Daily Japan: Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged and more

In this briefing:

1. Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged
2. Pasona : Interim Update – Still More Upside
3. Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.
4. Mapletree Industrial Trust Deal Underscores Data Centres’ Impact on Global Industrial Real Estate
5. Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story

1. Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged

Mitsui Fudosan Logistics Park Inc (3471 JP) is looking to raise about US$289m in its placement to funds the acquisition of properties.

The deal scores well on our framework owing to strong price momentum and lower leverage relative to peers. Even though the REIT has a short history (listed since 2016), it has shown a decent track record of creating shareholder value. The acquisition of the properties has also been well-flagged in the company’s September presentation.

2. Pasona : Interim Update – Still More Upside

INTERIM UPDATE – Pasona Group (2168 JP) released their second-quarter results on January 11th. This Insight updates our recent Insight Pasona Non-Grata and re-iterates our buy recommendation. Pasona shares have risen by 15% this year to the intra-say high last Friday. Our target price remains ¥1,500 – a further 18% upside from today’s level. 

3. Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.

The shares have underperformed TOPIX by 25% over the last 12 months and in terms of book, see chart below, are trading at near 5 year lows. Earnings for 3/19 were revised down after 1Q (operating profit from Y75bn to Y66bn due to write-off in the rolling stock division). The current forecast in our view is achievable and next year, in the absence of further write-off and growth in other parts of the business, we would expect operating profits to recover to the Y80bn level. This is a big conglomerate with many moving parts, some good and some not so good, but there is a price for everything and given where the shares are now, and where we think earnings are going, we are happy to buy here with the company trading at 0.9x book and the shares yielding just under 3%.

4. Mapletree Industrial Trust Deal Underscores Data Centres’ Impact on Global Industrial Real Estate

• While the amount of real estate needed by data centres is small in comparison with the volumes required for e-commerce, we are seeing that data centres are also impacting the market for industrial real estate in locations around the world. 
• Cloud and mobile computing, plus the Internet of Things are driving demand in the data center industry. According to Cushman & Wakefield, revenue growth at multi-tenant data centres will be 12% to 14% each year for the next two to five years.
• The data centres industry is having, and is positioned to continue to have, a material positive impact on pricing for industrial real estate in many markets around the world. 
• Real estate firm Cushman & Wakefield evaluated ten Asia Pacific markets for a range of factors. Singapore emerged as one of the two most attractive Asia Pacific locations for data centres. Over the past five months, Singapore has seen more than its share of significant data centre announcements. Most recently, Mapletree Industrial Trust disclosed that it would lease one of its buildings to global data centre company Equinix for 25 years.

5. Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story

Following Yaskawa’s second downward revision at 3Q earnings, we are shifting towards a more positive stance on the stock, even from a long-term perspective. We had been negative on the stock from late 2017 and as the stock tumbled we maintained that it was still too early buy for the long-term, though by mid-late 2018 we did (incorrectly) feel that there was the potential for a short term rally due to the severity of underperformance.

With the stock selling off harshly in the recent market fall but rebounding following its weak earnings we feel that much of the bad news is now priced in and expectations have corrected to the point where this is once again interesting on the long side.