In today’s briefing:
- Circumstances and GPIF Noises Could Mean Higher Equity Allocations In March 2025
- Kioxia (285A JP) IPO: Valuation Insights
- Kioxia IPO – Should Price at the Top, Though Peers Are Still Correcting
- Kioxia (285A) IPO: Index Entry Timeline & Overhang from Plans to Increase Float
- Japan Alpha | Bullish KHI (And MHI)
- Toyo Corporation (8151 JP) – Poised to Enjoy Structural Growth from Increasing Defense Spending
- Duskin (4665) – Forward Momentum Moderated
- LaKeel (4074 JP) – Concerns over the Quality of Earnings
Circumstances and GPIF Noises Could Mean Higher Equity Allocations In March 2025
- A Bloomberg article mid-day suggested Japan’s Ministry of Health, Labour and Welfare proposed a new “wage growth +1.9%” (vs 1.7% now) return bogey for the US$1.7trln Government Pension Investment Fund.
- The GPIF is conducting its quinquennial review to assess markets, long-term prospects, correlations, etc, to set a CAPM asset allocation mix to meet the bogey.
- The combination of higher USDJPY, Japan inflation, wider valuation spreads, and the prospect of higher yen rates suggests the review might result in lower yen bond allocs, higher equity allocs.
Kioxia (285A JP) IPO: Valuation Insights
- Kioxia Holdings (285A JP) is a leading player in the NAND flash memory market. It will list on 18 December and seek to raise up to US$727 million.
- We previously discussed the IPO in Kioxia (285A JP) IPO: The Bull Case and Kioxia (285A JP) IPO: The Bear Case.
- Our valuation analysis suggests that the IPO price range of JPY1,390-1,520 per share is attractive. Therefore, we would participate in the IPO.
Kioxia IPO – Should Price at the Top, Though Peers Are Still Correcting
- Kioxia Holdings (285A JP) is aiming to raise around US$840m (including over-allocation) in its Japan IPO.
- It was the world’s largest pure-play NAND flash memory supplier, in terms of both revenue and unit shipments in 2023, according to TechInsights.
- We have looked at the company’s past performance in our previous notes. In this note, we will talk about the IPO valuations.
Kioxia (285A) IPO: Index Entry Timeline & Overhang from Plans to Increase Float
- Kioxia Holdings (285A JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 18 December.
- At the mid-point of the IPO price range of JPY 1390-1520/share, Kioxia Holdings (285A JP) will be valued at JPY 784bn (US$5.24bn).
- TOPIX inclusion will take place in January while inclusion in global indices is likely to take place in May and June. Selling stock to increase float will be an overhang.
Japan Alpha | Bullish KHI (And MHI)
- The recent pull-back in the share price of KHI provides a cheap entry point into the defense spending thematic
- KHI’s defense revenues are projected to soar by 40% to ¥406 billion in FY24, outpacing industry leader MHI’s 20% growth
- KHI and MJI to benefit from Japan’s defense spending doubling to 2% of GDP by 2027 and ¥43 trillion ($320 billion) earmarked over five years.
Toyo Corporation (8151 JP) – Poised to Enjoy Structural Growth from Increasing Defense Spending
- Substantial OP growth – Q4FY9/ 24 results showed strong OP growth in Mechatronics / Noise & Vibration / Sensors (+80.2% YoY), Physics / Energies (+37.0% YoY), and Others (+50.0% YoY).
- The OP growth of Others was primarily driven by the expansion of Ocean, Defense & Security.
- Negative near term but positive long term – whilst FY9/25 guidance indicates a sharp 28.7% decline in OP YoY, the new medium-term plan indicates 10%+ CAGR for OP growth, and ROE expansion to 11.0% during FY9/25-FY9/27, which we view positively.
Duskin (4665) – Forward Momentum Moderated
- The key takeaway from the Q1-2 FY3/25 result is that Duskin is making solid strides forward, although previous earnings projections appear to have been too ambitious.
- Management has experienced challenges in aligning earnings guidance with actual performance, and there is a risk over whether it can deliver the planned ROI on the major ¥21bn capex automation project at the Direct Selling Group.
- The Food Group continues to perform positively towards its full potential at ‘Mister Donut’, and we believe this segment will continue to be the core contributor to earnings growth.
LaKeel (4074 JP) – Concerns over the Quality of Earnings
- Despite a positive market environment for IT capex driven by DX demand, the company is said to be experiencing longer contract lead times when dealing with increasing project sizes.
- Consequently, earnings visibility has fallen, resulting in a downward revision to FY12/24 guidance, stemming from a drop in license sales and consulting.
- Difficulties with forecasting indicate potential concerns over management execution and challenges over technology adoption by customers in our view.
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