Daily Brief Japan: Toshiba Corp, Kirin Holdings, Idemitsu Kosan, Shimano Inc, Rakuten Inc, freee, Dentsu Inc and more

• Toshiba results looked rather poor at the headline on account of additional one-off costs leading to a guidance downgrade to ¥95bn in OP. 
• Despite that, we see some small positive signs across the various industrial segments. 
• On balance, however, the downgrade and tight lips on the JIP bid leave little to be positive about in the near term.

• A trade idea involving Kirin Holdings (2503 JP) from a Holdco perspective, which we suggested last year outperformed Topix by more than 30% in the first 9 months of 2022.
• Since November 2022, Kirin has underperformed Topix by 18% (driven by input cost inflation) to push the Holdco discount yet again to an attractive level.
• The price hike announcement yesterday could change the cost inflation narrative and help Kirin to keep on unwinding the Holdco discount.

• On 14 February 2023, Idemitsu Kosan (5019 JP) reported Q3 results. They were less impressive than one would have hoped. 
• Lower USDJPY and lower Dubai crude prices mean a JPY 90bn hit to inventory marks, but the rest of the petro business made almost no money in the quarter. 
• However, the company announced a large buyback. THAT is worth looking at. 

• Shimano’s Q4 results were on track, but management is guiding for a GFC-level slump in 2023
• Management cites macro concerns, but these are well-known, discounted, and already recovering…probably
• Shimano’s stock price is trading at 23x bearish guidance versus its historical average of 25x. 

• Q4 results largely met our expectations with modest improvements QoQ for mobile operating losses and decent growth for eCommerce and fintech
• A meaningful rebound for the mobile segment is more likely to fall in H2 as cost reductions take time to kick in 
• Results for eCommerce and fintech were more encouraging but less relevant as long as the mobile segment struggles.  We remain at Neutral

• freee (4478 JP) reported 2QFY06/2023 results today. Revenue increased 35.3% YoY to JPY4,479m (vs consensus JPY4,469.5m) while operating losses for the quarter widened to JPY1,281m (vs consensus JPY1,574.5m).
• Both ARPU and no. of paying customers continue to increase and the company’s strategy of onboarding large corporates seems to pay off.
• Widening operating loss is no major concern as it is a matter of time before freee cuts down advertising and other costs given the expanding revenue base and excessive GPM.

Dentsu reported record full-year headline results in FY22, which were bolstered by a final quarter in which the company delivered organic net revenue growth of 3.5%. Good progress continues to be made in Customer Transformation and Technology (CT&T), which grew 17.5% y-o-y and constituted 32% of revenues in the year. Management forecasts 4% organic revenue growth for FY23, reflecting the tougher macroeconomic environment. Guidance on the underlying operating margin in FY23 is for a retrenchment to 17.5% as investment is made to drive CT&T and support the One dentsu initiative. This is set to rebound to 18.0% in FY24 as the benefits start to flow through. Year-end net cash of ¥71.3bn and an appetite for leverage of 1.0–1.5x provides ample resource for both capex and M&A. Our FY23 estimates are under review.