Daily Brief Japan: Sony Corp, Suruga Bank Ltd, Medipal Holdings, Dentsu Inc and more

• Sony Corp (6758 JP) reported earnings on 28 April, which saw profit-taking the next day after a brief two-day run-up, as revenues, OP, and NP were guided down.
• There previous ¥200bn buyback ended about two weeks later. Yesterday they launched a new ¥200bn buyback, and the stock reacted well this AM. And then BIG new news this morning.
• Sony announced an assessment of a partial spin-off of Sony Financial. Assessment this FY, spinoff “within next 2-3yrs” (if possible). This garnered more excitement. Brief analysis of both follows.

• Suruga Bank Ltd (8358 JP) today signed an MOU (with board resolution) to form a business and capital alliance with Credit Saison (8253 JP). 
• Suruga will sell (post-dilution) 15+% of voting rights to Credit Saison, and buy 4.44% of CreditSaison. Then Suruga will try to buy back the shares it sold to Credit Saison.
• A look at the history is instructive, as is a look at the shareholder structure and the change in business model post-2019. Not as easy as it looks. 

• Medipal Holdings (7459 JP) announced strong FY23 result, with year-over-year improvement in sales and profit. While sales were just 1% ahead of forecast, net profit exceeded the guidance by 16%.
• Outperformance was mainly driven by PALTAC business. Revenue from PALTAC increased 6% YoY to ¥1,104B, 2% ahead of forecast of ¥1,080B, fueled by 14% growth in OTC pharmaceutical products.
• Medipal has guided for accelerated revenue growth of 3% YoY for its pharmaceutical wholesale business in FY24. In FY23, the business recorded revenue growth of 0.6% YoY.

Dentsu Group had demanding Q123 on Q122 comparisons and, with the acquisition contributions, we are not too concerned about the read-across for the rest of FY23, with performance skewed to H2. Progress in Customer Transformation and Technology (CT&T), up 6.7% in Q123 and now 35% of group net revenue, should buoy medium-term growth. Tag, the acquisition announced in March and expected to complete in early Q323 (subject to regulatory clearances), is another step towards the 50% CT&T target. We anticipate a return to margin expansion in FY24 as one-off factors retreat, the transition progresses and cost benefits from the ‘One dentsu’ initiative start to flow. The valuation remains at a marked discount to global peers.