Daily Brief Japan: Keisei Electric Railway Co, Komatsu Ltd, Rakuten Bank , Daiichi Sankyo, Tokyo Stock Exchange Tokyo Price Index Topix, Japan Elevator Service Holdings and more

• YTD performance of 61% has been stellar and index beating but the concern remains whether there will be more left. 
• Keisei Electric Railway Co (9009 JP) April 23 ridership and revenue growth provide momentum despite the still non-existence arrival of Chinese tourists. 
• Chinese tourists’ arrival in 2H 23 may be slow but chances are that they will arrive in Japan and will boost both ridership and revenue.

• We remain bullish on Komatsu despite returning a positive 37% return over the past year. 
• Q1 results are likely to exceed expectations and guidance is likely to be cautious, due to forex, pricing and cost factors.
• Komatsu is still attractively valued compared to its peers and historical averages, and has 20% upside potential.

• We remain positive on Rakuten Bank, with its group ecosphere as a source of customer growth, its low cost base, and extremely low NPL ratio
• Rakuten Bank trades on the lowest PE multiple of the neobank peer group , with the low ROE to PBV ratio close to the best of its neobank peers
• Nubank shares have done well since we upgraded to a buy in January; we recommend investors to take profits given Nubank’s  limited potential for positive surprises and its stretched valuations

• In FY23, Daiichi Sankyo (4568 JP) recorded Enhertu product revenue growth of 218% YoY to ¥208B, 4% ahead of forecast, driven by indication expansion and strong market penetration in US.
• For FY24, Enhertu product revenue is expected to increase 54% YoY to ¥320B, driven by higher utilization in HER2 positive and HER2 low breast cancer in US.
• Daiichi Sankyo has two more drug candidates in late-stage trials for various cancers. Contribution of oncology to total revenue is expected to increase to 45% in FY26 from 20% now.

• The TSE is in a long-term battle to improve the quality of the prime market while maintaining lax listing standards that do not fit the prime market concept.
• If passive funds move to JPX Prime 150 Index, which would increase the divergence between stock prices of high quality and low quality companies, it might motivate the companies more.
• If there is little difference between performance of TOPIX and JPX Prime 150, the passive funds will be satisfied with this index, and the TOPIX engagement problem will be eliminated.

Initiating coverage

• A successful market disruptor – Japan Elevator Service (JES) has been executing its growth strategy, increasing market share in the domestic elevator maintenance market via organic and acquisitive growth.
• Operating in a market dominated by OEMs, it is making solid headway by 1) offering a cost-effective solution, 2) a differentiated service offering technical services and availability of parts on par with the OEMs, and 3) experiencing rapid growth through by establishing a nationwide network providing regionally rooted services.
• Pursuing growth opportunities – we highlight two drivers for the company; 1) secular growth as building owners convert to reputable independent providers for cost management, and 2) structural demand from aging elevators requiring modernization.