Japan

In today’s briefing:

Sony – Guidance Upgrade
ASKUL (2678) – Large, Accretive, Not Enough for Prime So Look For More
Astellas Pharma (4503) Buyback – Short-Term Pressure Catalyst
Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term
Z Holdings (Buy) Q3 21 Results Reaction: Mostly Positive as Ad Sales Continues to Impress
Lasertec – Overvaluation Even More Phenomenal Than the Business
Aisin – Toyota Production Plan Indicates Further Upside
Denso – Slightly Disappointing Margins but It’s All About the Production Ramp
Chiyoda – Momentum Turn Could Be Around the Corner
M3: Covid Related Trials and Vaccination Programs Drive Earnings; Core Business Growth Slowing Down

Sony – Guidance Upgrade

Sony posted a strong quarter on the back of resilient margins in gaming and stellar performance in the pictures segment.
Guidance was raised to ¥1.2trn above the top of consensus at ¥1.185trn but results will likely be around ¥1.3trn, a little below the ¥1.37trn we called in early 2021.
Next year should see further growth and we expect firm performance going forward.

ASKUL (2678) – Large, Accretive, Not Enough for Prime So Look For More

Askul Corp (2678 JP) today announced a 4.9% buyback, likely via ToSTNeT-3, designed to lower the holding of parent Z Holdings (4689 JP), to meet TSE Prime Tradable Share criteria.
While 5.1% earnings accretive, it will not be enough, and the structure suggests despite significant excess cash, the next tranche won’t come immediately.
There is short-term strategy, and there is longer-term positioning. Both may work in this case.

Astellas Pharma (4503) Buyback – Short-Term Pressure Catalyst

Large Japanese low-multiple pharma company Astellas Pharma (4503 JP) yesterday announced earnings and this morning announced a buyback.
The buyback is small-ish, but the details are definitely worth knowing.
A play against peers for the period and afterwards may have some merit. If you have an execution axe, definitely worth a look.

Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

With momentum behind defensive/semi defensive names in the Japanese market, Pan Pacific International Holdings (7532 JP)’ seems to have one of the best risk reward ratios among Japanese retail players.
PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.
Thus, we would buy PPI with a target of 40% upside in the short term.

Z Holdings (Buy) Q3 21 Results Reaction: Mostly Positive as Ad Sales Continues to Impress

Q3 21 in-line for revenue but well ahead for EBITDA on solid advertising growth leading to an upgrade in management’s full-year EBITDA target.
Operational results were encouraging with double-digit gains in ad sales and 7% eCommerce growth despite strong year-ago comps.
Impairment losses for equity associate Demae-Can sting but the overall story is positive.

Lasertec – Overvaluation Even More Phenomenal Than the Business

Lasertec has been the darling of the SPE sector over the last few years, rising a 122x from mid-2016 to the peak at the start of this year.
With a commanding position for EUV inspection systems and its new ACTIS systems on deck the excitement is understandable.
The valuations though are not, and the share price has now clearly started to break down.

Aisin – Toyota Production Plan Indicates Further Upside

Aisin’s 3Q revenue of ¥1,004bn (+13.1% QoQ, -4.3% YoY) and OP of ¥54bn (5.4% OPM) reassured investors and the stock closed 4% higher.
Revenue was 1.7% higher than consensus estimates while OP was 4.9% lower but Aisin maintained guidance.
The real story is the production ramp from here however and risk-reward for Aisin remains phenomenally skewed.

Denso – Slightly Disappointing Margins but It’s All About the Production Ramp

Denso announced 3QFY22 during market hours today posting revenue of ¥1,426bn and OP of ¥97bn.
Reported revenue was 4.2% higher than the consensus estimates while OP was 17.8% lower.
The market reacted negatively to the weak OP print but we think the focus should be all on the upcoming volume ramp.

Chiyoda – Momentum Turn Could Be Around the Corner

Chiyoda’s 3Q numbers weren’t especially surprising nor impactful as the company continues its recovery.
We have been detailing for some time how current valuations look depressed and upside risk was present from the capital structure.
Now we believe that revenue trends are improving to the extent that they may put a floor under the stock.

M3: Covid Related Trials and Vaccination Programs Drive Earnings; Core Business Growth Slowing Down

M3 Inc (2413 JP) reported 3QFY03/2022 results on Wednesday. Revenue grew 16.0% YoY to JPY56.5bn (vs consensus JPY54.3bn) while OP grew 22.4% YoY to JPY22.6bn (vs consensus JPY20.6bn).
The company for the first time provided information on its US&EU businesses. Pharma marketing & research generates a majority of revenues followed by clinical trials in these regions.
M3 also has acquired MirVracha, a website providing marketing support services to pharmaceutical companies in Russia. MirVracha has approx. 400k members, around 60% of all physicians in the country.

Before it’s here, it’s on Smartkarma

Feb 02

Japan: Allied Telesis Holdings Kk, Keyence Corp, Seven & I Holdings, Nikkei 225, Sony Corp, Hoya Corp, KDDI Corp, Mitsubishi Motors, HS Holdings, Jalux Inc and more

In today’s briefing:

Allied Telesis (6835) – Small Cap Windfall
Keyence – Strong as We Suggested
Seven & I to Sell The Loss Making Department Store Business Amidst Pressure From Investors
Nikkei Tactical Rally but Still on Our MT Short List
Sony Tactical Long with Sell Overhang to Re Set at High Conviction Support
Hoya: Life Care Exceeds Pre-Covid Levels; Slight Upgrade to Forecasts with a Small Buyback
KDDI (Buy) – Follow-Up After Q3 21 Results
Mitsubishi Motors – Further Recovery
Sawada/HS (8699) – A NON-Salutary Development
JALUX (2729 JP) Tender Offer Commences – Open & Shut Case With Weirdness

Allied Telesis (6835) – Small Cap Windfall

Allied Telesis is a Japan-listed business with a long US history making networking equipment and solutions for corporate customers.
The company received a legal settlement today which is worth a fair bit to them.
The company had already had the best 12 months earnings history in years, while the stock is trading at long-time lows. This could get exciting.

Keyence – Strong as We Suggested

Keyence’s 3Q numbers were noticeably stronger than consensus with revenue at ¥190bn (just below our estimate of ¥192bn+) vs. consensus at ¥182bn.
OP also beat by 4.2% but was held back slightly by high SG&A.
Nevertheless, this should move the outlook for 4Q up significantly setting up a reasonable full year beat and better prospects for next year.

Seven & I to Sell The Loss Making Department Store Business Amidst Pressure From Investors

Nikkei reported yesterday that Seven & I Holdings (3382 JP) is in final negotiations to sell its underperforming department store business Sogo Seibu, amidst pressure from several of its investors.
The company has indirectly confirmed the news by saying that they are considering changes to Seven & I’s business portfolio including the sale of the Sogo & Seibu business.
The disposal of underperforming department stores could increase the efficiency of capital usage and generate upside to shareholders returns and enable the company to focus on growth through geographic expansion.

Nikkei Tactical Rally but Still on Our MT Short List

By Thomas Schroeder

Nikkei met out C wave washout low target at 26,200-300 that sets up would licking recovery trade after downside re test in early February (February bullish global recovery cycle).
Bear pressure on the 27k key range lows does warn of an eventual breakdown after tactical recovery attempt.
26,300/500 offers near support for any bulls who want to trade a counter trend bounce. Our February upside target and fresh short zone remains at 28,300/700.

Sony Tactical Long with Sell Overhang to Re Set at High Conviction Support

By Thomas Schroeder

Sony is due for a tactical rise, stall and minor new low after completing a full count rise at 15,700. Trendline support break and gap resistance will attract sellers.
RSI bear divergence stands out. 12k tactical buy zone with 14k sell area. Ideal C wave buy zone lies at 10,500 support or within this range.
Sony remains an attractive macro bull play but has some backfill risk to iron out toward higher conviction long support.

Hoya: Life Care Exceeds Pre-Covid Levels; Slight Upgrade to Forecasts with a Small Buyback

Hoya Corp (7741 JP) reported 3QFY03/2022 results today. Revenue grew 16.6% YoY to JPY171.3bn (vs. consensus JPY162.1bn) and OP grew 17.0% YoY to JPY53.5bn (vs. consensus JPY51bn).
Life Care revenue which was severely impacted due to Covid-19, exceeded pre-Covid levels with a 11.7% YoY increase. IT revenue continued to maintain its momentum during the quarter.
Hoya has slightly upgraded its full-year forecasts and also has announced a share buyback program for JPY60bn.

KDDI (Buy) – Follow-Up After Q3 21 Results

We had a chat with KDDI after results last week including clarification on issues that came up on the analyst call (3G network shutdown, Q4 impacts on operating profit)
The competitive environment in mobile looks similar to Q2 but wider distribution for sub-brands UQ (retail store presence) and Povo (first full quarter of availability) helped drive user growth
We have updated our forecasts for Q3 results and remain at Buy

Mitsubishi Motors – Further Recovery

MMC reported its 3QFY22 results on 31st January which saw revenues of ¥526bn (+14.6% QoQ, +39.1% YoY) and OP of ¥30.8bn.
Revenue was in-line, only 0.3% higher than consensus estimates while OP beat consensus estimates by ¥15bn thanks to the 5.9% OPM.
The result bodes well for the auto sector overall but weak top line and a dependence on forex have us going… meh.

Sawada/HS (8699) – A NON-Salutary Development

Sawada/HS Holdings (8699 JP) gets the bulk of its earnings from Khan Bank (even more so post-exit from gaitame).
Khan Bank just had a fantastic year with earnings up 77%.
But Sawada has just done a deal with should give one pause.

JALUX (2729 JP) Tender Offer Commences – Open & Shut Case With Weirdness

Sojitz and JAL have announced the start of their tender offer for Jalux Inc (2729 JP). There was no surprise in November. And no change in the interim.
While not outrageously generous, it is not particularly egregious to minority shareholders and the shareholder structure suggests it gets done easily.
The lack of Japan FTC approval prior to launch is a little odd, but there should be minimal risk, and practically speaking, zero incremental risk vs waiting to start.

Before it’s here, it’s on Smartkarma

Feb 01

Japan: Recruit Holdings, Monex Group Inc, Hitachi Construction Machinery, Komatsu Ltd, Sony Corp, Oriental Land, Koei Tecmo Holdings, Japan Post Bank, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Recruit (6098) Buyback – Big, But Meh…
JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Jan 2022
Monex – Downside Crypto Surprise
HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side
Komatsu – Strong but Mostly Priced In
Sony – The Bungie Counterpunch
Oriental Land: Price Reaction Unwarranted and There’s Significant Downside Risk in a Bear Market
Koei Tecmo – Nice on the Surface But We Are Worried
Japan Post Bank – As Good as It Gets?
Japan’s Governance: From “Status of Compliance with the Corporate Governance Code” Disclosed by TSE

Recruit (6098) Buyback – Big, But Meh…

Recruit announced a buyback of up to 34 million shares in an own share tender offer to take place at a price below the current market price.
This kind of tender offer is almost always meant for Japanese corporate holders as it rarely makes sense for others to participate.
This is mildly EPS accretive, BVPS decretive, quite ROE accretive, but Recruit can’t really use this method for the rest of its cross-holdings.

JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Jan 2022

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed in the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-January 2022.

Monex – Downside Crypto Surprise

Monex missed significantly at the PBT level with results of ¥1.01bn 73% below consensus of ¥3.77bn.
This was a result of weak revenue and margins for the crypto business as advertising expense escalated into falling top line.
The result is unlikely to do anything to reverse the recent downward trend of the stock and we recommend staying hedged.

HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side

HCM posted a strong set of 3Q results with revenue of ¥246.7bn a touch below our ¥248.5bn estimate and blowing away clueless consensus’ ¥219.2bn.
That the consensus high was just ¥231bn is an illustration of how poor the sell side understanding of HCM is compared to Komatsu.
We expect more of the same going forward… strength from HCM and cluelessness from sell side analysts.

Komatsu – Strong but Mostly Priced In

Komatsu’s 3Q results hit revenue of ¥723bn (+12.5% QoQ, +30.1% YoY) and OP of ¥87.5bn.
They beat consensus by 9.8% and 19.0% at the revenue and OP levels respectively.
That puts it on track to hit the high end of our ¥305-325bn OP estimate for the FY but upside is relatively moderate compared to HCM.

Sony – The Bungie Counterpunch

Sony has not taken long to respond to Microsoft’s purchase of Activision Blizzard.
It is being reported that Sony will acquire Bungie, original developer of the Halo franchise as well as Destiny for $3.6bn.
The cost effectiveness of this move stands in stark contrast to Microsoft’s acquisition and is significantly more targeted in its apparent goals, as usual.

Oriental Land: Price Reaction Unwarranted and There’s Significant Downside Risk in a Bear Market

Oriental Land (4661 JP) positively surprised the market with 3QFY22 revenue surpassing the consensus estimate by more than 13% through gradual easing of limits imposed on park attendance.
FY22 revenue and OP guidance were raised by ¥22.9bn and ¥16.6bn respectively despite expecting Q4 attendance to fall short of the original forecast through the new state of emergency measures.
Nonetheless, we think Oriental Land is too expensive at 33.6x FY24 OP, especially considering that attendance is expected to fall short of the original forecasts in the fourth quarter.

Koei Tecmo – Nice on the Surface But We Are Worried

Koei Tecmo delivered strong results with revenue of ¥18.1bn and OP of ¥10.7bn comfortably beating consensus of ¥16.2bn and ¥5.7bn respectively.
OP guidance was raised from an absurdly conservative ¥24.5bn to a still conservative ¥31.5bn, below consensus at ¥33.6bn.
While these results look broadly positive we are concerned that the recent sell off may continue.

Japan Post Bank – As Good as It Gets?

By Daniel Tabbush

Japan Post Bank can see gains from rising yields on its US CLO investments
Divergence of rising asset yields and flat funding costs may now be finishing
There is further operational risk, possibly poor ALM, limited write-back potential

Japan’s Governance: From “Status of Compliance with the Corporate Governance Code” Disclosed by TSE

On January 26, TSE disclosed the “Status of Compliance with the Corporate Governance Code (as of December 31, 2021)”. This article would like to discuss this disclosure document.
TSE’s latest disclosure covers 3,311 companies listed on the TSE 1st Section, 2nd Section, and JASDAQ Standard and reports on the status of compliance with the revised Corporate Governance Code.
How the principles of Corporate Governance Code required of companies listed on prime market are articulated in the future will have significant impact on the corporate governance practices of companies.

Before it’s here, it’s on Smartkarma

Jan 31

Japan: Recruit Holdings, Advantest Corp, Keyence Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Recruit Buyback: An Attempt to Rescue Falling Share Price; Seems Like a Good Short
Advantest – Upside and Downside Scenarios
Keyence – Not a Gimme but Worth a Small Buy Into Earnings
Japan’s Governance: About the Article on Holding Shares Contributed to Retirement Benefit Trusts

Recruit Buyback: An Attempt to Rescue Falling Share Price; Seems Like a Good Short

Recruit has announced a share buy-back on Friday of 34.0m shares (2.06% of outstanding shares) for JPY155.8bn, implying JPY4,581 per share.
Recruit’s shares closed at JPY5,090 per share at the end of Thursday’s close, and following the announcement, shares moved up to JPY5,305 a piece, gaining 4.2%.
We think Recruit’s shares will be a good Short over the next few days.

Advantest – Upside and Downside Scenarios

Advantest shares are down 19% from their Jan 4th high after a post earnings rally on Friday.
While order momentum remains strong it has moderated slightly since 2Q and longer-term risks are a concern.
What remains to be seen is how sustainable Chinese demand is given its steady rise since 2016.

Keyence – Not a Gimme but Worth a Small Buy Into Earnings

We are broadly negative the FA sector as we expect earnings to fall next FY for most players and valuations are extended.
Keyence is an exception in that we expect further growth next year although valuations are extended even for Keyence.
We believe this is because the market is pricing in its greater earnings resilience but maybe not quite enough.

Japan’s Governance: About the Article on Holding Shares Contributed to Retirement Benefit Trusts

Few investors are able to analyze the details of policy holdings and deemed shareholdings and their trends without reading and analyzing the annual securities reports of each company in detail.
It is impossible to analyze the details of policy holdings and deemed shareholdings and their trends without reading and analyzing the annual securities reports of each company in detail.
Companies holding the deemed shareholdings performed the worst, even though the impact on the assets on balance sheet is limited because the deemed shareholdings are contributed to retirement benefit trusts.

Before it’s here, it’s on Smartkarma

Jan 30

Japan: Advantest Corp and more

In today’s briefing:

Advantest (6857 JP): 3Q Results Point to Further Growth in 2022

Advantest (6857 JP): 3Q Results Point to Further Growth in 2022

By Scott Foster

New orders dropped back QoQ in 3Q, but were up 43% YoY and 1.2x greater than sales. The order backlog hit another record high.
FY Mar-22 sales and profit guidance was raised for the third time. Further growth seems likely next fiscal year.
The share price has dropped to the bottom of its recent trading range. We expect a short-term rebound while the market assesses longer-term risks.

Before it’s here, it’s on Smartkarma

Jan 29

Japan: Nikkei 225, ZOZO Inc, Omron Corp, JPY, KDDI Corp, Koito Manufacturing and more

In today’s briefing:

Nikkei 225 Weekly Close
Zozo – In Line as Reopening Looms
Omron – Downgrade on Normalising Profitability
Japanese Yen – Myths and Realities
KDDI (Buy) – Q3 21 Results Reaction: Slight Beat with Share Buy-Back Sweetener
Koito – Hit by Material Costs and Unexpected Plan Changes

Nikkei 225 Weekly Close

By Shyam Devani

This is an update & follow up from a note sent earlier this week called Is the Nikkei 225 the Next Shoe to Drop?
The weekly close has been below the important level of 26,954
This latest development suggests further losses over the coming weeks

Zozo – In Line as Reopening Looms

Zozo results were in line to slightly strong with revenue beating consensus by 3.3% and OP 1.3% higher.
That slight beat was driven by very aggressive advertising spend however and we expect the recent correction for the stock to continue.
The question in our mind is whether this will eventually head under ¥1,000 as we previously predicted.

Omron – Downgrade on Normalising Profitability

Omron reported its 3QFY22 results on 28th January which saw revenues of ¥190.9bn (+5.8% QoQ, +13.4% YoY) and OP of ¥19.2bn.
The reported results were 0.6% and 17.1% lower than the consensus estimates for revenue and OP respectively.
This weakness also lead to a downgrade in guidance the size of which was a touch surprising.

Japanese Yen – Myths and Realities

By Olivier Desbarres

Yen depreciated about 13% vs Dollar in 12 months to 4 January but has since rebounded about 1% in NEER terms. We expect trade deficit to stabilise in coming months.
“Safe-Haven” Yen also driven by capital outflows and global sentiment, as proxied by S&P 500. But perception that Yen is funding currency for EM has not held true since mid-2020.
Our near-term scenario, premised on lower US equities, is of modest Yen NEER appreciation. Monthly seasonality has historically been negligible in February.

KDDI (Buy) – Q3 21 Results Reaction: Slight Beat with Share Buy-Back Sweetener

Financial beat as enterprise sales grow and consumer mobile pressure stabilizes. A rebound in mobile user growth was a key driver
The company has raised its FY21 buyback program to a record ¥200bn
We are raising our target price from ¥4,030 to ¥4,440 and remain at Buy

Koito – Hit by Material Costs and Unexpected Plan Changes

Koito reported its 3QFY22 results yesterday and saw revenues of ¥199.7bn (+18.3% QoQ, -4.4% YoY) and OP of ¥14.2bn (7.1% OPM up 2.0% points QoQ).
The reported revenue was 6.5% higher than consensus estimates while operating profit was -9.2% lower creating a mixed picture.
Margins should normalise over time unlocking upside while underlying demand remains very healthy.

Before it’s here, it’s on Smartkarma

Jan 28

Japan: Sony Corp, Softbank Group, Fujitsu General, Tokyo Stock Exchange Tokyo Price Index Topix, Shin Etsu Chemical, Nidec Corp, ZOZO Inc, Ichigo Inc and more

In today’s briefing:

Sony – Great Opportunity
Softbank – Hmmmmm…
Fujitsu General – A Second Hiccup
Japan’s Topix Index Looking for the Exit Door
Shin-Etsu – Buy for the PVC Business
Nidec (6594): Catch a Falling Knife
Platforms Add Merchant Support as Japan’s Online Fashion Wars Move Offline
Ichigo (2337): Further Acceleration in Property Sales. On Track to Achieve Full-Year NP Guidance

Sony – Great Opportunity

Following its 12.8% fall last Wednesday Sony is now getting hit for 7.7% today thanks to Jay Powell.
This is an excellent opportunity to resize positions in our view as the long-term outlook remains excellent.
We had been worried about potential volatility due to the name becoming consensus but since that has been realised we are back to being uber bulls here.

Softbank – Hmmmmm…

Marcelo Claure is reportedly out, joining Katsunori Sago and Michael Ronen, Robert Townsend, Chad Fentress and Ziad Ojakli, Gary Ginsberg and Yuko Kawamoto.
This is the highest profile resignation at Softbank since Nikesh Arora and continues the pattern of people reportedly in disputes with Rajeev Misra leaving the company.
So does that 50% holdco discount offer any comfort here???

Fujitsu General – A Second Hiccup

Fujitsu General’s 3QFY22 results saw solid revenues of ¥63.7bn (+20.3% YoY) but weak OP of just ¥35m (0.1% OPM).
Cost inflation is a concern here but we are most concerned with the top line and we see few issues there which leaves us encouraged.
There is also the possibility of a buyout offer from parent Fujitsu though we are concerned about any premium being too light.

Japan’s Topix Index Looking for the Exit Door

By Shyam Devani

The Topix Index is approaching important levels at 1,838-1,849 which should be watched closely
If other developments on the Nikkei 225 are any indication then we are going to see a bearish break
A close below that zone opens the way for a move towards 1,720 which is another 7% below current levels

Shin-Etsu – Buy for the PVC Business

In our last note we posed the question of whether Shin-Etsu could join the ¥1trn OP club.
The company’s upgrade of its guidance from ¥485bn to ¥675bn today suggests that in fact the answer is looking like a yes.
While conditions for the wafer business remain strong it may be dragged down by tech negativity leading Shin-Etsu to rely on its phenomenal PVC business instead.

Nidec (6594): Catch a Falling Knife

By Scott Foster

Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high.
The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production – which is scheduled to continue until 2025.
But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.

Platforms Add Merchant Support as Japan’s Online Fashion Wars Move Offline

By Michael Causton

Rakuten Inc (4755 JP) and ZOZO Inc (3092 JP) are in a battle for share in online fashion with both companies increasingly aping the other to attract both merchants and consumers.
Amazon.com Inc (AMZN US) and Z Holdings (4689 JP) aren’t standing still either but the competitive pressures between Rakuten and Zozo may put them ahead of their rivals.
This competitive edge now encompasses both physical stores and online platforms for physical retailers, with the aim to bind them ever closer to the platform.

Ichigo (2337): Further Acceleration in Property Sales. On Track to Achieve Full-Year NP Guidance

By Mita Securities

Sold four office properties, with sufficient gains to achieve full-year NP guidance
Ichigo (2337, the company) announced on January 27, that it had signed a contract to sell four office properties.
The four office properties have been sold to a newly established bridge fund

Before it’s here, it’s on Smartkarma

Jan 27

Japan: Nidec Corp, Capcom Co Ltd, Fanuc Corp, Softbank Group, Seven & I Holdings, Ichigo Inc, DISCO Corp, CyberAgent Inc, Sawai Pharmaceutical, Makuake Inc and more

In today’s briefing:

Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over
Capcom – In-Line Results Could Drive a Re-Verse in Fortunes
Fanuc – Big Robot Beat Flops on the Margin Side
Softbank Group – ARM News, Vision Fund Weakness Highlight That Share Buyback Will Be Back Loaded
Seven & I: Activist & Long Term Investors Riled Up Yet Again
Ichigo (2337): Property Sales Finally in Full Swing
Disco (6146 JP): Valuation Reasonable but Not Compelling
CyberAgent: Earnings Miss Consensus and No Guidance; Games Growth Is Worrying
Sawai Pharmaceutical: Big Capacity Expansion Planned Amid Supply Shortages to Drive Market Share
Makuake (4479): A Further Decline in CVR Is a Negative, but Not a New Factor

Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over

Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus despite a 5.8% beat at the top line.
The deterioration in profitability across the Existing Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern.
It also suggests that consensus expectations for 22.6% OP growth next year may prove highly optimistic.

Capcom – In-Line Results Could Drive a Re-Verse in Fortunes

We had expected 3Q results for Capcom to be unsurprising given a lack of new titles and OP of ¥6.17bn was in line with consensus at ¥6.23bn.
The launch of Monster Hunter Rise for PC did not go as smoothly as we hoped but the trend appears to be improving.
All in all FY OP looks set to slightly beat consensus and guidance for better than double digit growth is likely in our view.

Fanuc – Big Robot Beat Flops on the Margin Side

Fanuc results were a little better than the in-line we expected on account of a big jump in Robot segment sales.
Given relative margins however, the impact at the OP line was limited and Fanuc’s revised guidance is now just under consensus for the year.
Much of the recent strength in FA and Robots looks unsustainable and we suspect this result may be taken negatively.

Softbank Group – ARM News, Vision Fund Weakness Highlight That Share Buyback Will Be Back Loaded

Nvidia is reportedly close to throwing in the towel on the acquisition of ARM (although markets have assumed that outcome for awhile)
Softbank can still monetize the asset through an IPO but most likely at a lower valuation and with much fewer proceeds
We believe ARM was the primary source of buyback funds and with VF down $13bn QTD prospects for meaningful buybacks have been pushed out

Seven & I: Activist & Long Term Investors Riled Up Yet Again

Seven & I Holdings (3382 JP) has climbed above the June 2021 peak for the first time in seven months despite weaknesses in the overall market.
Meanwhile, the Financial Times reported yesterday that 3 of the top 30 long term investors have requested Seven & I to get rid of underperforming businesses.
Although the company brushed off previous attempts by activist investors, the pressure from long term investors could tip the scales and force Seven & I to focus on convenience stores.

Ichigo (2337): Property Sales Finally in Full Swing

By Mita Securities

Sold 16 residential properties. Gains on sale far exceeded our expectations
Regarding this transaction, the company will book sales of around 17.7bn yen, RP of around 2.5bn yen, and NP of around 1.7bn yen in 4Q
In 1-3Q FY2/22, the company posted NP of 2.0bn yen. The company appears to be highly confident of achieving its full-year NP guidance of 5.0-8.0bn yen

Disco (6146 JP): Valuation Reasonable but Not Compelling

By Scott Foster

3Q results were above guidance, as expected. Full-year guidance looks conservative, as usual. New orders ahead of sales, pointing to one or two good quarters ahead.
Shares down 10% since the beginning of January. Valuation reasonable but not compelling given the risk of a cyclical peak in SPE demand this year.
Uncertainty likely to keep the shares in a trading range.

CyberAgent: Earnings Miss Consensus and No Guidance; Games Growth Is Worrying

CyberAgent reported 1QFY09/2022 results on Wednesday. Revenue for the quarter increased 30.6% YoY to JPY171.1bn (vs consensus revenue of JPY173.4bn) while OP increased 11.6% YoY to JPY19.8bn (vs consensus JPY24.5bn).
Games business reported strong growth in revenue, however, OPM continues to decline with increased advertising cost. Some of the older titles which performed strong have started to decline.
Internet advertising and Media continue to grow, with resurgence of Covid-19 cases, it seems internet ad business will take longer to bounce back to pre-Covid levels.

Sawai Pharmaceutical: Big Capacity Expansion Planned Amid Supply Shortages to Drive Market Share

By Tina Banerjee

Sawai Pharmaceutical’s in-house expansion plan, coupled with its recent acquisition of a production facility will enhance annual production capacity by 48% in multiple stages by 2030.
Capacity expansion will help the company to achieve its aim of market share expansion amid a shortage of generic drug supply in Japan.
Through H1 FY22, the company has achieved 51% and 58% of full-year’s revenue and core operating profit target for Japan, respectively.

Makuake (4479): A Further Decline in CVR Is a Negative, but Not a New Factor

By Mita Securities

CVR declined despite an increase in the number of projects. However, this is not a new negative factor
Makuake (4479, the company) announced 1Q FY9/22 parent results. Total amount of pre-orders (GMV) was 5.369bn yen (+19.0% YoY, -7.5% QoQ)
KPIs: Focus on the effectiveness of CVR measures going forward

Before it’s here, it’s on Smartkarma

Jan 26

Japan: Nikkei 225, Sony Corp, Toyota Motor, Tokyo Stock Exchange Tokyo Price Index Topix, Softbank Group and more

In today’s briefing:

Is the Nikkei 225 the Next Shoe to Drop?
A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022
Toyota – 11m Unit Production Target Is a Positive Surprise
Japan’s Governance: About the Article on the Limited Information Disclosure Published in English
Softbank – NVIDIA’s Abandonment of Arm and the Search for Credibility

Is the Nikkei 225 the Next Shoe to Drop?

By Shyam Devani

Key levels are under threat on the Nikkei 225 at 26,954
A close below there would amount to a notable break
We may be on verge of a multi week decline towards sub 25k

A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022

In 2020 and 2021 we had nine conviction calls, four of which returned over 50% within just over a year.
Three more returned close to 40%, one returned 15% and just one was an abject failure returning -39%.
On average, alpha generation was 24.3% and our 2022 names are off to a good start putting up 14.7% in alpha in just over a month and a half.

Toyota – 11m Unit Production Target Is a Positive Surprise

The Nikkei is reporting that Toyota has set internal production targets of 11m units for the fiscal year ending March 2023.
That would imply a more than 20% YoY increase in production volumes.
And that in turn is very positive news not just for Toyota but for several other auto-related names.

Japan’s Governance: About the Article on the Limited Information Disclosure Published in English

An article in Nikkei reported that “Of the 1,840 companies listed on the prime market, 230, or 13%, published their Annual Securities Reports published in English.
The disclosure of Annual Securities Reports and Corporate Governance Reports in English has been terribly slow. These reports were disclosed in English would greatly help foreign investors understand individual companies.
These reports, which contain information necessary for the valuation of a company, in English will be difficult to achieve until they become mandatory or are specifically designated as documents.

Softbank – NVIDIA’s Abandonment of Arm and the Search for Credibility

Bloomberg reported overnight that Nvidia was moving to accept reality and give up on the Arm merger.
This was largely expected but does deprive Softbank of a source of cash to conduct its buyback.
It also highlights the overall negative environment for Softbank’s traditional business “strategy”.

Before it’s here, it’s on Smartkarma

Jan 25

Japan: Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Japan’s Governance: About the Article on Corporate Governance Code

Japan’s Governance: About the Article on Corporate Governance Code

The logic that “the stock prices of companies listed on the TSE 1st Section that chose the Standard Market have risen more” is not sufficiently explained.
I have doubts about the writer’s logic that “the Corporate Governance Code is obsolete and companies will stop thinking according to it although there are many issues on CG Code.
I would like to add a few things because I sometimes feel that there are some misunderstandings when I talk to companies on capital allocation for shareholder return or investments.

Before it’s here, it’s on Smartkarma