In this briefing:
- Japan Pharma – Domestic Market and Long Listed Drug Exposure
- Japan – Policymakers Panicking, We Are Not
- FamilyMart: A Shrewd Head-Fake?
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
- Japan: Ticking the Bear Market Boxes
1. Japan Pharma – Domestic Market and Long Listed Drug Exposure
- The Japanese government recently announced its decision to initiate an ad-hoc price reduction of ~4.35%, to be levied in October 2019, this will be in addition to the scheduled biennial price revisions (source).
- The October 2019 scheduled price cuts will have nominal overall impact; however, we highlight a few companies that are relatively more vulnerable to ongoing price reforms.
- Mitsubishi Tanabe, Taisho, Santen, Kaken, Kyorin and Kissei generate >50% of revenue from the domestic market and are projected to continue to do so over next 3-5 years.
- Furthermore, the contribution from long listed (LL) drugs is much higher for the above-mentioned companies, which makes them relatively vulnerable to ongoing price reforms (price cuts for LL drugs are much higher than the average).
- On the other hand, Ono, KHK and Nippon Shinyaku, despite a high proportion of domestic revenue (as a % of total revenue), have only limited contribution from LL drugs.
- Ono’s Opdivo, however, will continue to face market expansion led special price cuts going forward.
2. Japan – Policymakers Panicking, We Are Not
Japanese policymakers are panicking. Economic activity contracted in 3Q. Inflation is slowing, up 0.8% YoY in December vs 1.4% YoY previously. Exports are flat lining. Unsurprisingly the BoJ left monetary policy unchanged this month while Abe’s cabinet, taking no chances approved a record initial budget for fiscal 2019 this week. We see few real signs of the economy slowing yet though. We remain overweight Japanese equities and are forecasting 1% nominal GDP growth in 2019, the same as the first three quarters of 2018.
3. FamilyMart: A Shrewd Head-Fake?
We think the failed tender but continued asset sale between Familymart Uny (8028 JP) and Don Quijote (7532 JP) is astutely beneficial for Familymart Uny Holdings (8028 JP) and parent Itochu Corp (8001 JP) . More details below
4. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
5. Japan: Ticking the Bear Market Boxes
After the market action on Thursday, this Insight provides a brief rundown of the technical position of our Japan Market Composite. I would categorise the current state of play as ‘The End of the Beginning’ and, despite the potential of short-term rallies, would still advise caution for the first quarter as the impact of the slowdown in global trade feeds through into earnings.
