Daily Brief Japan: Softbank Group, Recruit Holdings, Fanuc Corp, Rakuten Inc and more

• Headline 2QFY22 results for Softbank Group were in the black, largely due to the Alibaba stake sale, but the group’s three funds registered an aggregate USD10bn of valuation losses
• FTX’s write-down to zero will cost Softbank’s Vision Fund 2 USD100m in 3Q22, our main concern is what the VC funding downturn means for portfolio valuations in the coming quarter
• The group’s NAV discount has now tightened meaningfully; we believe that this makes it less advantageous for management to announce another share buy-back programme

• Recruit Holdings (6098 JP) reported 2QFY03/2023 earnings today. Revenue increased 25.3% YoY to JPY878.4bn (vs consensus JPY842.7bn) while EBIT decreased 8.2% YoY to JPY108.5bn (vs consensus JPY116.1bn).
• HR Tech’s top line growth further slowed down to 40.2% YoY while adjusted EBITDA margin of the segment declined to 30.4% from 40.6% in the same period a year ago.
• The company’s 2QFY03/2023 earnings were better than we expected, however, it shows that the earnings growth is slowing down with weakening of labour markets globally.

• Machine Tool Orders in Japan decreased to 141 billion yen in October from 149 billion yen a year ago.
• The 5.4% decline marks the start of the third downturn in Machine Tool Orders over the past decade. 
• We analyse those downturns and believe that Fanuc’s stock price has probably hit bottom, but THIS TIME IS DIFFERENT

• With e-commerce and fintech segments performing reasonably well, Rakuten Inc (4755 JP)’s Q3 results were mostly in line with expectations.
• However, the Mobile segment failed to live up to expectations with the segment’s operating loss narrowing by just ¥3.4bn to ¥120.9bn in 3Q22.
• Nonetheless, we are excited about the prospects of Rakuten Mobile through the success of Rakuten Symphony as the business is close to signing 12 new corporate customers.

Softbank Group (SBG) has delivered acceptable Q2/22-23 results. Despite the large loss on investments, the company monetised an even greater amount of Alibaba shares to record a large quarterly net gain. As a result, the financial risk profile did not deteriorate. LTV was mostly stable q-o-q, improving since March 2022. Liquidity has strengthened, and now covers four years of planned bond redemptions.

The significant debt reduction and acceleration of share buybacks showed that SBG is trying to balance shareholders’ and creditors’ interests. In the past, SBG appeared more aligned towards shareholders’ interests, with frequent mentions of the share price’s discount to NAV, as well as large share purchases since 2016.