The review period runs from 18-31 January for the February QIR, the results will be announced on 10 February (Asia-time) with the changes implemented after the close on 28 February.
There are quite a few potential changes in China and Korea, with a couple in Japan and one in Indonesia. There are a few stocks close to the inclusion/exclusion thresholds.
Other big changes include a potential increase in the Foreign Inclusion Factor for SK Square (402340 KS) and an increase in the Index Inclusion Factor for Sea Ltd (SE US).
NTT (9432 JP) sees a US$1bn selldown of shares on 29 December, due to a weird quirk in the way TOPIX and JPX Nikkei 400 are constructed and managed.
China’s State Administration for Market Supervision is reviewing Razer (1337 HK)‘s privatisation as a simple case. With the key regulatory pre-condition all but satisfied, the Scheme timeline will significantly shorten.
The trade is to be long the back end of Shinsei Bank (8303 JP)‘s Tender Offer. BUY Shinsei Bank shares – outright, and vs large Japanese banks with higher PBRs.
It would be reasonable to hypothesize that companies with takeover defense measures generally lack a clear growth policy and fail to communicate such a growth policy to investors.
With regard to Growth Policy and Capital Allocation Policy and Disclosures, the analysis of companies with and without anti-takeover measures revealed a clear difference.
Companies with anti-takeover lack robust growth policy and capital allocation to increase corporate value and fail to communicate the policy to investors, resulting in lower foreign shareholders, low market cap.
Yokogawa Electric is one of the world’s leading suppliers of distributed control systems (DCS) used in the LNG, oil & gas, petrochemical and other industries. It is particularly strong in LNG, having provided control systems for dozens of liquefaction trains, LNG carriers and re-gasification plants.
Unlike Chiyoda Corporation (6366 JP) and JGC (1963 JP), which depend on a small number of large engineering, procurement and construction (EPC) orders, which can be as large as ¥500 billion, Yokogawa only rarely receives an order as large as ¥10 billion and most of its orders are less than ¥1 billion. It is geared primarily to ongoing investments and operating expenditures in its user industries, less exposed to highly variable orders for large LNG and other engineering projects, and relatively immune to cost overruns and other problems at projects gone wrong.
Margins have expanded over the past several years due to a combination of restructuring and technological advance. Unprofitable non-core businesses have been abandoned or sold, high-wage domestic employees retired, and administration, manufacturing and logistics rationalized. Enterprise and robotic process automation (RPA) software have been introduced and an Industrial Internet of Things (IIoT) cloud computing platform is under development. Top-line growth has been slow, but the operating margin has risen from from 5.0% in FY Mar-12 to 8.0% in FY Mar-18, and should reach 10% in FY Mar-21, in our estimation.
At ¥2,215 (Wednesday, March 13 closing price), the shares are selling at 23x our EPS estimate for FY Mar-19 and 20x our estimate for FY Mar-21. Projected EV/EBITDA multiples for the same two years are 9.8x and 8.2x. These and other projected valuation multiples are above their recent historical averages, but indicate upside potential of 20% or more if the anticipated upturn in new LNG investments materializes. Investors willing to take on more speculative risk should look at Chiyoda and JGC.
Astonishing as it may seem but 80% of all retail transactions in Japan are made with cash and 88% if you include the cash stored in so-called ‘smart wallets’ – essentially cash stored in plastic.
Just like much of Japan’s service sector, payments is a classic example of the sector’s capacity to resist change, resist still more and finally, with much knocking of heads in Kasumigaseki, race to modernise in a very short period of time.
That Japan will switch to cashless payments in the next three years is not in doubt – not least because of Japan’s fear of Chinese payments systems gaining too much share – but with so many competing payments services available and still being launched, the big question is who will win. Given their deep data, consumer loyalty and brand names, it is likely that the current kings of loyalty points will take the biggest share alongside some of the biggest retailers meaning Rakuten (4755 JP), Softbank (9434 JP), NTT Docomo (9437 JP) and the three convenience store schemes backed by banks.
While the use of cash may decline, households still keep an average of ¥830,000 in cash (8% of GDP in total) under the futon and are unlikely to change that particular habit given the frequency of earthquakes and other natural disasters.
Japan has a vast number of competing loyalty programmes and until five years ago Japanese consumers would often have as many as 10 loyalty point cards in their wallets.
In recent years consumers have gradually begun to whittle down their choices and today there are clear indications of which schemes will dominate.
Loyalty point schemes have always been key drivers of shopping behaviour but more recently it has become clear that the choice of e-commerce store is often driven by which loyalty point schemes can be used.
At the same time, there are increasing signs that the leading loyalty schemes could take the lead in Japan’s emerging cashless payment sector.
We believe this presents an excellent opportunity to look at the stock on the short side again.
We would also refer readers to an article from Livedoor news which delves into the company’s issues from a local industry insider’s perspective. The article is in Japanese and the google translated version is almost unintelligible but we summarise the salient points and our perspective below.
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Korea’s news outlet Maeil Economic Daily reported yesterday that the main bidding of Nexon sale was pushed back to next month. It was originally planned for this month. Maeil said lower-than-expected interest among potential bidders was the main reason. More specifically, Tencent isn’t showing any serious commitment or intention.
Tencent is the key player in this event. But Tencent seems to be hiding its cards. Following are reasonable conclusions at this point wrt what must be going on in this deal:
Tencent has the upper hand in all situations.
Tencent must be the one who is taking more time and pushing back the schedule.
But there is still a higher chance that Tencent will stay in this race to the end.
But it is also very possible that final offer price will be lower than initially and currently expected as Tencent will likely get better deal conditions.
MonotaRO’s domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April.
Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier.
At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.
Yaskawa Electric (6506 JP) reported FY03/19 results yesterday where OP of ¥49.8bn missed guidance of ¥53bn (-6.0% miss) and consensus of ¥52.1bn. Guidance of ¥46.5bn OP for FY02/20 was light relative to consensus at ¥48.7bn and our own expectations for about ¥50bn in OP but we believe guidance looks a little conservative and consider it to be mostly in line. The main concern was 4Q orders which were down 17% YoY and 10% QoQ with both Motion Control and Robotics displaying weakness.
The company also announced a buyback of 0.76% of outstanding shares for ¥9bn which we feel is a little small and also somewhat poorly timed given the 50% rally in the stock price in the last three months.
On 9 April 2019, after a press release by the Ministry of Finance saying that it had commenced the selection procedure for underwriters to assist on such a sale, the Nikkei carried an article (Japanese-only) saying that the government would sell down a stake in Japan Post Holdings (6178 JP) from its current 60-odd percent to a level of “over one-third” (presumably a level relatively close to one-third and a share) which is the minimum ownership level mandated by the Postal Service Privatization Act. The proceeds of the sale are designed to raise money for reconstruction related to the 2011 Tohoku Earthquake.
Currently, the Ministry of Finance owns 2.5595 billion shares out of the 4.5bn shares outstanding which is 56.88%, but the company has 10.34% of its shares as treasury shares so the MoF has voting rights of 63.3%. Another Nikkei article suggested the news meant a maximum sale of approximately 1.06 billion shares out of those 2.56bn shares held to bring the position down to 1.5bn shares exactly.
Importantly, IF the government got down to the “one-third plus one share” level (or close enough to it), that would complete the required privatization by the government based on the formal legal terms of the Privatization Act.
At Tuesday’s close of ¥1,286/share, 1.06bn shares would be ¥1.36 trillion as an offer size less fees and a discount to the close. The Japan Postal Service Privatization Act specified that the amount raised reach ¥4 trillion in total. The amount raised in sales so far is ¥2.8 trillion according to the Nikkei. That suggests the minimum acceptable price at which such an Offering could take place is around ¥1,160-1180. However, the word used in the Nikkei article is profit so despite the government’s very low accounting basis, it is possible that the minimum price would be closer to the current price, or it could even be higher.
In any case… it is important to note other factors here.
Pricing is a problem. The current price remains below the last two times the government tapped the market.
Making the deal attractive is a problem. JPH is required to continue to own 100% of the postal service and the 24,000 post office branches across the country. With the use of physical post services declining, JPH needs to have some profits elsewhere to support that. Those postal branches are to some degree supported by payments made by JPI and JPB for fair usage, but it is not enough. JPH needs to do some M&A and it has stated its policy includes more of it. The first round (buying Toll Holdings) did not go well. The second round of buying 7% of Aflac Inc (AFL US) is (I think) a great idea, but it doesn’t hit the income statement for a couple of years.
Buybacks at the JPI and JPB level raise EPS at those two entities. However, it doesn’t raise the level of EPS at the JPH level. For that, you need to reduce the denominator there too.
We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.
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Astonishing as it may seem but 80% of all retail transactions in Japan are made with cash and 88% if you include the cash stored in so-called ‘smart wallets’ – essentially cash stored in plastic.
Just like much of Japan’s service sector, payments is a classic example of the sector’s capacity to resist change, resist still more and finally, with much knocking of heads in Kasumigaseki, race to modernise in a very short period of time.
That Japan will switch to cashless payments in the next three years is not in doubt – not least because of Japan’s fear of Chinese payments systems gaining too much share – but with so many competing payments services available and still being launched, the big question is who will win. Given their deep data, consumer loyalty and brand names, it is likely that the current kings of loyalty points will take the biggest share alongside some of the biggest retailers meaning Rakuten (4755 JP), Softbank (9434 JP), NTT Docomo (9437 JP) and the three convenience store schemes backed by banks.
While the use of cash may decline, households still keep an average of ¥830,000 in cash (8% of GDP in total) under the futon and are unlikely to change that particular habit given the frequency of earthquakes and other natural disasters.
Japan has a vast number of competing loyalty programmes and until five years ago Japanese consumers would often have as many as 10 loyalty point cards in their wallets.
In recent years consumers have gradually begun to whittle down their choices and today there are clear indications of which schemes will dominate.
Loyalty point schemes have always been key drivers of shopping behaviour but more recently it has become clear that the choice of e-commerce store is often driven by which loyalty point schemes can be used.
At the same time, there are increasing signs that the leading loyalty schemes could take the lead in Japan’s emerging cashless payment sector.
We believe this presents an excellent opportunity to look at the stock on the short side again.
We would also refer readers to an article from Livedoor news which delves into the company’s issues from a local industry insider’s perspective. The article is in Japanese and the google translated version is almost unintelligible but we summarise the salient points and our perspective below.
Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.
Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.
CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.
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MonotaRO’s domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April.
Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier.
At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.
Yaskawa Electric (6506 JP) reported FY03/19 results yesterday where OP of ¥49.8bn missed guidance of ¥53bn (-6.0% miss) and consensus of ¥52.1bn. Guidance of ¥46.5bn OP for FY02/20 was light relative to consensus at ¥48.7bn and our own expectations for about ¥50bn in OP but we believe guidance looks a little conservative and consider it to be mostly in line. The main concern was 4Q orders which were down 17% YoY and 10% QoQ with both Motion Control and Robotics displaying weakness.
The company also announced a buyback of 0.76% of outstanding shares for ¥9bn which we feel is a little small and also somewhat poorly timed given the 50% rally in the stock price in the last three months.
On 9 April 2019, after a press release by the Ministry of Finance saying that it had commenced the selection procedure for underwriters to assist on such a sale, the Nikkei carried an article (Japanese-only) saying that the government would sell down a stake in Japan Post Holdings (6178 JP) from its current 60-odd percent to a level of “over one-third” (presumably a level relatively close to one-third and a share) which is the minimum ownership level mandated by the Postal Service Privatization Act. The proceeds of the sale are designed to raise money for reconstruction related to the 2011 Tohoku Earthquake.
Currently, the Ministry of Finance owns 2.5595 billion shares out of the 4.5bn shares outstanding which is 56.88%, but the company has 10.34% of its shares as treasury shares so the MoF has voting rights of 63.3%. Another Nikkei article suggested the news meant a maximum sale of approximately 1.06 billion shares out of those 2.56bn shares held to bring the position down to 1.5bn shares exactly.
Importantly, IF the government got down to the “one-third plus one share” level (or close enough to it), that would complete the required privatization by the government based on the formal legal terms of the Privatization Act.
At Tuesday’s close of ¥1,286/share, 1.06bn shares would be ¥1.36 trillion as an offer size less fees and a discount to the close. The Japan Postal Service Privatization Act specified that the amount raised reach ¥4 trillion in total. The amount raised in sales so far is ¥2.8 trillion according to the Nikkei. That suggests the minimum acceptable price at which such an Offering could take place is around ¥1,160-1180. However, the word used in the Nikkei article is profit so despite the government’s very low accounting basis, it is possible that the minimum price would be closer to the current price, or it could even be higher.
In any case… it is important to note other factors here.
Pricing is a problem. The current price remains below the last two times the government tapped the market.
Making the deal attractive is a problem. JPH is required to continue to own 100% of the postal service and the 24,000 post office branches across the country. With the use of physical post services declining, JPH needs to have some profits elsewhere to support that. Those postal branches are to some degree supported by payments made by JPI and JPB for fair usage, but it is not enough. JPH needs to do some M&A and it has stated its policy includes more of it. The first round (buying Toll Holdings) did not go well. The second round of buying 7% of Aflac Inc (AFL US) is (I think) a great idea, but it doesn’t hit the income statement for a couple of years.
Buybacks at the JPI and JPB level raise EPS at those two entities. However, it doesn’t raise the level of EPS at the JPH level. For that, you need to reduce the denominator there too.
We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
STATISTICS – Currently, of the 3,804 listed companies for which daily RPS data is available, 79 companies are ‘Overbought’, and 117 are ‘Oversold’ – 2.1% and 3.1%, respectively of the total. For the 779 companies with a market capitalisation of over ¥100b, there are 42 ‘Overbought’ and 28 ‘Oversold’ companies, 5.4% and 3.6%, respectively illustrating the relative strength of larger capitalisation stocks at this stage of the cycle.
RPS ‘TOPS’ – In the last two years, 438 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 45 days. For companies with a market capitalisation higher than ¥100b, the numbers are 92 companies and 83 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Kyudenko (1959 JP), Nichirei (2871 JP). Fancl (4921 JP), FamilyMart Uny (8028 JP), Infocom Corp (4348 JP), and SanBio (4592 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 360 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 59 days. For larger capitalisation companies, the numbers are 82 companies and 84 days. Some recent examples of positive RPS mean reversion in the last two months have been Mercari (4385 JP), AGC (5201 JP), and Pksha Technology (3993 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
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On 9 April 2019, after a press release by the Ministry of Finance saying that it had commenced the selection procedure for underwriters to assist on such a sale, the Nikkei carried an article (Japanese-only) saying that the government would sell down a stake in Japan Post Holdings (6178 JP) from its current 60-odd percent to a level of “over one-third” (presumably a level relatively close to one-third and a share) which is the minimum ownership level mandated by the Postal Service Privatization Act. The proceeds of the sale are designed to raise money for reconstruction related to the 2011 Tohoku Earthquake.
Currently, the Ministry of Finance owns 2.5595 billion shares out of the 4.5bn shares outstanding which is 56.88%, but the company has 10.34% of its shares as treasury shares so the MoF has voting rights of 63.3%. Another Nikkei article suggested the news meant a maximum sale of approximately 1.06 billion shares out of those 2.56bn shares held to bring the position down to 1.5bn shares exactly.
Importantly, IF the government got down to the “one-third plus one share” level (or close enough to it), that would complete the required privatization by the government based on the formal legal terms of the Privatization Act.
At Tuesday’s close of ¥1,286/share, 1.06bn shares would be ¥1.36 trillion as an offer size less fees and a discount to the close. The Japan Postal Service Privatization Act specified that the amount raised reach ¥4 trillion in total. The amount raised in sales so far is ¥2.8 trillion according to the Nikkei. That suggests the minimum acceptable price at which such an Offering could take place is around ¥1,160-1180. However, the word used in the Nikkei article is profit so despite the government’s very low accounting basis, it is possible that the minimum price would be closer to the current price, or it could even be higher.
In any case… it is important to note other factors here.
Pricing is a problem. The current price remains below the last two times the government tapped the market.
Making the deal attractive is a problem. JPH is required to continue to own 100% of the postal service and the 24,000 post office branches across the country. With the use of physical post services declining, JPH needs to have some profits elsewhere to support that. Those postal branches are to some degree supported by payments made by JPI and JPB for fair usage, but it is not enough. JPH needs to do some M&A and it has stated its policy includes more of it. The first round (buying Toll Holdings) did not go well. The second round of buying 7% of Aflac Inc (AFL US) is (I think) a great idea, but it doesn’t hit the income statement for a couple of years.
Buybacks at the JPI and JPB level raise EPS at those two entities. However, it doesn’t raise the level of EPS at the JPH level. For that, you need to reduce the denominator there too.
We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.
INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.
STATISTICS – Currently, of the 3,804 listed companies for which daily RPS data is available, 79 companies are ‘Overbought’, and 117 are ‘Oversold’ – 2.1% and 3.1%, respectively of the total. For the 779 companies with a market capitalisation of over ¥100b, there are 42 ‘Overbought’ and 28 ‘Oversold’ companies, 5.4% and 3.6%, respectively illustrating the relative strength of larger capitalisation stocks at this stage of the cycle.
RPS ‘TOPS’ – In the last two years, 438 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 45 days. For companies with a market capitalisation higher than ¥100b, the numbers are 92 companies and 83 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Kyudenko (1959 JP), Nichirei (2871 JP). Fancl (4921 JP), FamilyMart Uny (8028 JP), Infocom Corp (4348 JP), and SanBio (4592 JP).
Source: Japan Analytics
RPS ‘BOTTOMS’ – 360 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 59 days. For larger capitalisation companies, the numbers are 82 companies and 84 days. Some recent examples of positive RPS mean reversion in the last two months have been Mercari (4385 JP), AGC (5201 JP), and Pksha Technology (3993 JP).
Source: Japan Analytics
In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.
Post market close on 9th of April, as per media reports, the Japanese government said that it plans to sell another 1.06bn share of Japan Post Holdings (6178 JP) (JPH). The government aims to do so as soon as Sep 2019. The sale, at around US$12bn, would amount to 23.5% of the company and nearly 41% of the government’s current shareholding. It would mark the second sell down by the government since JPH listed in 2015. Post the news release, JPH shares closed down 3% on 10th of April. They are now trading below the IPO price, below the last placement price and just off their all-time lows.
The postal service privatization act seems to be in full swing, with JPH about to enter its third round of selling and Japan Post Insurance (7181 JP) (JPI) in the midst of its first post IPO sell down. However, Japan Post Bank (7182 JP) (JPB) has yet to see a sell down even though the recent deposit ceiling revision required JPH to reduce its holding in JPB. Were JPH to sell some of its JPB stake ahead of the government sale of JPH, it could mitigate a large part of its own placement using the cash that it generates from JPI and possible JPB stake sale to buyback some stock. Thus, there is a possibility that JPB placement might come before JPH’s next placement.
For people interested in reading more about the history and background, I’ve covered the IPO and JPH sell down in the below series of insights:
Asset Quality recognition is something of a black art with varied definitions for non-performing loans (“NPLs”).
Firstly, we analyse what a NPL is.
We then evaluate provisioning changes across Asia. We rank countries.
We further analyse specific underlying NPL recognition issues in China.
We then rank a sample of regional banks and countries by NPL recognition.
Later, we take a look at how different systems come under NPL stress and how they cope often in a crisis environment.
Finally, we wrap things up with some concluding insights about the cultural backdrop which defines systemic asset quality.
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We believe this presents an excellent opportunity to look at the stock on the short side again.
We would also refer readers to an article from Livedoor news which delves into the company’s issues from a local industry insider’s perspective. The article is in Japanese and the google translated version is almost unintelligible but we summarise the salient points and our perspective below.
Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.
Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.
CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.
On 12 March 2019 after the close, Shin Etsu Chemical (4063 JP)announced a share buyback program to buy up to 14 million shares for up to ¥100 billion. If it bought all 14 million shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
As I write, the shares are up 4-6% in thin trading in the ADRs.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap)).
The shares are down over the past year, but the price in the past few days is not dramatically at the low end of the range of the past six months or so.
There may be some information in the context and structure of this buyback which tells you something different than people’s first reaction.
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Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.
Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.
CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.
On 12 March 2019 after the close, Shin Etsu Chemical (4063 JP)announced a share buyback program to buy up to 14 million shares for up to ¥100 billion. If it bought all 14 million shares, that would be 3.3% of shares outstanding. Simultaneously, it announced a ToSTNeT-3 buyback of 11,001,100 shares at today’s closing price of ¥9,090/share which if all bought would complete the buyback program.
As I write, the shares are up 4-6% in thin trading in the ADRs.
There was some speculation across the Street there would be a buyback because of slowing earnings expectations and a surfeit of capital, which was itself important because of the company’s lack of recent history of buybacks (the last and only time the company has bought back shares (to date) was a repurchase of 3 million shares for ¥13.6 billion in late October 2008 when things were hairy (and cheap)).
The shares are down over the past year, but the price in the past few days is not dramatically at the low end of the range of the past six months or so.
There may be some information in the context and structure of this buyback which tells you something different than people’s first reaction.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
