In today’s briefing:
- MSCI Japan Index Rebalance: Covering to Come After Large Short Buildup
- Ya Gotta Have Faith (4295). Or Not. Chance for Someone To Get A Big Position in a Net Cash Co
- Harmonic Drive – Orders Rolling Over
- About an Article on Corporate Governance or Economic Security
- Asian FX Action Levels
- SMC – Guidance Ignores Potential For Down Cycle
- Asahi: More Downside Left After Maintaining The Optimistic 2022 Guidance
- Ohsho Food Service (9936): OP Exceeds Our Forecast for Both FY3/22 Results and FY3/23 Guidance
- Aeon Shows up Seven & I in E-Commerce Growth and Strategy
- Money Forward (3994): Large Additional Investment in Indonesian SaaS Company
MSCI Japan Index Rebalance: Covering to Come After Large Short Buildup
- There are 22 deletions for the MSCI Japan Index at the May SAIR. The changes were expected and there is large short buildup on quite a few of the stocks.
- Over the last month, the largest increase in shorts as a percentage of passive selling was on Mercari Inc, Ryohin Keikaku, Tokyo Century Corp, Sohgo Security Services, Pola Orbis Holdings.
- The deletions have underperformed the TOPIX by 22% over the last 6 months and by 10% over the last two months. Position for a bounce post implementation.
Ya Gotta Have Faith (4295). Or Not. Chance for Someone To Get A Big Position in a Net Cash Co
- Faith Inc (4295 JP) is a very smallcap contents management and platform business. As a business, one could give it a miss forever, but it is cash-rich.
- The company is doing a very large buyback, and for someone who decided they’d be interested, there is a large block for sale.
- The thing is… one would have to act quickly and aggressively.
Harmonic Drive – Orders Rolling Over
- Harmonic Drive posted revenue that was a touch above guidance but just below consensus and rather weak OP of just ¥2.23bn.
- While that was just below consensus it represented a deviation from typical gross margin and SG&A trends that is concerning.
- More troubling however is the drop in orders and particularly the composition thereof.
About an Article on Corporate Governance or Economic Security
- I have considered the Nikkei article, “How to lead Toshiba, which has been split at the seams over security and the Corporate Governance Code, down the path of revitalization.”
- Toshiba may not have made serious business decisions on its own for many years because it’s been working in tandem with METI as a company responsible for METI’s key policies.
- Toshiba has adopted its Company with US-type 3-Committees for over 10-years, but provides a case of how board practices that are just for appearances don’t improve actual practices and performance.
Asian FX Action Levels
- USD pullback in Asia is expected to be limited but does show near term risk of a shakeout of crowded positioning (JPY and SGD bets). CAD is a conviction short.
- USD/INR met the 77.80 target to lock in gains. USD/KRW is a top USD long near trendline at 1,265/70.
- USD/CNH pullback support at 6.70. AUD short zone lifted on SPX and RSI alignment. SPX flat breakout points will drive the USD in coming sessions.
SMC – Guidance Ignores Potential For Down Cycle
- SMC 4QFY22 was in-line with consensus revenue estimates at ¥185bn, but missed at the OP level with ¥52.7bn (10% below consensus) in a now familiar pattern for the sector.
- The company’s FY23 guidance was strong projecting revenue of ¥805bn (+4.5% vs. consensus) and OP of ¥265bn (+6.9% vs. consensus).
- The problem is that this ignores the typical cyclicality for the company and we believe OP will in fact be down YoY.
Asahi: More Downside Left After Maintaining The Optimistic 2022 Guidance
- Asahi Group Holdings (2502 JP)’s 1Q22 OP of ¥9.0bn from ¥496.9bn revenue was significantly below the consensus OP of ¥34.0bn from ¥489.4bn revenue.
- Yet the company maintained its aggressive 2022 guidance, which expects domestic beer volume growth while prices are scheduled to increase by 6-10%.
- We don’t find this estimate credible, especially given that Asahi generates most of the domestic revenue from the price-sensitive high malt beer segment.
Ohsho Food Service (9936): OP Exceeds Our Forecast for Both FY3/22 Results and FY3/23 Guidance
- On May 16, Ohsho Food Service (9936, the company) announced FY3/22 full-year sales of 84.775bn yen (+5.1% YoY), OP of 6.959bn yen (+14.6% YoY), and RP of 13.024bn yen (+89.7% YoY)
- 4Q (Jan-Mar) OP was 1.938bn yen (+33.7% YoY; +6.0% QoQ), and OPM was 8.8% (7.2% in 4Q FY3/21; 8.2% in 3Q)
- The company’s guidance for FY3/23 is sales of 90.029bn yen (+6.2% YoY), OP of 7.516bn yen (+8.0% YoY), OPM 8.3% (+0.1ppt YoY) and RP of 8.627bn yen (-33.8% YoY)
Aeon Shows up Seven & I in E-Commerce Growth and Strategy
- Aeon has finally published numbers on its e-commerce growth and performance.
- It has a ¥1 trillion target for FY2025 and while this is still a far off target, Aeon is making progress.
- Digital sales have doubled in the past two years and Aeon is now well ahead of Seven & I which continues to fail to present a coherent e-commerce plan.
Money Forward (3994): Large Additional Investment in Indonesian SaaS Company
- The company has made multiple investments in Mekari since its first investment in 2018
- This investment is a large one, equivalent to approximately 6.2bn yen. We understand that the largest investment the company has made in the past was approximately 3.4bn yen in Smartcamp (a consolidated subsidiary).
- The company’s balance sheet at the end of 1Q FY11/22 showed 5.4bn yen in investment securities and 4.8bn yen in goodwill
Before it’s here, it’s on Smartkarma
