David Blennerhassett

Toyota Industries (6201 JP)‘s implied stub and simple ratio with 8.5%-held Toyota Motor (7203 JP) has significantly bifurcated in the last 12 months.
Yet recent and forward earnings at the stub level indicate this dislocation is unjustified.
Toyota Industries is a set up at this current level.

Shimizu Corp Partial Offer for Nippon Road (1884 JP) May Get Interesting

Shimizu Corp (1803 JP) has held ~25% of Nippon Road (1884 JP) and has now announced a Partial Tender Offer to go to 50.1%. It’s a 20-year high, but…
… it’s the wrong price. And it has been. And a quasi-activist has built a 16% stake in recent years.
The question is whether this gets done. They only need to buy 25.25% out of the 75% they don’t own, but it’s a question.

I O Data Device (6916) MBO – Not as Clean And Nice As One Would Like

This MBO is designed to for the 77-year-old Founder to take the company private.
The evolution of the balance sheet the last 12-18 months has been a little strange, and may not be benign. It has certainly changed the fair value lower.
The question, as always, is whether someone will take this up.

Renesas – Accelerating

Renesas’ 4Q results were strong as revenue came in well above guidance as we predicted, beating even our ¥310bn estimate at ¥314.4bn.
EBITDA of ¥119.4bn was up 15.7% QoQ and should rise further thanks to a hefty backlog.
We said previously that 2022 EBITDA could be on the order of ¥500-550bn rather than the ¥391bn which consensus projects… for reasons which escape us.

Toyota – In-Line 3Q Sets Up Strong 4Q Beat

Toyota’s 3Q results were in-line with revenue and OP 2% above consensus and a slight QoQ improvement.
The FY production plan was revised down as expected though we see slight upside to the 8.25m unit plan.
Toyota has now averaged ¥853bn in OP over the last six pandemic driven quarters.

Sumco – Consensus Probably Too Timid on Price Hikes

Sumco’s 4Q results were on the strong side with revenue beating by 2.3% and OP beating by 2.0%.
1Q guidance was also bullish with revenue guidance of ¥99bn 5.3% higher than consensus while OP guidance of ¥21bn was 12.8% higher.
Guidance is still a touch conservative in our view, particularly on the margin side.

Honda – Back and Forth OP Guidance Revisions

When Honda reported its 2QFY22 results it revised OP guidance down and we said that unnecessary.
Indeed, with 3Q now out they revised guidance UP, above where it was at 3Q, making the revision pattern look like ¥660bn > ¥ 780bn > ¥660bn > ¥800bn.
That remains conservative and the company should beat though we still see limited upside until next year’s prospects start to be priced in.

IIJ (Buy) – Q3 21 Results Reaction: Core Business Drives Record Quarter

Revenue grew 4% in Q3 despite an acceleration in mobile erosion as core fixed-line revenue growth remained robust.
Revenue growth unlocks operating leverage as margins reached record levels helped in part by lower mobile interconnect charges from DoCoMo.
We remain at Buy and consider IIJ a core telecom holding in Japan

Monogatari Corporation (3097): Japanese BBQ Extremely Popular in January.

Monogatari Corporation (3097, the company) disclosed monthly data for January (on a preliminary basis).
Same-store sales for directly-owned stores were 125.1% vs. January 2021
Many of the company’s restaurant formats use an all-you-can-eat system with a time limit

IBJ (6071): Neutral Impression on the Results.

FY12/21 full-year results: slight increase in effective OP
4Q (Oct-Dec): Directly-owned store business drove QoQ profit growth. Significant increase in the number of new franchisees as well
FY12/22 guidance: Showing aggressive stance toward medium- to long-term growth

Before it’s here, it’s on Smartkarma

Feb 09

Japan: Softbank Group, Hogy Medical, Toshiba Corp, Mitsubishi Estate Logistics, Toa Corp, Nissan Motor, Murata Manufacturing, Sumitomo Metal Mining, Harmonic Drive Systems and more

In today’s briefing:

Softbank – Masayoshi Son’s Got Nothin’
Huge Hogy Medical (3593) Buyback from the Founding Family
Softbank Group – Q3 21 Results Reaction: ARM IPO Pivot Is the Big Reveal
Toshiba – Underwhelming MTP With Execution Risk
Mitsubishi Estate Logistics Placement – Annual Routine
Toa Corp (1885 JP) – Another Big Buyback for a Murakami Company
Nissan – Limited Upside Till Next FY Starts to Be Priced In
Murata Mfg. (6981 JP): FY Guidance Raised but Quarterly OP Trend Is Down
SMM – Bump to Guidance Supports Recent Share Price Rise
Harmonic Drive – Good 3Q But No Guidance Revision

Softbank – Masayoshi Son’s Got Nothin’

It’s hard to believe but Softbank’s earnings briefing had even less of substance this time than usual, essentially amounting to an “innovative” unofficial roadshow for an Arm IPO.
The termination of the Arm-Nvidia deal was made official and there was the usual TED talk for retail investors on LTV, NAV and the brand-new concept of computer chips.
With portfolio performance since the start of this year as grim as expected there was little to cheer.

Huge Hogy Medical (3593) Buyback from the Founding Family

Hogy Medical’s founder passed and there was a re-arranging of deckchairs among the Hoki family ownership in 2021.
Earnings are not growing yet, but the mix is improving on a forward basis and consensus is decidedly more bullish than trend would suggest.
Now the company is buying back a LOT of stock from the Hoki family. This changes things.

Softbank Group – Q3 21 Results Reaction: ARM IPO Pivot Is the Big Reveal

The ARM sale to Nvidia has been cancelled but Softbank is charging full speed ahead on an IPO
That is unlikely to surface the value of a straight sale whilst the monetization rate at 15-20% would also be much lower
We remain cautious even with a 50% discount as NAV depends on volatile tech valuations but today’s report provides some reassurance on ARM at least

Toshiba – Underwhelming MTP With Execution Risk

Toshiba’s second IR day produced little of extra value as details on its new MTP did not add anything particularly new.
The company did a reasonable job of breaking down sources of growth and technological strengths but there were few immediate growth drivers.
As prospects for strong growth look to be shifting further out an SOTP analysis does not favour Toshiba.

Mitsubishi Estate Logistics Placement – Annual Routine

By Clarence Chu

Mitsubishi Estate Logistics (3481 JP) (MEL) is looking to raise US$203m to acquire two new properties.
The properties are expected to be more accretive to DPU than its last year’s placement, the deal has also been well-flagged and MEL has made capital raise an annual routine.
In this note, we will look at the assets to be acquired, impact on forecast and portfolio, and run the deal through our framework.

Toa Corp (1885 JP) – Another Big Buyback for a Murakami Company

Toa Corp (1885) is a niche infrastructure construction play with a decent growing business and a recent change in shareholder return policy.
They bought back back 6% of shares in 2019. Then launched another 6% buyback in 2021. And now have announced another 6% buyback for 2022.
The shareholder structure and the return profile bear closer investigation.

Nissan – Limited Upside Till Next FY Starts to Be Priced In

Nissan generated total revenue of ¥2,207bn (+13.8% QoQ, -0.8% YoY) and OP of ¥52.2bn in 3QFY22.
The reported revenue was 0.9% lower than consensus estimates, while operating profit was ¥15bn higher.
The company revised revenue guidance to ¥8,710bn (-1.0%) while OP was increased by ¥30bn to ¥210bn (+16.7%) but our start of year estimate of ¥250bn OP is on the cards.

Murata Mfg. (6981 JP): FY Guidance Raised but Quarterly OP Trend Is Down

By Scott Foster

FY Mar-22 guidance was raised, but new orders were down in 3Q and both sales & operating are headed down in 4Q.
4Q is seasonally weak and long-term demand drivers such as 5G, IoT and auto electrification remain in place, but the timing of recovery is uncertain.
The shares have dropped 21% since last September, to the low side but not the bottom of their 5-year P/E range. Look for an opportunity to buy for the long-term.

SMM – Bump to Guidance Supports Recent Share Price Rise

Sumitomo Metal Mining delivered a strong 3Q with ¥73.7bn in current profit vs. consensus at ¥57.1bn.
Guidance was raised from ¥266bn in current profit to ¥314bn although this is inflated by about a ¥74bn gain on Sierra Gorda.
Nevertheless, valuations look cheap relative to earnings and imply a sharp commodity price correction which may not happen very quickly.

Harmonic Drive – Good 3Q But No Guidance Revision

Harmonic Drive posted relatively good numbers in 3Q on account of strong SG&A controls but neglected to raise guidance.
That looks conservative and backlog hit a new high, but valuations remain stretched.
Ultimately we still see significant risk for next FY and expect guidance to be significantly weaker than consensus expects.

Before it’s here, it’s on Smartkarma

Feb 08

Japan: Toshiba Corp, Toshiba Tec, Meitetsu Transport, Daikin Industries, NTT (Nippon Telegraph & Telephone), Subaru Corp, Money Forward, Tokyo Stock Exchange Tokyo Price Index Topix, Mitsubishi Estate Logistics, Torikizoku and more

In today’s briefing:

Toshiba – 16 Millionth New Plan Unlocks New Value! No Just Kidding It Didn’t
Toshiba Tec – All-Time Highs
Meitetsu Transport (9077) Takeover – Parent “Stealing” Logistics Assets at 0.55x Book
Daikin – Material Costs Look to Be Impacting Margins
NTT (Buy) – Q3 21 Results Reaction: NTT Data Drives Beat and Raise with Dividend Boost
Subaru – Improvement in Margins Despite Revenue Decline
Money Forward (3994): SaaS & Fintech Combined. Initiating Coverage with a Hold
Japan’s Governance: Considerations Regarding Retirement of Treasury Stock
Mitsubishi Estate Logistics (3481 JP): Offering Could Trigger Outperformance Vs Peers
Torikizoku Holdings (3193): January Sales; Second Toriki Burger Store to Open in Shibuya

Toshiba – 16 Millionth New Plan Unlocks New Value! No Just Kidding It Didn’t

Another quarter, another Toshiba Medium Term Plan as activist investors keep sending management back to the drawing board until they come back with a privatisation.
Except there is still no sign of any significant appetite among buyers and no sign that they would be allowed to go through with it even if there was.
So Toshiba management shuffled a few deck chairs and the market yawned.

Toshiba Tec – All-Time Highs

Toshiba Tec is one of our favourite small caps in Japan with a strong fundamental story and upside event risks from the Toshiba soap opera.
The name was up 14.3% today despite middling earnings released mid-day on its designation as non-core by parent Toshiba.
That puts it at an all-time high and within a whisker of ¥5,000 with the event risk now clearly visible.

Meitetsu Transport (9077) Takeover – Parent “Stealing” Logistics Assets at 0.55x Book

This should come as no surprise. Nagoya Railroad (9048 JP) is buying out minorities in logistics unit Meitetsu Transport (9077 JP).
Given the shareholder structure, this can be done and squeezed out with not a single share tendered, but it’s ugly.
Logistics REITs trade at 1.3-1.5x book. This is being done at 0.55x book where just 1.0x book for the warehouse assets would be more than the EV at Takeover Price.

Daikin – Material Costs Look to Be Impacting Margins

Daikin 3Q results were mixed with revenue of ¥743bn (-2.2% QoQ, 21.3% YoY) looking strong but OP of ¥66.8bn, implying an OPM decline to 9.0% from 10.3% last quarter.
Reported revenue was 6.0% higher than consensus while OP was 4.2% lower.
The company revised its FY22 revenue guidance to ¥3,050bn (+4.1%) but OP was raised just ¥10bn to ¥310bn (+3.3%) which may disappoint.

NTT (Buy) – Q3 21 Results Reaction: NTT Data Drives Beat and Raise with Dividend Boost

NTT has raised financial guidance by 1-2% on upside at subsidiary NTT Data
A corresponding increase in the FY21 dividend from ¥110 to ¥115 provides a near-term reward for shareholders
We are raising our target price from ¥3,600 to ¥4,000 and remain at Buy

Subaru – Improvement in Margins Despite Revenue Decline

Subaru’s 3QFY22 missed consensus with revenue of ¥666bn (-5.8% QoQ, -22.3% YoY) and OP of ¥42.0bn (6.3% OPM) both looking weak.
The reported revenue and OP were 11.2% and 2.8% lower than consensus estimates respectively.
The company revised OP guidance to ¥100bn from 2Q’s ¥150bn which itself was lowered from ¥200bn but this should be the last of the bad news.

Money Forward (3994): SaaS & Fintech Combined. Initiating Coverage with a Hold

We initiate coverage of Money Forward, Inc. (3994, Money Forward, the company) with a target price of 5,650 yen and a Hold rating.
We forecast sales of 20.6bn yen for FY11/22 (+32.1% YoY) and 26.4bn yen for FY11/23 (+27.7% YoY)
Our target price is based on a target EV/Sales multiple of 10.5x for FY11/23

Japan’s Governance: Considerations Regarding Retirement of Treasury Stock

The frequency of share repurchases is highly correlated not only with ROE and ROA, but also with changes in market capitalization, regardless of whether the stock is undervalued or not.
Since the frequency of share retirements was found to be correlated with key board practices, I examined hypothesis that an improvement in board practices would have positive impact on actions.
As a result of focusing on ％ independent directors, key to ensuring the transparency of board, it was confirmed that ％ independent directors has significant positive correlation with many actions.

Mitsubishi Estate Logistics (3481 JP): Offering Could Trigger Outperformance Vs Peers

By Janaghan Jeyakumar, CFA

After the close on 7th February 2022, logistics JREIT Mitsubishi Estate Logistics (3481 JP) (“MEL”) announced a follow-on equity offering to fund part of their recently announced property acquisition.
The primary offer quantity is 56,000 units. In addition, there will also be an over-allotment quantity of 2,800 units. The total size of this offering could be roughly ¥24.5bn (~US$213mn).
Below is a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

Torikizoku Holdings (3193): January Sales; Second Toriki Burger Store to Open in Shibuya

Same-store sales were 200.1% vs. January 2021 (155.0% for December), 56.2% vs. January 2020, and 60.4% vs. January 2019
Despite the expansion of the area requesting shorter hours during January, the company did relatively well, in our view, to secure a SSS of 60% vs. pre-pandemic period.
The number of stores at the end of December was 615 (unchanged MoM). The number of directly-owned stores was 384 (unchanged MoM).

Before it’s here, it’s on Smartkarma

Feb 07

Japan: Shinsei Bank, Seibu Holdings, Seven & I Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

2022 High Conviction – Shinsei Bank Update
Seibu Holdings – Asset Heavy To Asset Lighter if Not Fully Asset Light
Seven & I: Selling Sogo Seibu Is Just the Start
Japan’s Governance: Prime Market Standard and Treasury Stock Retirement

2022 High Conviction – Shinsei Bank Update

Shinsei Bank (8303 JP) is/was my High Conviction call for 2022.
SBI went to 47.77% in the Tender and is higher as Shinsei has bought back stock. Shinsei has more to go and could get funkier to buy back more.
8 February is the EGM to approve a new board and explicit SBI control. Delisting expectations will rise after that, but practically it will take time.

Seibu Holdings – Asset Heavy To Asset Lighter if Not Fully Asset Light

Seibu Holdings created a new Medium Term Management Plan in May 2021 including what it called Big, Hairy, Audacious Goals, or BHAGs.
That goal was to move a longtime asset-heavy business to an asset-light model by selling hotel and leisure assets, securitising others, and undergoing a Whole Business Restructuring.
Seibu Construction was sold in January and now it looks like 30 out of 40-odd Japan hotel and leisure facilities are nearly a done deal with a sale to GIC.

Seven & I: Selling Sogo Seibu Is Just the Start

By Michael Causton

Numerous reports indicate that Seven & I is preparing its Sogo Seibu department store subsidiary for sale.
This follows years of calls from major investors to dispose of underperforming assets at Japan’s second largest retail conglomerate.
Seven & I still has many problems to solve in its domestic business. Ito-Yokado remains the biggest problem but perhaps won’t be disposed of while the company’s 98-year old founder lives.

Japan’s Governance: Prime Market Standard and Treasury Stock Retirement

It is said that an increasing number of companies are cancelling their own shares to meet prime market listing criteria that requires % of tradable shares be at least 35%.
However, in reality, more than half of companies have never cancelled treasury stock. Companies that have retired three or more times perform significantly better in Key performance and Corporate Governance.
It is worthwhile to continue to focus on the retirement of treasury stock as a litmus test for assessing the progress of corporate governance initiatives and performance improvement.

Before it’s here, it’s on Smartkarma

Feb 06

Japan: Goo Chemical, ROHM Co Ltd, Daifuku Co Ltd and more

In today’s briefing:

Goo Chemical (4962 JP) MBO – Super Illiquid Kyoto-Based Specialty Chems Maker – A Done Deal
Rohm (6963 JP): Buy into the Tech Sell-Off
Daifuku – Not a Big Enough Beat to Arrest the Correction

Goo Chemical (4962 JP) MBO – Super Illiquid Kyoto-Based Specialty Chems Maker – A Done Deal

This is a PE Fund-sponsored MBO of a small Kyoto-based specialty chemicals manufacturer.
It is far less liquid than the market cap would suggest, which tells you something about the very un-transparent shareholder register.
This is theoretically an “independent” deal with a majority-of-minority but it will get done at a slightly too low price because of huge friendly shareholder base.

Rohm (6963 JP): Buy into the Tech Sell-Off

By Scott Foster

Sales, profits and profit margins continued to rise in 3Q, led by IC and discrete semiconductor sales for automotive and industrial applications.
FY Mar-22 guidance looks conservative, but management left it unchanged out of a sense of caution.
Having dropped 21% since November, the share price should now recover based on the fundamentals.

Daifuku – Not a Big Enough Beat to Arrest the Correction

Daifuku 3QFY21 results were mostly in-line with revenue beating by 1.4% while OP beat by 0.7%.
¥174.1bn in orders were positive however and the company revised up FY order guidance from ¥565bn to ¥575bn.
Nevertheless, multiples are correcting from extremely elevated levels suggesting even growth next year may not be enough to support the stock here.

Before it’s here, it’s on Smartkarma

Feb 05

Japan: Toyota Motor, At Group Co Ltd, Seven & I Holdings, Square Enix Holdings, Contec Co Ltd, Suzuki Motor and more

In today’s briefing:

Toyota – So About That Whole Tesla Being Years Ahead of The Competition in Autonomous Thing…
AT Group (8293 JP) MBO – Looks Fully Priced But A Closer Look Is Warranted
Seven & I’s Response: Dispels Accusations But Gives in to ValueAct’s Demands
Square Enix – A Beat, A Bump and More to Come
Daifuku (6383) To Take Out Minorities in Subsidiary Contec (6639)
Suzuki – Steady but Nothing Special

Toyota – So About That Whole Tesla Being Years Ahead of The Competition in Autonomous Thing…

We have pointed out previously that the hype surrounding Tesla’s FSD system was delusional.
We have always regarded their differentiating factor as simply being a greater risk tolerance for endangering the lives of their customers.
However, some automakers are actually making efforts to improve safety… and they actually know what they are doing.

AT Group (8293 JP) MBO – Looks Fully Priced But A Closer Look Is Warranted

The CEO and family leader Yamaguchi-san is launching an MBO to take out one of the largest Toyota dealers out there.
Optically, it looks fully-priced, with significant net debt and a 74% takeover premium. A closer look is, however, warranted.
This is large enough (despite illiquidity) to be interesting, and it could get interestinger.

Seven & I’s Response: Dispels Accusations But Gives in to ValueAct’s Demands

By Oshadhi Kumarasiri

Seven & I Holdings (3382 JP) is down 2.71% today following the company’s response to ValueAct’s public letter.
We think this share price move is unwarranted and driven by a false interpretation that Seven & I’s response is a rebuttal.
Therefore, we would be using this as an opportunity to add more Seven & I shares.

Square Enix – A Beat, A Bump and More to Come

We said that we expected MMO Final Fantasy XIV to drive a strong beat and FY OP towards ¥70bn rather than consensus’ ¥55bn.
With 3Q OP of ¥21.0bn easily beating consensus at ¥14.4bn we believe we are nicely on track.
Oh and there were some tidbits about NFTs which should get some segments of the market interested.

Daifuku (6383) To Take Out Minorities in Subsidiary Contec (6639)

Daifuku Co Ltd (6383 JP) today (4 Feb) announced it would take out TSE-2 industrial computing/IoT subsidiary Contec Co Ltd (6639 JP) in a tender offer at 55% premium.
That looks nice, and should have been expected at some point. But it is only half-generous.
The shareholder structure tells you how this is likely to end up.

Suzuki – Steady but Nothing Special

Suzuki reported its 3QFY22 results on Friday with revenue of ¥901bn (+8.8% QoQ, -0.5% YoY) and OP of ¥47.5bn implying an OPM of 5.3% compared to 5.3% in 2QFY22.
The reported revenue and OP were 3.8% and 5.9% higher than the consensus estimates respectively.
The company revised its full year revenue guidance to ¥3,400bn (¥200bn up from the previous guidance), while OP guidance remained unchanged on ¥170bn.

Before it’s here, it’s on Smartkarma

Feb 04

Japan: Mercari Inc, Sony Corp, Nintendo Co Ltd, Nikkei 225, Softbank Corp, Takeda Pharmaceutical, Tokyo Stock Exchange Tokyo Price Index Topix, Kura Sushi Inc, Tosho Co Ltd and more

In today’s briefing:

Mercari – Margin Miss Not Beat
TOPIX-Nikkei Skew Trade Starting to Work Nicely
Nintendo – Solid Beat Should Confirm Early Nov Bottom
Nikkei 225 Fails to Breach the Zone of Resistance
Softbank Corp (Buy) – Q3 21 Results Reaction: Weak Consumer Mobile but FY Targets in Sight
Takeda: Key Drugs Continue Growth and Upgrade to Guidance; Pipeline Progress Despite Recent Setbacks
Japan’s Governance: TOPIX Reform Update (2) – Change in Calculation Method of Floating Share Ratio
Mercari – Don’t Panic Sell
Kura Sushi (2695): Relay from Demon Slayer to BTS. Winning with Entertainment Value
Tosho (8920): Solid 3Q OP; Announced Upward Revision of Guidance on Property Sales

Mercari – Margin Miss Not Beat

We got this wrong, expecting a beat on margins in spite of weak GMV, whereas Mercari actually fell into the red for the first time in six quarters.
The culprit is extremely aggressive promotional spend which looks to have hit all time highs in both Japan and the US.
The shift to an investment stance is not in and of itself a bad thing but the growth relative to the spend is disappointing so far.

TOPIX-Nikkei Skew Trade Starting to Work Nicely

After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off.
It did so slowly, however and was outperforming Nikkei when last we checked despite being down slightly.
Thankfully, a lot of the idiosyncratic volatility hurting the skew trade has reversed now and it is positive and outperforming Nikkei consistently.

Nintendo – Solid Beat Should Confirm Early Nov Bottom

Nintendo posted an impressive top line for 3Q at ¥696bn in revenue vs. consensus at ¥641bn for an 8.6% beat.
OP of ¥253bn beat consensus by 16.9% suggesting that sell side analysts do not understand Nintendo’s new profit structure.
The stock has been resilient since bottoming in early November and we expect strong performance to continue.

Nikkei 225 Fails to Breach the Zone of Resistance

By Shyam Devani

The nasty “squeeze” up in the Nikkei 225 has so far stalled within the zone of resistance at 27,293-27,629
A move back below 26,954 would add to the bearish bias seen overall
Medium to long term supports and target area comes in closer to 24,500

Softbank Corp (Buy) – Q3 21 Results Reaction: Weak Consumer Mobile but FY Targets in Sight

By Shifara Samsudeen, ACMA, CGMA

Results were pretty much in line with expectations as growth from Z Holdings and Enterprise sales offset consumer mobile weakness.
The company is slightly behind the pace needed to meet its full-year operating profit target but appears confident on meeting FY21 and FY22 commitments
Management reports that cashless app PayPay generated ¥21bn in Q3 revenue as SME monetization kicked in

Takeda: Key Drugs Continue Growth and Upgrade to Guidance; Pipeline Progress Despite Recent Setbacks

Takeda announced 3QFY03/2022 results today. Reported revenue grew 7.7% YoY to JPY901.3bn (vs consensus JPY850.5bn) and OP declined 18.6% YoY to JPY116.5bn (vs consensus JPY115.6bn) due to divestitures.
Revenue from Top 14 key drugs grew 21.2% YoY, while revenue from top-seller Entyvio grew 24.2% YoY during the quarter.
Takeda has upgraded its previous guidance for full-year FY03/2022. The company continues to progress with drug development. Two of its products were approved during the last 6-months.

Japan’s Governance: TOPIX Reform Update (2) – Change in Calculation Method of Floating Share Ratio

This article will focus on TOPIX reform regarding policy shares. The biggest change in the way TOPIX’s float ratio is calculated is the exclusion of policy shares from TOPIX float.
Companies with a large cross-shareholdings will see a downward impact on their stock prices. We expect to see a move to reduce policy holdings by the end of March.
It is also expected that there will be a move to transfer policy-holding shares to deemed-holding shares, which are considered floating shares. We should keep close eyes on such moves.

Mercari – Don’t Panic Sell

Mercari opened down 11.7% and has now recovered to be down “only” 8.5%.
While our impression of results yesterday was negative the intensity of the move is overdone in our view.
We still believe that momentum is likely to be muted for a while but the current price is not unattractive.

Kura Sushi (2695): Relay from Demon Slayer to BTS. Winning with Entertainment Value

On February 3, Kura Sushi (2695, the company) disclosed monthly data for January (on a preliminary basis)
The company ran a special fair using high-end ingredients in early January and has been running a “BT21” campaign from January to February.
BT21 is a globally popular character brand created through a collaboration between LINE FRIENDS and BTS (Bangtan Sonyeondan)

Tosho (8920): Solid 3Q OP; Announced Upward Revision of Guidance on Property Sales

Tosho (8920, the company) announced 3Q FY3/22 results and an upward revision of its full- year guidance.
Recovery progressed in 3Q mainly in the hotel business
The company announced a revision to its FY3/22 full-year guidance, raising its OP guidance from 2.0bn yen to 4.4bn yen

Before it’s here, it’s on Smartkarma