In today’s briefing:
- MSCI Japan Index Rebalance Preview: Only Deletions for Now
- Softbank Group – Early Read on Q4 Portfolio Performance
- Seven & I: Going Strong in Overseas, Another Beat On the Cards
- Fujitsu (6702 JP): At Risk of Short-Term Profit Taking
- Japan’s Governance: About an Article on Resignation of Taking Responsibility
- Skylark Holdings (3197): March Sales Negatively Affected by Omicron Again
- Mitsubishi Heavy (7011) | Helping the World to Transition to a Cleaner and More Secure Energy Future
- Fast Fitness Japan (7092): Reiterate Buy While Lowering TP on Model Adjustment.
MSCI Japan Index Rebalance Preview: Only Deletions for Now
- As of the close on 1 April, we see 13 potential deletions from the MSCI Japan Index. There could be changes in the next couple of weeks as prices change.
- The potential deletions are Tokyo Century, Pola Orbis, Miura, Lion Corp, Tsuruha Holdings, Hino Motors, Benefit One, Stanley Electric, Ryohin Keikaku, Sohgo Security Services, Orix JREIT, Rinnai Corp and Lawson.
- Most of the stocks will have over 5 days of ADV to sell from passive funds and there has been an increase in short interest over the last month.
Softbank Group – Early Read on Q4 Portfolio Performance
- Vision Fund’s public portfolio dropped $18.6bn (-24%) in Q4. China concerns grabbed headlines but it was Asian names (Coupang, Grab) that drove losses
- Public investments held at the parent level fell 41% (-$1.3bn), led by SoFi (-$862mn), Lemonade (-$189mn) and THG (-$147mn)
- We expect that Softbank will also need to write down private investments although it is not clear just how far private valuations have tracked public changes
Seven & I: Going Strong in Overseas, Another Beat On the Cards
- After raising full-year guidance in 3QFY22 due to stronger than expected performance in the overseas business, Seven & I is scheduled to release the fourth-quarter results on 7th April 2022.
- Domestic performance has been relatively stable, but 7-Eleven Inc should outperform expectations in the US through the yen depreciation and rising fuel retail margins.
- Thus, we would buy Seven & I Holdings (3382 JP) leading up to earnings expecting substantial upside on a potentially large earnings beat.
Fujitsu (6702 JP): At Risk of Short-Term Profit Taking
- The shares have rebounded by nearly 30% since the 1st of February. Consolidation seems likely while waiting for evidence that management’s sales and profit targets can be met.
- As Japan’s No. 1 IT services company, Fujitsu should benefit from the ongoing digitalization of Japan’s public and private sectors, the roll-out of 5G and the development of 6G.
- Risks for investors include the weakening yen and economic slowdown. A history of IT system failures also raises a red flag.
Japan’s Governance: About an Article on Resignation of Taking Responsibility
- Nikkei carried an article titled “Toshiba, Mizuho, and Mitsubishi Electric Lighten Up on Censure Resignations without Renewal Power.” I would like to touch on the points discussed in the article.
- Although the goal should be to take responsibility for scandals and to put a clean slate in place, there have been resignations that show delays in decision-making and lackadaisical succession system.
- It shows only the form of board practices changes, but nothing changes on the inside and that scandals are repeated. Why do scandals repeat themselves are discussed in “Repeated Scandals”.
Skylark Holdings (3197): March Sales Negatively Affected by Omicron Again
- Skylark HD (3197, the company) disclosed monthly data for March (on a preliminary basis)
- Same-store sales were 99.0% vs. March 2021 (93.0% for February), 92.8% vs. March 2020, and 71.0% vs. March 2019
- In March, the company opened one new store. The number of stores at the end of March was 3,094 (-3 MoM)
Mitsubishi Heavy (7011) | Helping the World to Transition to a Cleaner and More Secure Energy Future
- MHI benefits from the structural themes of energy security and carbon neutrality
- MHI’s Energy Systems account for over 60% of operating profits
- The inevitable push to restart nuclear plants in Japan will be a catalyst for the share price
Fast Fitness Japan (7092): Reiterate Buy While Lowering TP on Model Adjustment.
- We update our earnings forecast and valuation model for Fast Fitness Japan (7092, FFJ, the company) and lower our target price to 2,650 yen
- We changed our OP forecasts from 2.8bn yen to 2.9bn yen (+26.5% YoY; OPM 22.6%; company guidance 2.6bn yen) for FY3/22
- In calculating our target price of 2,650 yen, we used a residual income model (RIM) with a cost of equity of 7.0% (previously 5.5%) and a terminal growth rate of 3.0% (previously 3.5%), based on our earnings forecasts for FY3/22-FY3/27
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