In today’s briefing:
- JAPAN PASSIVE: Who Owns What 2023?
- Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends
- Toshiba – Earnings Preview 1QFY24
- EQD | Nikkei 225 (NKY) MONTHLY Trajectories
- Mitsui Fudosan Logistics Park Placement – Fundamentally Sound but Dilutive
- Nihon M&A: Earnings Miss, No Indication of a Business Turnaround Yet
- M3: Weak Earnings and Overseas Business Further Slows Down
- Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis
- Simplex Holdings (4373) – Firing on All Cylinders and Targeting Long- Term Growth
JAPAN PASSIVE: Who Owns What 2023?
- The 2023 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each.
- Even if you do not “play” index changes, understanding impact is important. Advantest is up 100% in 3mos. Existing passive ownership and new passive buying were crucial to that performance.
- Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks in Japan.
Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends
- The review period for the Nikkei 225 (NKY) September rebalance ended yesterday. There should be three index changes, potential stepwise inclusion, no Fast Retailing capping and a big funding trade.
- There appears to be decent positioning on the potential adds, while it is the close adds that are spiking along with a big increase in traded volumes.
- If the three changes are on expected lines, estimated one-way turnover at the rebalance is 2.01% resulting in a one-way trade of JPY 461bn (US$3.24bn).
Toshiba – Earnings Preview 1QFY24
- Toshiba announced on Friday that JIP’s upcoming tender offer would not make the July end deadline.
- At this point delays for Toshiba are par for the course and we do not think anything needs to be read into this.
- With earnings coming up next week we examine the likely trends and the possibility of a revision to guidance.
EQD | Nikkei 225 (NKY) MONTHLY Trajectories
- The Nikkei 225 (NKY INDEX) rallied +27% in the first 6 months of 2023. 6 months closed up, July closed (barely) down. The index can rise further in Aug/Sep.
- If August is down, a LONG opportunity: look at support prices between 32391 and 30600, good probability to see the market going higher from there.
- If rallying in August, Nikkei could rise between +1.73% (33745) and +3.29% (34265). Continuation of the rally into September could reach higher prices but will encounter resistance at +8.29% (35922).
Mitsui Fudosan Logistics Park Placement – Fundamentally Sound but Dilutive
- Mitsui Fudosan Logistics Park Inc (3471 JP) is looking to raise US$106m in its primary follow-on offering to acquire three properties and two 50% co-ownership interests in two properties.
- The deal is a somewhat large one to digest, at 20 days of three month ADV and 5.3% dilution.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
Nihon M&A: Earnings Miss, No Indication of a Business Turnaround Yet
- Nihon M&A reported 1QFY03/2024 results on Friday. Both revenue and OP decreased 9.1% and 52.5% YoY to ¥8.2bn (vs consensus ¥9.8bn) and ¥1.7bn (vs consensus ¥3.6bn) respectively.
- M&A sales decreased yet again in 1Q as the company is struggling to improve revenue per transaction despite there being an increase in the no. of transactions.
- We think the company may not be able to achieve full-year target given declining per transaction revenues and falling other businesses.
M3: Weak Earnings and Overseas Business Further Slows Down
- M3 Inc (2413 JP) reported 1QFY03/2024 results on Friday. Revenue increased 0.7% YoY to ¥57.4bn (vs consensus ¥58.1bn) while OP decreased 3.7% YoY to ¥18.0bn (vs consensus ¥18.1bn).
- Overseas revenue growth further slowed down to 5.3% despite the company expecting overseas business growth to help offset slowdown in pharma marketing business going forward.
- This proves that m3’s long list of M&A’s have not been really successful as we have not observed any meaningful growth from these new acquisitions.
Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis
- Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.
- It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.
- Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.
Simplex Holdings (4373) – Firing on All Cylinders and Targeting Long- Term Growth
- High earnings visibility – Q1 FY3/2024 results indicate a robust start to the year with record-high quarterly sales, orders, and backlog.
- We believe the company exhibits robust earnings visibility, which can be attributed to its adeptness in delivering high-value-added services within a highly competitive market, with its high-quality workforce and sufficient capacity.
- Aiming for long-term sustainable growth –whilst strong results are appealing, we are encouraged by the following which we believe will allow the business the sustain long-term growth
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