Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

A Long & Short Investment Ideas generator for Asian Equities with 10 years experience in a Hedge fund focused on bottom-up ideas, searching out mispriced ideas and misunderstood investment thesis. Provides on-the-ground insights in various Asian markets with a sway towards ASEAN. Experienced and survived the Asian Financial Crisis in a family business, as well as the Global Financial Crisis in financial markets where lessons learned. It's all about understanding business drivers and navigating business cycles, which has high applicability in generating investment ideas. 

Investment horizon: Mid to Long term

Asian Insight Provider - Actionable ideas

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CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Heiwa has two business units; gaming and golf course management business. The Gaming segment builds pachinko and pachislot machines that have been popular in Japan for a long time but have recently come under pressure due to government's new initiative on bringing in Integrated Resorts with a casino as gaming entertainment (think of Resort World Sentosa in Singapore). Japan's shrinking demographics does not make it easier for <a href="https://www.smartkarma.com/entities/2528" target="_blank" data-smartkarma-citation="entities:2528:1">Heiwa Corp (6412 JP)</a> either. The golf course management business is not exactly thriving but provides the much-needed stability to the group. Given the capital intensive and lower margin of the golf course management business, combined with the slowing down of the pachinko segment, Heiwa's gradual deceleration of ROE does not look appealing - declining from 21.2% in FY 2011 to 13% in FY 2017, 38.6% over 7 years or shaving of 5.5% ROE per year. Its share price has performed relatively well; 10-year return is +153%, lost 35% when the government announced its intention to build IR (March 2017) only to recover some and narrow the loss to 14.5%. YTD, Heiwa has performed +21.83%.<div class="content-highlight">Great performance in a sunset industry...or is it a great shorting opportunity?</div>In this report, the following will be discussed:<ol>
<li>Background on pachinko in Japan</li>
<li>Government Policies</li>
<li>FY 2018 result </li>
<li>FY 2019 guidance</li>
<li>Valuation</li>
<li>My two cents</li>
</ol>

Heiwa has two business units; gaming and golf course management business. The Gaming segment builds pachinko and pachislot machines that have been popular in Japan for a long time but have recently come under pressure due to government's new initiative on bringing in Integrated Resorts with a casino as gaming entertainment (think of Resort World Sentosa in Singapore). Japan's shrinking demographics does not make it easier for Heiwa Corp (6412 JP) either. The golf course management business is not exactly thriving but provides the much-needed stability to the group. Given the capital intensive and lower margin of the golf course management business, combined with the slowing down of the pachinko segment, Heiwa's gradual deceleration of ROE does not look appealing - declining from 21.2% in FY 2011 to 13% in FY 2017, 38.6% over 7 years or shaving of 5.5% ROE per year. Its share price has performed relatively well; 10-year return is +153%, lost 35% when the government announced its intention to build IR (March 2017) only to recover some and narrow the loss to 14.5%. YTD, Heiwa has performed +21.83%.Great performance in a sunset industry...or is it a great shorting opportunity?In this report, the following will be discussed:
Background on pachinko in Japan
Government Policies
FY 2018 result 
FY 2019 guidance
Valuation
My two cents


Heiwa Corp: FY 2019 Guidance Too Optimistic?