Japan

Brief Japan: Smartkarma’s Week that Was in JP/​​​​​KR: Nexon, Rakuten, POSCO and Samsung Electronics and more

In this briefing:

  1. Smartkarma’s Week that Was in JP/​​​​​KR: Nexon, Rakuten, POSCO and Samsung Electronics
  2. Japan Tobacco: No Dire Consequences Despite Late Entry to Heated Tobacco
  3. Hitachi High Tech’s Ace in the Hole

1. Smartkarma’s Week that Was in JP/​​​​​KR: Nexon, Rakuten, POSCO and Samsung Electronics

Below is the list of the Japan/Korea-related posts put on the Smartkarma platform during the week of March 4th:

Insight

Insight Provider

Published

Japan

 
 
4/3/2019
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7/3/2019
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South Korea

 
 
4/3/2019
5/3/2019
6/3/2019
6/3/2019
7/3/2019
7/3/2019
10/3/2019
 
 
 

2. Japan Tobacco: No Dire Consequences Despite Late Entry to Heated Tobacco

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  • Late entry to Japanese heated tobacco market resulted in Japan Tobacco (2914 JP) losing market share to peers
  • New product launches to give Japan Tobacco a fighting chance against IQOS
  • Early maturity of heated tobacco in Japan: a blessing in disguise for Japan Tobacco
  • Pricing power is expected to be back on track in future
  • PloomTECH will soon be ready to compete with IQOS at a global level
  • More product offerings targeting different customer needs in reduced risk products category
  • International segment volume growth driven by global flagship brands and acquisitions
  • Market unjustly penalising Japan Tobacco for the early maturity of heated tobacco segment
  • Transformation of dividend yield from industry worst to industry best
  • Undervalued at 10.09x EV/Forward EBIT: DCF target price yields 21.8% upside

3. Hitachi High Tech’s Ace in the Hole

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Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has sent Hitachi Chemical and its parent into a frenzy with Hitachi Chemical ADR up 13% last Friday. We believe this news is relevant for Hitachi High Tech because both subsidiaries are 51-52% consolidated by the parent Hitachi, and both have arguably businesses with little synergy with the parent. We believe that Hitachi High Tech is also rumored to be on the block for sale or spin-off.  Media sources say that Hitachi is considering a sale of Hitachi Chemical and would reap Y300bn.  The current value of their 51% ownership in Hitachi Chemical is Y211bn, and thus there is 42% implied upside if the Y300bn figure is achieved.

To recap Q3 results for Hitachi High Tech from January 31, 2019, the numbers were decent with earnings above consensus forecasts by 33% for Q3 (Y15.8bn OP versus Y13.8bn forecast). The profit rise was due to improved margins in medical and continued strength in process semiconductor equipment. The shares are up 20% year-to-date, outperforming the Nikkei by 15%. Some of the fears of a sharp slowdown in semiconductor have been nullified by the continued strength in logic chip investments as well as the improved profitability in medical clinical analyzers. Medical profits soared 46% YoY in Q3 to Y7.6bn on a 13% YoY increase in revenues. OP margin improved from 12.3% to 15.8% YoY.

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