In today’s briefing:
- Toshiba – Worse Than Even We Thought
- Positive Character Changes; MSCI ACWI Ex-US, EAFE, STOXX 50, Countless Others Reversing Downtrends
- Lasertec(6920): Tailwinds Intensify – From ASML Outlook Upgrade to Lower Inflation
- Seven & I Parts with Sogo & Seibu and Pockets ¥200bn
- Softbank Group Q2 22 Results Reaction: Alibaba Gains Offset VF Losses but Buybacks Over
- Rakuten (Neutral) – Q3 22 Results Reaction: Mobile Subscriber Losses as Free Users Flee
- A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required
Toshiba – Worse Than Even We Thought
- Toshiba’s 2Q results were not pretty with OP of just ¥7.5bn despite strong revenues of ¥855bn, weak orders and a downward revision to guidance as we predicted.
- While we expected weakness, every downside risk we flagged came through and in greater force than we had predicted.
- It is almost as if some divine force completely unrelated to management is hinting that you should go for the JIP bid if and when it comes through.
Positive Character Changes; MSCI ACWI Ex-US, EAFE, STOXX 50, Countless Others Reversing Downtrends
- The bear market rally we have discussed since our Sept. 29 Int’l Compass has managed to surpass our price targets, which were the YTD downtrends on the ACWX-US and EFA-US.
- As you will see below, many countries are reversing topside their 6.5-month to YTD downtrends.
- As a result of these bullish reversals and breakdowns on the US dollar (DXY) and 10-year Treasury yield, we are upgrading our outlook to neutral. Buy on pullbacks.
Lasertec(6920): Tailwinds Intensify – From ASML Outlook Upgrade to Lower Inflation
- ASML pre-released their updated view on demand and capacity – ahead of Nov 11, 2022 Investor Day – BETTER THAN EXPECTED
- Inflation now past peak and semi/tech likely see sustained bid. Even better for those names that are monopolies in the EUV space = ASML and Lasertec
- Remain bullish Lasertec despite the recent rally. Better earnings and order outlook, and multiples to drive share price
Seven & I Parts with Sogo & Seibu and Pockets ¥200bn
- Earlier today, Seven & I Holdings (3382 JP)’s board decided to sell the underperforming department store business Sogo Seibu to the SoftBank Group controlled Fortress Investment Group for around ¥200bn.
- The sale of Sogo & Seibu looks like a positive development from all angles, but it could be already priced in as the rumours were there from February 2022 onwards.
- Meanwhile, there are downside risks to Seven & I shares in the short term from falling gas prices and rising inflation in the US.
Softbank Group Q2 22 Results Reaction: Alibaba Gains Offset VF Losses but Buybacks Over
- Alibaba driven gains largely offset record losses from Q1 although this has been widely expected as were updates on the timing of ARM’s IPO from FY22 (Mar23) to calendar 2023
- With Q2 losses, Vision Fund is clearly in the red for the first time since Q4 19 driven by downside for both public and private investments
- Buybacks are over and what appears to be renewed macro enthusiasm is offset by a stronger yen and a low discount to NAV
Rakuten (Neutral) – Q3 22 Results Reaction: Mobile Subscriber Losses as Free Users Flee
- Financial results were largely as expected with good news in fintech on a return to double-digit revenue growth but continued steep losses in mobile
- Mobile subscriptions fell by 280K (-9% over two quarters) as users of free plans churned off keeping YoY growth to 2%
- The company is keen on the potential once platinum band spectrum is available but that is up to two years away
A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required
- The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.
- It was a special year in which changes in the TSE’s criteria regarding tradable shares included in the market’s listing criteria contributed to the reduction of policy shareholdings.
- Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.
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