Brief Japan: Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021 and more

In this briefing:

1. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021
2. Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q
3. Nomura Real Estate Master Fund Placement – Past Deal Did Well Only After a Slight Correction
4. NTT Corp: The Rising Dividend Story Is Playing Out.

1. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021

Parco (8251 JP) is enjoying a new lease of life under J Front Retailing (3086 JP) ownership, investing assiduously in updating existing buildings and showing a decisiveness to rebuild entirely where location merits it and even closing down stores that don’t work.

It will celebrate its 50th anniversary this year by opening four new buildings, including the flagship Parco Shibuya and is forecasting a 28% rise in revenue for 2016-2021.

2. Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q

Fujimi’s sales and operating profit increased by only 1.2% and 2.3% year-on-year, respectively, in the three months to December. Sales of hard disc and industrial polishing materials declined. Sales of silicon wafer lapping and polishing materials, and CMP slurry, continued to rise, but at slower rates than in 2Q.

Full-year FY Mar-19 guidance was left unchanged, implying year-on-year declines in both sales and profits in 4Q. We believe that guidance is conservative, but we also expect the slowdown to continue.

At ¥2,368 (Wednesday, February 13, closing price), the shares are selling at 13.3x our EPS estimate for FY Mar-19 and 12.7x our estimate for FY Mar-20. These and other projected valuations are not at the bottom of their historical ranges, but should be low enough to support the share price as long as a U.S.-China trade deal – and, therefore, the implementation of deferred investment plans – seems likely.

3. Nomura Real Estate Master Fund Placement – Past Deal Did Well Only After a Slight Correction

Nomura Real Estate Master Fund, (3462 JP) plans to raise around US$300m to partially fund the acquisition of ten assets. 

The assets are a mix of office, retail and logistics and all were completed only in 2018. The cap rates for the acquisition look reasonable versus the existing assets that the REIT owns and the acquisition will likely be DPU accretive despite the relatively larger share of equity financing in the acquisition.

The deal scores well on our framework. However, the stock hasn’t really corrected post the deal announcement and the prior deal provided decent returns only post a correction in the share price.

4. NTT Corp: The Rising Dividend Story Is Playing Out.

As we wrote about in Preference for NTT Retained on Its Commitment to a Substantial Long Term Profit Increase, we like the long term story at NTT (Nippon Telegraph & Telephone) (9432 JP) given its relatively low payout ration, long term opportunities for cost reductions as their workforce shrinks through retirements. While government action and the announced price cuts announced by NTT Docomo Inc (9437 JP) hurt sentiment to the sector in 2H18, Chris Hoare remains positive. The recent 3Q results were decent with the key positives being a rising dividend and strong cash flow growth which is in line with our long term positive thesis on the stock. We remain Buyers with a target price of ¥7,150.