In today’s briefing:
- Canon ADR Cancellation – There May Be A Trade To Do
- Absolutely GINORMOUS Citizen Watch (7762 JP) Buyback
- Fujitec (6406 JP): Oasis’ Activism Comes to a Head of the 24 February EGM
- Rohm (6963 JP): Gearing Up in the Downturn
- Shiseido: Conservative Guidance Is Not a Cause for Concern as Shiseido Almost Always Overdelivers
- Recruit (6098 JP) | A Soft-Landing?
- ABC Mart Rebounds in Weakened Sector but Watch Out for Workman
- Recruit: HRTech Margins Falling Back to Pre-Covid
- Earlier Timing of Disclosure in English May Create Another Mismatch with Investor Demand
Canon ADR Cancellation – There May Be A Trade To Do
- Last week (on 10 February), Canon Inc (7751 JP) announced it intended to delist its ADRs from the NYSE.
- Canon is the third Japanese company to do so in two months, after Eisai Co Ltd (4523 JP) announced in December and Olympus Corp (7733 JP) in January.
- No related investment opportunity but there may be a trade to do.
Absolutely GINORMOUS Citizen Watch (7762 JP) Buyback
- Today, Citizen Watch (7762 JP) reported Q3 earnings, and a BIG buyback.
- It is a VERY BIG BUYBACK at up to 75mm shares (25.61% of shares out), with an allocation of up to ¥40bn (which is ~22.1% at last price).
- The buyback is to be executed over the next year. Buyback structure (undisclosed) matters and shareholder structure matters too. There is a big short. This could get really interesting.
Fujitec (6406 JP): Oasis’ Activism Comes to a Head of the 24 February EGM
- Oasis proposals to restructure the Fujitec Co Ltd (6406 JP) Board which will be voted on at the 24 February EGM have got independent proxy advisor, ISS, support.
- An Oasis win would renew enthusiasm that Fujitec can close the performance gap with peers, resulting in a catalyst for the rerating of the shares.
- An Oasis loss is not disastrous as Oasis could come back or Fujitec would likely offer a premium to buyout Oasis. Fujitec is also cheap on a cash-adjusted P/E basis.
Rohm (6963 JP): Gearing Up in the Downturn
- Rohm is increasingly an automotive semiconductor maker. Its business should hold up reasonably well in the downturn and grow significantly in the long term.
- Capital spending risks excess capacity in the coming year, but sets the stage for long term growth. Possible investment in Toshiba a positive.
- Weak quarters ahead. Buy on weakness for the long term.
Shiseido: Conservative Guidance Is Not a Cause for Concern as Shiseido Almost Always Overdelivers
- Shiseido Company (4911 JP)’s share price is down more than 4% today following a mixed 4Q22 with revenue missing consensus by 2.1% but OP beating by 31.7%.
- A lot of optimism was baked in the medium-term plan, but 2023 OP guidance (¥60.0bn) was ¥17.5bn below consensus expectations.
- Nevertheless, we think this shouldn’t worry investors too much as Shiseido has outperformed initial guidance by an average of ¥17.0bn over the past 3 years.
Recruit (6098 JP) | A Soft-Landing?
- Recruit’s Q3 results are unlikely to move the market. Full year guidance slightly above consensus estimates
- Much of the bad news on the labour market and interest rates is now discounted in current valuations
- We remain bullish. At 23x PE the stock is trading at a deep discount to its historical 30x
ABC Mart Rebounds in Weakened Sector but Watch Out for Workman
- Footwear sales plummeted during Covid, except for sports and hiking shoes, with a deleterious impact on all the big three retailers.
- While ABC Mart has recovered, Chiyoda and G-Foot continue to struggle, leaving the market wide open.
- Disruption is coming in the form of Workman but others might also see the opportunity.
Recruit: HRTech Margins Falling Back to Pre-Covid
- Recruit Holdings (6098 JP) reported 3QFY03/2023 results today. Revenue increased 18% YoY to JPY880.1bn (vs consensus JPY862.0bn) while operating profit for the quarter decreased 12.4% YoY to JPY96.8bn (consensus JPY107.2bn).
- Though HR Tech top line grew 24.2% YoY, it declined sequentially while adjusted EBITDA margin of the segment also declined during the quarter.
- Recruit’s share price has fallen 24% over the last 12-months and with further weakening of labour markets, there is more room for shares to fall.
Earlier Timing of Disclosure in English May Create Another Mismatch with Investor Demand
- Regarding the three most in-demand documents, only 30-50% of companies with over 30% foreign ownership disclose them in English. The mismatch between overseas investors’ demand and companies’ disclosure continues.
- If TSE requires faster timing of disclosure in English, companies may limit the materials they disclose in English due to increased burden. Disclosing necessary materials is more important than timing.
- In order to encourage companies to disclose in English in their annual securities reports, the Corporate Governance Code should clearly state the disclosure in English in the annual securities report.
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