Daily Brief Japan: Shimano Inc, Pan Pacific International Holdings, JPY, Matsui Securities, TSE Tokyo Price Index TOPIX, Simplex Holdings, Mitsubishi Research Institut, Japan System Techniques Co, Strike, Naigai Trans Line and more

• Shimano’s Q2 results exceeded expectations with revenue and operating profit significantly beating estimates despite a YoY decline.
• Full-Year revenue and operating profit guidance were revised upward, reflecting improved performance and aligning with analyst consensus.
• Our estimate for FY25 was significantly raised; despite full valuations, further recovery and potential shareholder returns offer continued bullish outlook.

• Inflation is encouraging customers to seek out discount chains, led by PPI’s Don Quijote. 
• Backed by expansion of private brand lines and more food lines, as well as higher sales to tourists, PPI has been posting record results.
• There continues to be high expectations for further growth at home and abroad.

• Historical analysis suggests that previous lows in yen or highs in dollar yen may be difficult to recapture after significant technical damage.
• The yen strength is influenced by wide US minus Japan real policy rate differentials, skewing historical results in a more yen bearish direction.
• Expectations for the upcoming BOJ meeting include a 15 basis point rate hike and a halving of bond purchases, leading to dispersion of views among investors on the timing of rate hikes.

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• Net operating revenue: JPY9.4bn (+14.8% YoY; -5.0% QoQ), Operating profit: JPY4.2bn (+17.8% YoY; -2.8% QoQ).
• Total commissions: JPY5.2bn (+7.6% YoY; -16.7% QoQ), Brokerage commissions: JPY4.9bn (+7.2% YoY; -17.4% QoQ).
• SG&A expenses: JPY5.2bn (+12.4% YoY; -6.7% QoQ), Personnel expenses: JPY976mn (+12.2% YoY; +4.8% QoQ).

• Companies that have increased their valuations over the past year are those with higher valuations and have further increased their ROE and ROA, resulting in even higher valuations.
• The difference between the characteristics of companies whose valuations increased and those whose valuations did not change over the past year is the foreign ownership ratio.
• Companies with low foreign ownership have less access to overseas investors’ suggestions for solving individual company problems, which is why they are slow to act to improve capital profitability.

• Q1FY3/25 results indicated a slow start for earnings, despite a robust profile for sales growth at 16.5% YoY and both quarterly orders and backlog at record highs.
• The key takeaways are: 1) although reported OP fell 4.8% YoY, underlying OP growth was 4.6% YoY when restating for one-time expenses for a new office, 2) quality of earnings remains sound despite cases of project cost overruns, and 3) the sustained strong outlook for orders provides high earnings visibility.
• We believe that the direction of travel remains positive for earnings growth, given strong order visibility and as the company’s operations continue to scale.

• Adoption of new revenue recognition standards increased FY09/22 revenue by JPY2.6bn, operating profit by JPY1.0bn, and reduced order backlog by JPY11.2bn.
• FY09/23 revenue decreased by 6.8% YoY to JPY90.3bn, with operating profit down 15.8% YoY to JPY7.1bn.
• Revised FY09/24 forecast predicts revenue of JPY116.0bn (-5.0% YoY) and operating profit of JPY7.5bn (-13.7% YoY).

• Japan System Techniques Co., Ltd. (hereafter, the “Company”) posted an increase of sales and profits in all four business segments for FY2024/3.
• In particular, operating profit of the Medical Big Data business and the Global business in total, increased sharply by 49.5% YoY.
• Net sales saw an increase for 13 consecutive years, and ordinary profit for 9 consecutive years with a record high, leading to 17.8% of ROE. 

• Revenue increased 45.3% YoY to JPY13.3bn, driven by a rise in deals closed and large-scale projects.
• Cost of revenue grew 51.1% YoY to JPY4.7bn, influenced by higher incentive salaries and personnel costs.
• SG&A expenses rose 16.6% YoY to JPY3.6bn due to increased rent expenses from headquarters expansion in March 2023.

• Sales rose to JPY17.2bn (+6.1% YoY), driven by strong overseas subsidiaries and a weaker yen.
• Operating profit decreased to JPY1.9bn (-15.3% YoY) due to increased SG&A expenses and reduced high GPM LCL export cargo.
• Overseas segment sales grew to JPY6.0bn (+30.2% YoY), with solid warehouse operations in India and South Korea.