In today’s briefing:
- September Nikkei 225 Review – Lasertec, Mercari, Nitori IN, Expected DELETEs Out (Matsui the Biggie)
- Nikkei 225 Index Rebalance: Mercari, Lasertec, Nitori IN; Nippon Glass, Mitsui E&S, Matsui Sec OUT
- March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split
- Integral Corporation IPO: New Price Range Is Tempting
- Integral Corporation Pre-IPO – Thoughts on Valuation
- Japanese Cosmetics Ready to Blossom with Asian Visitors
- Bargain Sale at Sogo Seibu as Seven & I Finally Capitulates
- Medipal Holdings (7459 JP): Started FY24 On a Strong Note with Accelerated Revenue
- SBI Sumishin Net Bank – Dramatic ROA Expansion, Steady & Strong, Profit & Loan Growth, ROE at 19%
- 4Q Follow-Up – Ohba (9765 JP)
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September Nikkei 225 Review – Lasertec, Mercari, Nitori IN, Expected DELETEs Out (Matsui the Biggie)
- Today, somewhat earlier than expected), the Nikkei Index Team announced the changes to the Nikkei 225.
- Lasertec Corp (6920 JP), Mercari (4385 JP), and Nitori Holdings (9843 JP) are added. Nippon Sheet Glass (5202 JP), Mitsui E&S Holdings (7003 JP), and Matsui Securities (8628 JP) removed.
- That triggers flows of about ¥480bn a side, and some big, big changes. The announcement helps understand new process better.
Nikkei 225 Index Rebalance: Mercari, Lasertec, Nitori IN; Nippon Glass, Mitsui E&S, Matsui Sec OUT
- Mercari (4385 JP), Lasertec (6920 JP) and Nitori (9843 JP) will replace Nippon Sheet Glass (5202 JP), Mitsui E&S (7003 JP) and Matsui Securities (8628 JP) in the Nikkei 225.
- As expected, Nitori Holdings (9843 JP) will be added at half the planned PAF since the trading value is low compared to the expected index weight.
- Passive trackers need to buy between 1-17 days of ADV on the adds while selling between 1.2-16.5 days of ADV on the deletes. There is a big funding trade too.
March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split
- Now that the September 2023 Nikkei 225 Rebal is announced, we look at the March 2024 rebal and its possibilities.
- Socionext (6526 JP) is the only automatic ADD, but it might not be. ZOZO Inc (3092 JP) and Ryohin Keikaku (7453 JP) would be sector balance ADDs.
- Fast Retailing (9983 JP) could get capped if it outperforms Nikkei 225 by ~10%+ to 31Jan2024. And Nitori Holdings (9843 JP) will see an add of ~14 days of ADV.
Integral Corporation IPO: New Price Range Is Tempting
- Integral Corporation (5842 JP) has set its IPO price at JPY2,300-2,400 per share, 18%-29% lower than the IPO reference price range of JPY2,800-3,400 per share.
- We previously discussed the IPO in Integral Corporation IPO: The Bull Case, Integral Corporation IPO: The Bear Case and Integral Corporation IPO: Valuation Insights.
- Our analysis suggests that the revised IPO price range is attractive compared to peer multiples. The re-rating of peers since the release of the prospectus also makes the offer tempting.
Integral Corporation Pre-IPO – Thoughts on Valuation
- Integral Corporation (5842 JP) is looking to raise around US$123m in its Japan IPO.
- Integral is a private equity management company advising funds that invest in both listed and unlisted companies in Japan, with a focus on mid-sized companies.
- In our previous notes, we looked at the company’s past performance. In this note, we talk about valuation.
Japanese Cosmetics Ready to Blossom with Asian Visitors
- Despite expected increased demand from returning Asian tourists, Japanese cosmetics companies have been hesitant to revise their 2H 2023 inbound demand projections.
- We are long Kose Corp (4922 JP), Shiseido Company (4911 JP), and Pola Orbis Holdings (4927 JP), as consensus estimates look extra cautious and reasonable and appealing FY+2 valuation multiples.
- We view the risk of Chinese consumers boycotting Japanese cosmetics due to Fukushima wastewater release as relatively low.
Bargain Sale at Sogo Seibu as Seven & I Finally Capitulates
- Seven & I has finally sold Sogo Seibu to Fortress Investments.
- It will be pleased to have offloaded a loss-making format it never really understood but at a cost – it will write off more than ¥90 billion in loans.
- Fortress will immediately sell the land under Seibu Ikebukuro and some other assets to Yodobashi with suggestions of major redevelopment of both Ikebukuro and Shibuya.
Medipal Holdings (7459 JP): Started FY24 On a Strong Note with Accelerated Revenue
- Medipal Holdings (7459 JP) announced strong Q1FY24 result, with a 6% YoY revenue growth to ¥887B, driven by growth across all three business segments.
- However, operating profit declined 8% YoY to ¥12B, mainly due to increase in SG&A expenses. Driven by an extraordinary income of ¥3.3B, net profit jumped 35% YoY to ¥11B.
- The company has reaffirmed FY24 guidance, which calls for a 4.5% YoY revenue growth, flat operating profit, and a 9.3% YoY decline in net profit.
SBI Sumishin Net Bank – Dramatic ROA Expansion, Steady & Strong, Profit & Loan Growth, ROE at 19%
- This is not a typo: SBI Sumishin Net Bank saw loans up 21% YoY in 1Q24, operating in Japan
- The bank has achieved cost scale, with acquisition cost per account a fraction of 2 yrs ago
- Credit quality remains exceptional, amongst best in Japan, with 0.06% NPL ratio in 1Q24
4Q Follow-Up – Ohba (9765 JP)
- Since reporting its full-year results for FY23/5, OHBA shares have been rerated and its share price is up approximately 20% at the time of writing.
- In its five-year medium-term management plan ending in FY28/5, the company has set ambitious earnings targets (sales CAGR of 5.0%, operating profit CAGR of 7.0%) and a policy committed to capital efficiency (ROE 12%, ROIC 12%).
- In addition, the company has further strengthened its shareholder return policy (targeting a total return ratio of 60%), which has been one of the best among listed construction consulting companies, and this has likely driven the rerating to some extent.