In today’s briefing:
- March 2024 Nikkei 225 Rebal: Socionext, Disco, and a Consumer Goods Stock, Still
- Fast Retailing (9983) | Q1 Preview – Slight Miss
- Inabata & Co Placement – Should Come as a Surprise
- Shift: High Conviction Review 2023
- Japan Airlines: Seasonality Scrutiny Still Suggests Significant Upside to FY24 Guidance
- Ferrotec (6890 JP): Return to Growth Led by Power Semiconductor Substrates
March 2024 Nikkei 225 Rebal: Socionext, Disco, and a Consumer Goods Stock, Still
- No changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
- The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
- There is the upweight to Nitori (9843) but now less funkiness with Fast Retailing (9983). But it will continue being an interesting Nikkei 225 influence (for years to come).
Fast Retailing (9983) | Q1 Preview – Slight Miss
- We anticipate a sluggish beginning to the fiscal year with 1Q8/24 earnings reflecting slower growth in Japan, China, and Southeast Asia.
- Our forecast for 1Q24 operating profit stands at ¥130 billion, slightly below the consensus estimate of ¥138 billion. Assuming our estimates are accurate, we anticipate a slightly negative share-price reaction.
- Our bearish stance on the stock persists, driven by the fact that it trades at a premium to our DCF and at a premium compared to global peers
Inabata & Co Placement – Should Come as a Surprise
- Sumitomo Chemical (4005 JP) and Mizuho Trust & Banking are looking to raise around US$180m through the sale of their stake in Inabata & Co (8098 JP).
- The deal is a large one to digest, at 90 days of three month ADV and 15% of current mcap.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
Shift: High Conviction Review 2023
- Our conviction long Shift Inc (3697 JP) ‘s share price went up by more than 50% in 2023 driven by strong growth in top line alongside further improvement in margins.
- The company’s margins fell in 2022 due to unprofitable projects, however, as these projects came to an end and the company being careful with projects, margins began to recover.
- Shift’s share price has declined over the last few days which we think is temporary and offers an opportunity to make an entry.
Japan Airlines: Seasonality Scrutiny Still Suggests Significant Upside to FY24 Guidance
- We revisit FY24 prospects by highlighting that historical full service carrier (FSC) earnings seasonality suggests group EBIT guidance of ¥130bn is very conservative.
- FSC FY24 EBIT guidance of ¥80bn implies only ¥9bn in 2H, 12% of 1H’s ¥71bn, whereas historically 2H has represented 74-83% of 1H. We model ¥59bn or 84% in 2H.
- Our ¥176.5bn group EBIT for FY24 is 36% above guidance but also 27% above Visible Alpha consensus, largely due to lower costs, which position JAL strongly for the long-term.
Ferrotec (6890 JP): Return to Growth Led by Power Semiconductor Substrates
- Ferrotec shares have dropped by a third since last July and are now selling at 8.2x EPS guidance and 0.6x book value.
- Sales and operating should start to recover in 2H of FY Mar-24, led by power semiconductor substrates.
- Buy for the upturn in the semiconductor cycle and capacity expansion in Japan, China and Malaysia. No significant damage from the Noto Peninsula earthquake has been reported.
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