In today’s briefing:
- JPX Proposes BIG Changes To TOPIX Rules, Affects IPOs More Than Market
- Money Forward (3994) | Looking Forward to Q2
- Mizuho Cross-Shareholding – US$11bn of Cross-Shareholding, with at Least US$2bn to Sell over FY24-26
- Japanese Regional Banks – Adding a Smaller Cap to Our Key Positive Picks
- United Arrows: Premium Growth
- The Key to Higher Valuations for Mid-To-Small Caps Is Management’s Strong Will to Achieve Its Goals
- Geo Holdings (2681 JP) – Investing for Growth
- Goldwin Focusing on Core Brands, Aims for Global Success
JPX Proposes BIG Changes To TOPIX Rules, Affects IPOs More Than Market
- In 2021 the JPX established new Listing Rules, and in April 2022 introduced new market segments (Prime/Standard/Growth) to much fanfare. Today, the TSE basically said those changes were meaningless.
- Today, the TSE announced proposed new rules for TOPIX constituent selection. There is a 2-month consultation period, then rules come out end-Sep 2024. Expect few changes from the Proposal.
- NextGen TOPIX will be created October 2026. 3-4 dozen ADDs, 500-600 DELETEs to create an index of 1,100-1,200 names. Some obvious large impacts 2+yrs from now, but this changes IPOs.
Money Forward (3994) | Looking Forward to Q2
- Money Forward’s share price has declined by around 16% since reporting Q1 results.
- The company will report Q2 results in early July. We expect continued solid momentum
- We believe the stock price has around 30% upside potential to our target price of ¥6,600
Mizuho Cross-Shareholding – US$11bn of Cross-Shareholding, with at Least US$2bn to Sell over FY24-26
- Following up on our earlier cross-shareholding notes, in this note we look at Mizuho Financial Group (8411 JP)‘s cross-shareholding.
- Mizuho had a stake over US$100m in at least 34 listed Japanese stocks, amounting to a total of around US$7bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
Japanese Regional Banks – Adding a Smaller Cap to Our Key Positive Picks
- We update twelve Japanese regional banks, and add two new names, to target beneficiaries of the improving interest rate outlook; also banks with attractive credit quality, capital adequacy and valuations
- We identify the value of equity holdings for disposal among these banks; the lack of near-term easing prospects at the US Fed should support JGB yields and domestic bank valuations
- We add smaller cap Juroku Financial to our buy list of Tokyo Kiraboshi Financial, Gunma Bank and higher risk option Suruga Bank
United Arrows: Premium Growth
- The premium fashion market in Japan is growing again and it is not just department stores.
- One of the leader is United Arrows, whose main urban chains are on a roll, up double digits, but is being held back by lower priced suburban chains.
- It will now focus more on the premium market through aggressive category expansion, new brands and M&A.
The Key to Higher Valuations for Mid-To-Small Caps Is Management’s Strong Will to Achieve Its Goals
- Even companies with high valuations and return on capital have room to further raise their return on capital and valuations because of cash allocation challenges.
- Companies whose valuations have not changed over the past year have low ROE and ROA, yet have high policy shareholdings. They have not taken steps to improve return on capital.
- As for whether many companies without high foreign ownership can raise their return on capital and valuations, strong will of management to achieve their goals is necessary.
Geo Holdings (2681 JP) – Investing for Growth
- Market leader with growth potential – GEO HOLDINGS operates second-hand store chains 2nd STREET, GEO, OKURA, and off-price chain store Luck Rack.
- Its 2,027 domestic stores give it the leading market share in Japan.
- The company is making significant investments to extend its home advantage and build on its 2018 expansion overseas where it has 81 stores.
Goldwin Focusing on Core Brands, Aims for Global Success
- As expected, Goldwin posted another record year of sales and profits in FY2023.
- The sports firm is now narrowing its focus on a smaller number of high profile brands to maximise sales and investment spending.
- The big promise is its own brand, Goldwin, which is proving as popular overseas as in Japan and looks set to become a global premium sports brand longer-term.
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