Japan

In today’s briefing:

Japan’s Governance: TSE Market Reclassification: Results of Selection of New Market Segments

Japan’s Governance: TSE Market Reclassification: Results of Selection of New Market Segments

The highest hurdle for companies that don’t meet the listing criteria is tradable market capitalization. The expiration for transitional measures that allow the company to maintain its listing is unknown.
The highest hurdle for companies that don’t meet the listing criteria is tradable market capitalization. The expiration for transitional measures that allow the company to maintain its listing is unknown.
On October 7, TSE will disclose which companies will have their TOPIX ratios reduced. For companies with insufficient market capitalization, this is an urgent issue that needs to be resolved.

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Jan 22

Japan: Organo Corp, Sony Corp and more

In today’s briefing:

Organo (6368 JP): From Taiwan to the U.S.
TOPIX-Nikkei Skew Trade Hit by Sony and Fast Retailing but Outperforming Nikkei

Organo (6368 JP): From Taiwan to the U.S.

By Scott Foster

New orders are running ahead of sales as semiconductor capital spending continues to rise and the company follows TSMC to Arizona.
Water treatment for the semiconductor industry is of growing importance as more emphasis is put on recycling.
Share price up, but still reasonably valued. 3Q results should be out the first week of February.

TOPIX-Nikkei Skew Trade Hit by Sony and Fast Retailing but Outperforming Nikkei

A positive earnings surprise for Fast Retailing and Microsoft’s acquisition of Activision Blizzard hitting Sony have hurt the performance of our skew trade.
Despite this, the dramatic fall in the Nikkei means it is now outperforming the Nikkei since we first suggested the trade.
Looking forward we expect recent volatility to be absorbed over time and we retain conviction on our picks.

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Jan 21

Japan: Hitachi Transport System, Mitsui O.S.K. Lines, Hitachi Construction Machinery, Skylark Co Ltd and more

In today’s briefing:

Hitachi Transport System (9086) – Not a Clear Outcome But Interesting Possibilities
Mitsui OSK Lines Bear Impulse
Japan’s Governance: Hitachi Construction Machinery: Additional Notes and Ownership Factor
Skylark Holdings (3197): Earnings Forecast Update in Light of Omicron Outbreak

Hitachi Transport System (9086) – Not a Clear Outcome But Interesting Possibilities

Hitachi is, as the media fuss suggests, in the last stages of its re-formation after ridding itself of nearly two-dozen listed subs over the last decade-plus.
Hitachi Transport System (9086) is the last major sub/affiliate without a new home. Hitachi owns just under 40%. SG Holdings (9143 JP) owns just under 10%. Both want to sell.
It is not clear HTS wants to be taken private, but there could be an interesting financial engineering solution to suit the sellers.

Mitsui OSK Lines Bear Impulse

By Thomas Schroeder

Mitsui OSK Lines impulsive decline as sell volumes rise is a big negative and sets up a short on a bounce, which may be limited.
8,500 is near resistance. 7,000 is tactical support (trendline) where a reaction rise is due. Watch RSI near/below 30 for a short term low.
Major support at 6,500 targeted representing key dual lows, 200 dma and congestion support.

Japan’s Governance: Hitachi Construction Machinery: Additional Notes and Ownership Factor

More important than the continuity of the Hitachi brand is how HCM can increase the competitive advantage of its products and how quickly it can respond to changes in market.
Changes in major shareholders and the presence of major shareholders have been shown to have statistically significant correlations in ROA, Tobin’s q (and changes in market capitalization).
The existence of the Ownership factor doesn’t necessarily predict the future of HCM, but in construction equipment market with strong competition, having a reliable partner is encouraging in business decisions.

Skylark Holdings (3197): Earnings Forecast Update in Light of Omicron Outbreak

We are updating our earnings forecasts for Skylark Holdings (3197, the company) in light of its 3Q FY12/21 results
Earnings forecast for FY12/22 and beyond: Moderate recovery
Our target price is equivalent to 34.2x our FY12/24 EPS forecast of 46.85 yen.

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Jan 20

Japan: One REIT, Itochu Corp, Mercari Inc, Hitachi Construction Machinery, Baycurrent Consulting, Shift Inc, Nitori Holdings, Kusuri No Aoki, Ebay Inc and more

In today’s briefing:

FTSE EPRA Nareit Developed Asia Preview: A Few More Inclusions
Short-Term Itochu Buyback – A Cushion, But Style Bias Matters More
Mercari – US GMV Is Downside Risk but Profitability Is a Larger Upside Risk
HCM – Buy for the Commodity Upswing
BayCurrent: Strong Earnings and an Upgrade to Guidance; Drop in Multiples Offers a Good Entry Point
Shift: Strong Earnings Momentum to Continue with Expanding Software Testing into Metaverse Market
Cainz Takes on Nitori with Tokyu Hands Takeover
Japan’s Governance: Kusuri No Aoki Holdings (3549): 2QFY5/2022 Financial Results Briefing
Qoo10 Japan to Launch ¥10 Billion Fashion Mall Rival to Zozo

FTSE EPRA Nareit Developed Asia Preview: A Few More Inclusions

By Brian Freitas

The next FTSE EPRA Nareit Index review will use data from 21 February. The changes will be announced on 2 March and implemented at the close on 18 March.
Potential inclusions at the review include Heiwa Real Estate, One REIT and ESR Kendall Square REIT while there is a possibility of Digital Core REIT (DCREIT SP) being included.
Digital Core REIT (DCREIT SP) could be included if it publishes audited financial statements in the next week. Else inclusion could take place at the June rebalance.

Short-Term Itochu Buyback – A Cushion, But Style Bias Matters More

Itochu today announced a buyback program to buy US$500mm+ in the next 10 weeks.
Net income growth, a rising dividend, and balanced risk book help it perform with low beta and medium correlation to peers.
The low volatility-relative multiple is supportive, and the buyback helps, but style bias vs Peers matters more.

Mercari – US GMV Is Downside Risk but Profitability Is a Larger Upside Risk

Mercari is down 33% since 22 November, actually underperforming the 31% decline in Mothers.
YoY numbers for the US may only modestly beat the 20% growth target for the year and this reset of expectations may have been the driver of the decline.
However, we expect significant upside surprises on profitability and that is our focus.

HCM – Buy for the Commodity Upswing

By Shifara Samsudeen, ACMA, CGMA

Hitachi Construction Machinery continues to trade under ¥3,000 following the revelation that it would not be bought out by Hitachi.
There was little new at its conference call following the Itochu stake purchase announcement save some potential positives on the logistics front.
Nevertheless, with the stock trading at five-year lows vs. TOPIX and Komatsu, and consensus looking light we are extremely bullish here.

BayCurrent: Strong Earnings and an Upgrade to Guidance; Drop in Multiples Offers a Good Entry Point

Baycurrent Consulting (6532 JP) reported 3QFY02/2022 results last week. Revenue for the quarter increased 39.0% YoY to JPY15.0bn while OP increased 57.5% YoY to JPY3.7bn.
The company has revised both its revenue and OP guidance upwards for full-year FY02/2022E to JPY56.5bn and JPY21bn respectively.
The company has already met 73.5% and 72.7% of its revenue and OP target, we expect earnings beat for the full-year as fourth quarter is the strongest.

Shift: Strong Earnings Momentum to Continue with Expanding Software Testing into Metaverse Market

By Shifara Samsudeen, ACMA, CGMA

Shift reported its 1QFY08/2022 results last week. Revenue for the quarter increased 51.5% YoY to JPY14.3bn while OP more than tripled to JPY1.95bn vs JPY548m a year ago.
Both Enterprise and Entertainment segments saw strong growth in revenue as well as improvement in GPM during the period.
Shift’s share price gained 7.4% following its earnings announcement and we expect the company’s strong earnings momentum to continue over the next few years.

Cainz Takes on Nitori with Tokyu Hands Takeover

By Michael Causton

Iconic retail chain, Tokyu Hands, is to be acquired by Cainz, Japan’s leading home centre retailer.
Tokyu Hands remains as popular as ever thanks to its unique merchandising, but it has struggled to be profitable for a long time.
Cainz should be able to fix this and Hands will be part of Cainz’s plans to become the Workman Co Ltd (7564 JP) of home retailing – bringing competition to Nitori.

Japan’s Governance: Kusuri No Aoki Holdings (3549): 2QFY5/2022 Financial Results Briefing

There was no supplementary explanation from financial perspectives regarding the details of plans to open new stores in each region, plans for supermarket M&As, or the amount of these investments.
Aoki has yet to come up with effective pricing policies and sales promotion to boost SSSG. Its higher prices are leading to a decline in the frequency of store visits.
Its goal of “providing customers with one-stop shopping” is based on the assumption that consumers will not “buy separately” at discount drugs and discount supermarkets.

Qoo10 Japan to Launch ¥10 Billion Fashion Mall Rival to Zozo

By Michael Causton

Qoo10 has become one of the most popular Japanese malls among young women for all things Korean, particularly cosmetics and fashion.
The online mall now wants to exploit this by creating a new dedicated fashion mall with better promotional opportunities for merchants of all nationalities.
This should bring more competition to ZOZO Inc (3092 JP) and Rakuten Inc (4755 JP).

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Jan 19

Japan: Seven & I Holdings, Sony Corp, Demae-Can Co., Ltd. and more

In today’s briefing:

Time to Get Back Into Our 2021 High Conviction Call Seven & I
Sony – Microsoft’s Activision Blizzard Acquisition Shakes Things Up
Japan’s Governance: Demae-Can (2484) 1QFY8/2022 Briefing

Time to Get Back Into Our 2021 High Conviction Call Seven & I

By Oshadhi Kumarasiri

Following a strong third quarter the company has raised the full year revenue and OP outlook by 3.0% and 7.3% respectively due to stronger than expected overseas convenience store performance.
Moreover, the company continues to raise the Speedway synergies with the new medium-term plan expecting Seven & I Holdings (3382 JP) to double the EBITDA and EPS through 2020-25.
After rallying 65% in 1H21, shares took a breather during the last seven months. We think the timing is right to start the second half of Seven & I’s rally.

Sony – Microsoft’s Activision Blizzard Acquisition Shakes Things Up

Microsoft has agreed to acquire Activision Blizzard for $95 per share (+45.3% vs. undisturbed) which values the company at $68.7bn in EV.
ATVI had been under pressure since the middle of last year facing various sexual harassment allegations, but CEO Bobby Kotick will not be replaced.
Like with ZeniMax this deal features a demanding valuation for a number of IPs which have seen better days… but there is Call of Duty…

Japan’s Governance: Demae-Can (2484) 1QFY8/2022 Briefing

On January 14 (Fri.), I attended the 1QFY8/2022 earnings presentation of Demae-Can (2484), followed by the recent accounting scandal and update the profitability of the Company.
GMV in 1QFY8/2022 slows to grow in QoQ. Also, the take rate in QoQ was flat from 4QFY8/2021, which seems to have risen as much as GMV slightly decreased.
The focus will still be on when the end of competition will bring promotional expenses to an equilibrium level and allow the E-Commerce Model to return to profitability.

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Jan 18

Japan: Fast Retailing, Paramount Bed Holdings Co Lt, Hitachi Construction Machinery, Can Do Co Ltd, Koshidaka Holdings and more

In today’s briefing:

Fast Retailing: Q1 Beat Seems Temporary but Concerns About China Could Last Long
Paramount Bed (7817 JP): Poised to Grow on the Back of Recovery from the COVID-19
Japan’s Governance: Hitachi Construction Machinery (6305): Extraordinary Briefing Session
Japan’s Governance: CanDo (2698) Business Strategy Meeting
Koshidaka Holdings (2157): Takeaways from Our Post-Earnings Interview

Fast Retailing: Q1 Beat Seems Temporary but Concerns About China Could Last Long

By Oshadhi Kumarasiri

Fast Retailing (9983 JP)’s share price is up 10% after beating 1QFY22 consensus revenue and OP by 1.4% and 20.6% respectively.
However, the share price move feels unwarranted given that the beat was driven by mostly one-off/temporary factors in the company’s less significant segments
We think this is an opportunity to short Fast Retailing as Uniqlo seems to be slowing rapidly in the Chinese market.

Paramount Bed (7817 JP): Poised to Grow on the Back of Recovery from the COVID-19

By Tina Banerjee

Paramount Bed Holdings Co Lt (7817 JP) reported record-high sales and profit during six-month ended on September 30, 2021, driven by strong domestic demand due to recovery from the pandemic.
Each of businesses are receiving steady inquiries from market and is expected to perform strongly. Management raised full-year guidance after a strong Q1 results.
New products are driving margin for the company. Nemuri SCAN continues to perform well as remote monitoring using sensor technology is receiving more attention amid the COVID-19 pandemic.

Japan’s Governance: Hitachi Construction Machinery (6305): Extraordinary Briefing Session

I attended an extraordinary briefing on Hitachi Construction Machinery and would like to update and discuss further in this report.
Maxell (6810) is a good case study of a subsidiary whose shares were transferred by Hitachi. Partners are important for HCM because of the competitive environment.
The share price is expected to return to that range of 3,300 yen for the time being which is the fair value as a result of the due diligence.

Japan’s Governance: CanDo (2698) Business Strategy Meeting

On January 14, I attended a business strategy briefing of CanDo. This was the first business briefing after AEON (8267) consolidated CanDo.
While CanDo’s sales are expected to increase mainly through consignment sales, profit margin will improve due to cost reduction, and the key will be to expand sales of attractive products.
Since the management framework has changed by joining AEON, the corporate governance will be paid attention whether this change will be good for the sustainable growth of the corporate value.

Koshidaka Holdings (2157): Takeaways from Our Post-Earnings Interview

1Q (Sep-Nov) sales of 6.371bn yen, 37% of the company’s 1H guidance, may seem low at first glance, but were above the company’s target for the 1Q
1Q OP of -1.130bn yen was around 0.9bn yen above the company’s 1Q forecast. The company had expected a loss of nearly 2bn yen for 1Q
1Q RP of -196m yen includes 936m yen in subsidy income. The company’s policy is to book subsidy income on a payment basis

Before it’s here, it’s on Smartkarma

Jan 17

Japan: Mitsui O.S.K. Lines, Nippon Paint Holdings, Mercari Inc, Hitachi Construction Machinery, Money Forward and more

In today’s briefing:

MSCI Feb 2022 Index Rebalance Preview: Potential Changes as Review Period Starts
Nippon Paint (4612) Secondary Pricing Approaches – Cheaper But…
Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months
Hitachi Construction Machinery Deal To Change “Parent” – There’s Not Much There There
Money Forward (3934) – Solid, Not Spectacular

MSCI Feb 2022 Index Rebalance Preview: Potential Changes as Review Period Starts

By Brian Freitas

With a day to go to the start of the review period, we see 14 inclusions and 6 deletions for Asia. Most of the adds are in China and Korea.
There are quite a few adds that will require passive trackers to buy more than 5 days of ADV. Some of the stocks have rallied strongly year to date.
We expect large buying on SK Square (402340 KS), JD Health (6618 HK) and Sea Ltd (SE US) at the February QIR due to an increase in the FIF.

Nippon Paint (4612) Secondary Pricing Approaches – Cheaper But…

Nippon Paint Holdings (4612 JP) is down nearly 25% in a week after the large non-dilutive Offering which nevertheless increases Foreign Real World Float by 70+%.
The ratio of Forward PERe of Nippon Paint vs Peers is as low as it has been in many years, but EV/ForwardEBITDA remains high vs peers.
Investors who buy this deal or the Pricing Dip will be getting long next to ¥140-150bn of their closest friends who didn’t own as much NPH one week ago.

Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months

Mercari was expected to announce at some point that it would attempt to transfer to TSE Prime. They have now announced.
This will end up being a BIG TOPIX inclusion in May or June.
And the changes to the TOPIX Free Float Weight Methodology will mean it is bigger than it would have been under the old regime (despite unchanged FFW).

Hitachi Construction Machinery Deal To Change “Parent” – There’s Not Much There There

On Thursday we saw news of a Hitachi sale of half its stake in HCM. Friday the stock traded down hard. Friday night saw news that underwhelmed further.
The deal is big, but it is basically a deal to get Hitachi out as parent. There is no Capital Alliance and there is no Strategic Alliance yet.
There simply is not much there, there yet. And the stock is less liquid than it looks, and that won’t get better any time soon.

Money Forward (3934) – Solid, Not Spectacular

By Mark Chadwick

Money Forward reported full year results post close on Friday. The stock will react negatively…probably.
The stock is down 45% from its 52-week high, along with most high growth SaaS stocks
The fundamentals, earnings and growth remain intact, but valuations are unlikely to recover as excess liquidity drains out of the market. One for patient LT investors

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Jan 16

Japan: SUMCO Corp, Nippon Paint Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

SUMCO (3436 JP): CEO Describes Tight Supply, Rising Prices
Index Rebalance & ETF Flow Recap: STI, LQ45, China 50/A50, FTSE, BBIG, BHP, LG Energy, Nippon Paint
Japan’s Governance: How Far Has Corporate Governance Improved in 2021 (5) – Change in ％ of INEDs

SUMCO (3436 JP): CEO Describes Tight Supply, Rising Prices

By Scott Foster

CEO Hashimoto told the Nikkei newspaper that customers are ordering silicon wafers at higher prices before they are made, even as production capacity is being increased.
SEMI and TSMC announcements point to rising wafer demand for at least another two years. SUMCO’s expansion plans suggest at least three years.
We continue to recommend buying into the current weakness for the medium to long term.

Index Rebalance & ETF Flow Recap: STI, LQ45, China 50/A50, FTSE, BBIG, BHP, LG Energy, Nippon Paint

By Brian Freitas

We look at potential changes to the STI, LQ45, FTSE China 50, FTSE AW/AC and KRX New Deal indices at the upcoming rebalances.
FTSE has announced a Ground Rule change for the FTSE China A50 Index. S&P DJI announced that the BHP Group (BHP AU) Unification would be implemented in one step.
All eyes will be on the LG Energy Solution (373220 KS) IPO for the next couple of weeks and we take a comprehensive look at potential index (fast) entries.

Japan’s Governance: How Far Has Corporate Governance Improved in 2021 (5) – Change in ％ of INEDs

Companies that raised the % independent directors in 2021 improved both the nominating committee and compensation committee scores. This is in line with specific requirements of the revised CG Code.
Other than the percentage of independent directors, there were no changes in board practice measures that were positively correlated with significance affecting changes in other criteria.
I will examine whether passive events, such as revision of CG Code, will motivate companies to further improve their governance, or whether more companies will actively improve their governance.

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Jan 15

Japan: Inpex Corp and more

In today’s briefing:

Value Sectors Take The Lead On Rising Global Yields; Buying Energy and Financials

Value Sectors Take The Lead On Rising Global Yields; Buying Energy and Financials

By Joe Jasper

Commodities (ex. precious metals) and global yields are on the rise as the US dollar (DXY) deteriorates. Additionally, EM equities (EEM-US) display a bullish RS reversal relative to MSCI ACWI.
These are all important risk-on signals for global equities that continue to support our neutral yet constructive outlook. We expect more consolidation and mixed markets ahead.
Two Sectors that stand to benefit most from rising rates include Energy and Financials. We recommend adding exposure to these Sectors as we see a shift in favor of value.

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Jan 14

Japan: Hitachi Construction Machinery, Toyota Motor, Mitsui Fudosan Logistics Park Inc, Mani Inc, S Foods Inc, Koshidaka Holdings, Ichigo Inc, Monogatari Corp and more

In today’s briefing:

Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy
HCM – Hitachi Partial Stake Sale to Itochu
Toyota – Records Across the Board
Mitsui Fudosan Logistics Park Placement – Unit Price Has Historically Outperformed Peers
Mani Inc (7730 JP): No Immediate Respite Seen
S Foods (2292): Remarkable Positive Surprises. Significant Upward Revision of Guidance
Koshidaka Holdings (2157): 1Q Sales and OP Beat the Company Target
Ichigo (2337): Hopes Rise for Signs of Hotel Market Recovery
Monogatari Corporation (3097): Japanese BBQ Extremely Popular at Year-End

Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy

An NHK report today post-close said Hitachi Ltd (6501 JP) would sell “about half” its stake in sub Hitachi Construction Machinery (6305 JP) to Itochu and Japan Industrial Partners.
That is quite similar to the announcement 15 months ago in the Nikkei which precipitated a large drop. While unconfirmed, it smells like there is fire behind the smoke.
The big question is What Next? and What Impact for shareholders? That’s a tough couple of questions.

HCM – Hitachi Partial Stake Sale to Itochu

NHK reports that Hitachi will be selling roughly half of its 51% stake in HCM to Itochu and Japan Industrial Partners.
HCM has outperformed Komatsu over the last year and it is possible that some investors were expecting a buyout.
If so, and if there is a negative reaction to this news we would be looking to buy.

Toyota – Records Across the Board

Toyota is up 52% in just over a year, posting impressive performance for a company of its size.
Its displacement of GM as the number one automaker in the US has made headlines but results in China and Europe have also been impressive.
Hybrid penetration is now also over 25% in all major regions and we expect this to continue to be a driver.

Mitsui Fudosan Logistics Park Placement – Unit Price Has Historically Outperformed Peers

By Clarence Chu

Mitsui Fudosan Logistics Park Inc (3471 JP) is looking to raise around US$170m in its Primary Offering, to fund its acquisition of three properties and pay down its borrowings.
The anticipated acquisitions, post-completion, will be accretive to both operating income and DPU, even after factoring in the dilution.
In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Mani Inc (7730 JP): No Immediate Respite Seen

By Tina Banerjee

Mani Inc (7730 JP) offers medical devices, which are mainly used in the elective procedures including cataract surgery and dental procedures.
In FY21, the company missed its guidance for both revenue and operating income by 2% and 5%, respectively, due to higher-than-expected impact of the COVID-19.
With the rising cases of highly infectious Omicron variant of the COVID-19 in major operating regions, the company is expected to miss or lower its FY22 guidance.

S Foods (2292): Remarkable Positive Surprises. Significant Upward Revision of Guidance

Record 1-3Q OP +41% YoY; Significant upward revision of full-year guidance
Demand for restaurants during the year-end and New Year holidays appears to have been strong, and we assume that meat wholesaling to restaurants was generally robust
With the recent announcement of price hikes by a number of major competitors, it is becoming easier for the company to expect an easing of the competitive environment

Koshidaka Holdings (2157): 1Q Sales and OP Beat the Company Target

1Q FY8/22: Recovery in karaoke demand exceeded the company assumptions
The total number of stores in the karaoke business segment (domestic and overseas consolidated) was 581 at the end of 1Q (+18 stores from 563 at end-FY8/21).
We estimate that sales at karaoke rooms continued to recover in December, in line with the increase in foot traffic.

Ichigo (2337): Hopes Rise for Signs of Hotel Market Recovery

Ichigo shows confidence in achieving full-year guidance. Signs of hotel market recovery
On November 12, 2021, the company announced that the delivery date for the sale of 16 residential properties had been changed from November 12, 2021 to the end of January 2022
The company did not announce any share buybacks at this time.

Monogatari Corporation (3097): Japanese BBQ Extremely Popular at Year-End

December SSS 107.0% vs. 2019, of which Yakiniku division 117.8%
The number of domestic directly-owned stores at end of December was 352 (+3 MoM, +12 vs. end-FY6/21)
Many of the company’s restaurant formats use an all-you-can-eat system with a time limit. In addition, they are not suitable for takeout or delivery

Before it’s here, it’s on Smartkarma