Brief Japan: Isetan-Mitsukoshi Unveils Digital Strategy and more

In this briefing:

1. Isetan-Mitsukoshi Unveils Digital Strategy
2. Japan Stock Weekly
3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
4. DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts
5. Yahoo Japan Company Visit: Profit Erosion Has Bottomed and Mobile Payments (PayPay) Starts Strong

1. Isetan-Mitsukoshi Unveils Digital Strategy

Three years ago, Isetan-Mitsukoshi attempted to reverse a strategy of shifting to small format retailing.

At the same time, the department store operator made a final ditch effort to avoid closing department stores and sacked its CEO who had had the temerity to suggest closure was the only way to revive the business.

Last year new management finally realised the old CEO had been right and that culling stores was the only way to improve profit growth.

Now the company is diversifying again but, instead of just small stores, it is planning a big investment into e-commerce with a projected ¥145 billion in sales from personal styling alone.

2. Japan Stock Weekly

Hikari Tsushin (9435) – we remain longer term buyers, it will continue to generate good profits growth and valuations are still not unreasonable. 

Mercari (4385) – a great domestic business, loads of buy notes but in our mind there are big issues with the US business and shares are almost priced to perfection.

NSK (6471) – given the share price, and the cycle, the question is when to start to buy. 

3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016

4. DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts

We met NTT Docomo Inc (9437 JP) today for a quick chat. Markets are focused on FY19 guidance and the magnitude of price reductions that DoCoMo plans, neither of which were on the table for discussion. We did get a little bit of color on the Q4 competitive environment (not too intense), the mobile payments effort (strategically important but less need to invest heavily like PayPay) and the impending sale of its 34% stake in Sumitomo Mitsui Card.  

5. Yahoo Japan Company Visit: Profit Erosion Has Bottomed and Mobile Payments (PayPay) Starts Strong

We recently met with Yahoo Japan (4689 JP)  for an update on the company after Q3 results. We thought the financial announcement was positive with encouraging forecasts for profitability, both this year and going forward, and revenue growth potential. In addition, Yahoo Japan reported solid customer growth for mobile payments joint venture PayPay, driven by strong marketing support and an attractive proposition for offline merchants.  We think the latter is very important for the development of mobile payments in Japan and PayPay has had a robust start.