Daily Japan: Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market and more

In this briefing:

1. Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market
2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
3. Japan Convenience Stores Still Innovating in a Saturated Market
4. Singapore REIT – Preferred Picks 2019
5. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment

1. Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market

The following is an in-depth review of the big three Japanese convenience store (CVS) players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). This follows our review of the Japanese convenience store sector overall, which is best to read first.

The key operational and strategic themes relevant to investors regarding the Big Three in Japan:

• Saturation has encouraged the top three operators to take over the remaining smaller chains while pushing into regions where they have fewer stores.
• All are expanding new forms of retail:
  • Seven Eleven and Lawson have launched new e-commerce ventures that make the best use of their existing store networks and could reach national coverage quite soon.
  • Diversification: Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
• While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new growth from e-commerce, hybrid stores and innovative products.

2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018

Highlights of significant recent happenings include:

3. Japan Convenience Stores Still Innovating in a Saturated Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven & I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.

The key operational and strategic themes relevant to investors in CVS in Japan:

• The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
• At the same time, all are looking at new forms of retailing to expand further:
  • All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
  • Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.
• While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.

This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.

4. Singapore REIT – Preferred Picks 2019

With the FTSE ST REIT index’s decline of 9.3% year-to-date, value has emerged for some of the bellwether names in the Singapore REITs sector. The forward yield spread between these REITs and the Singapore government 10-year bond yield (2.13%) currently stand at least 390 basis points. In view of the increasing concerns over global economic growth, rising interest rates and the ongoing trade tension between the US and China, I present three quality REITs with fortified portfolios that are well-positioned to weather the near-term market uncertainties. They possess growth potential from acquisitions, positive rental reversions and deliver resilient forward distribution yield of more than 6%. Some of the bellwether names in the more resilient retail REIT sector, while offering lower yield of around 5.0% – 5.7%, are also in my buy list. 

5. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment

After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter. 

Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations. 

Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.

In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season.