Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Thematic (Sector/Industry)

<p>While it is not a given that a switch from a high growth, high interest rate environment to a low growth, low interest rate environment is a good one for equities in general, it should be good for defensive stocks, because these are the most bond-like of equities and the switch almost defines a fixed income bull market. Japan may not have been particularly high growth or high interest rate in 2000, but it was certainly higher growth and higher interest rate than today, and it is no surprise that defensive sectors like foods (+210% relative to Topix since 1999) and pharmaceuticals (+160%) have done very well over this time.<br><br>The question, now, is whether this is set to continue, or whether we might have hit a turning point.</p>

While it is not a given that a switch from a high growth, high interest rate environment to a low growth, low interest rate environment is a good one for equities in general, it should be good for defensive stocks, because these are the most bond-like of equities and the switch almost defines a fixed income bull market. Japan may not have been particularly high growth or high interest rate in 2000, but it was certainly higher growth and higher interest rate than today, and it is no surprise that defensive sectors like foods (+210% relative to Topix since 1999) and pharmaceuticals (+160%) have done very well over this time.  The question, now, is whether this is set to continue, or whether we might have hit a turning point.

Founder and CEO, Europacifica Consulting

Naomi Fink

Founder and CEO

Europacifica Consulting

Macroeconomics

<p>As <a href="https://www.smartkarma.com/insights/boj-the-80-trillion-yen-question" target="_blank">forecast by Europacifica</a>, BOJ offered symbolic (modest) easing today.</p><p>- Though it left overnight rates at -0.1%, the BOJ increased its <a href="https://www.boj.or.jp/en/announcements/release_2016/k160729a.pdf" target="_blank">ETF purchases</a> from JPY3.3trn to JPY6trn by a 7-2 majority vote.  </p><p>- As anticipated, the BOJ refrained from extreme policies such as unlimited monetisation of government debt ("helicopter money").  </p><p>- The BOJ also declined to further distort the measure of inflation expectations encapsulated in the JGBi market, or to pressure liquidity further by increasing the…</p>

As forecast by Europacifica, BOJ offered symbolic (modest) easing today.- Though it left overnight rates at -0.1%, the BOJ increased its ETF purchases from JPY3.3trn to JPY6trn by a 7-2 majority vote.  - As anticipated, the BOJ refrained from extreme policies such as unlimited monetisation of government debt ("helicopter money").  - The BOJ also declined to further distort the measure of inflation expectations encapsulated in the JGBi market, or to pressure liquidity further by increasing the…

BOJ Outcome: Symbolic Stimulus (As We Predicted)

<p>The Bank of Japan July policy meeting ends tomorrow (Friday 29 July), and markets remain divided as to its outcome.   Although expectations of easing are building (including, according to Nikkei reports, within the BOJ), we see reasons why the BOJ may choose to adopt more modest easing measures than markets expect.</p><p>Earlier this week, markets were not greatly surprised by the Fed’s upbeat tone on 27 July, but as the FOMC left rates on hold, judging that  “[n<a href="https://www.federalreserve.gov/newsevents/press/monetary/20160727a.htm" target="_blank">]ear-term risks to the economic outlook</a>…</p>

The Bank of Japan July policy meeting ends tomorrow (Friday 29 July), and markets remain divided as to its outcome.   Although expectations of easing are building (including, according to Nikkei reports, within the BOJ), we see reasons why the BOJ may choose to adopt more modest easing measures than markets expect.Earlier this week, markets were not greatly surprised by the Fed’s upbeat tone on 27 July, but as the FOMC left rates on hold, judging that  “[n]ear-term risks to the economic outlook…

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.</p><p>The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.</p><p>These are the stocks that have been included and excluded from the index.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td colspan="2" style="text-align: center; width: 181pt;"><h3>Inclusions</h3></td>
<td colspan="2" style="text-align: center; width: 197pt;"><h3>Exclusions</h3></td>
</tr>
<tr>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
</tr>
<tr>
<td>1766.T</td>
<td>Token Corp</td>
<td>2124.T</td>
<td>Jac Recruitment Co Ltd</td>
</tr>
<tr>
<td>2222.T</td>
<td>Kotobuki Spirits Co Ltd</td>
<td>2206.T</td>
<td>Ezaki Glico Co Ltd</td>
</tr>
<tr>
<td>2264.T</td>
<td>Morinaga Milk Industry Co Ltd</td>
<td>2432.T</td>
<td>DeNA Co Ltd</td>
</tr>
<tr>
<td>2317.T</td>
<td>Systena Corp</td>
<td>3254.T</td>
<td>Pressance Corp</td>
</tr>
<tr>
<td>2593.T</td>
<td>Ito En Ltd</td>
<td>3668.T</td>
<td>Colopl Inc</td>
</tr>
<tr>
<td>2811.T</td>
<td>Kagome Co Ltd</td>
<td>4246.T</td>
<td>DaikyoNishikawa Corp</td>
</tr>
<tr>
<td>3563.T</td>
<td>Sushiro Global Holdings Ltd</td>
<td>4587.T</td>
<td>PeptiDream Inc</td>
</tr>
<tr>
<td>3635.T</td>
<td>Koei Tecmo Holdings Co Ltd</td>
<td>4681.T</td>
<td>Resorttrust Inc</td>
</tr>
<tr>
<td>4189.T</td>
<td>KH Neochem Co Ltd</td>
<td>4751.T</td>
<td>CyberAgent Inc</td>
</tr>
<tr>
<td>4348.T</td>
<td>Infocom Corp</td>
<td>4902.T</td>
<td>Konica Minolta Inc</td>
</tr>
<tr>
<td>4527.T</td>
<td>Rohto Pharmaceutical Co Ltd</td>
<td>5486.T</td>
<td>Hitachi Metals Ltd</td>
</tr>
<tr>
<td>4686.T</td>
<td>Justsystems Corp</td>
<td>5703.T</td>
<td>Nippon Light Metal Holdings Co Ltd</td>
</tr>
<tr>
<td>4816.T</td>
<td>Toei Animation Co Ltd</td>
<td>5714.T</td>
<td>DOWA Holdings Co Ltd</td>
</tr>
<tr>
<td>4921.T</td>
<td>Fancl Corp</td>
<td>5975.T</td>
<td>Topre Corp</td>
</tr>
<tr>
<td>5105.T</td>
<td>Toyo Tire Corp</td>
<td>6269.T</td>
<td>Modec Inc</td>
</tr>
<tr>
<td>5631.T</td>
<td>Japan Steel Works Ltd</td>
<td>6324.T</td>
<td>Harmonic Drive Systems Inc</td>
</tr>
<tr>
<td>5857.T</td>
<td>Asahi Holdings Inc</td>
<td>6463.T</td>
<td>TPR Co Ltd</td>
</tr>
<tr>
<td>6005.T</td>
<td>Miura Co Ltd</td>
<td>6473.T</td>
<td>Jtekt Corp</td>
</tr>
<tr>
<td>6035.T</td>
<td>IR Japan Holdings Ltd</td>
<td>6641.T</td>
<td>Nissin Electric Co Ltd</td>
</tr>
<tr>
<td>6134.T</td>
<td>Fuji Corp (Aichi)</td>
<td>6755.T</td>
<td>Fujitsu General Ltd</td>
</tr>
<tr>
<td>6465.T</td>
<td>Hoshizaki Corp</td>
<td>6806.T</td>
<td>Hirose Electric Co Ltd</td>
</tr>
<tr>
<td>6532.T</td>
<td>BayCurrent Consulting Inc</td>
<td>7012.T</td>
<td>Kawasaki Heavy Industries Ltd</td>
</tr>
<tr>
<td>6670.T</td>
<td>MCJ Co Ltd</td>
<td>7606.T</td>
<td>United Arrows Ltd</td>
</tr>
<tr>
<td>6753.T</td>
<td>Sharp Corp</td>
<td>7867.T</td>
<td>Tomy Co Ltd</td>
</tr>
<tr>
<td>6754.T</td>
<td>Anritsu Corp</td>
<td>8227.T</td>
<td>Shimamura Co Ltd</td>
</tr>
<tr>
<td>8354.T</td>
<td>Fukuoka Financial Group Inc</td>
<td>8628.T</td>
<td>Matsui Securities Co Ltd</td>
</tr>
<tr>
<td>8572.T</td>
<td>Acom Co Ltd</td>
<td>9404.T</td>
<td>Nippon Television Holdings Inc</td>
</tr>
<tr>
<td>9044.T</td>
<td>Nankai Electric Railway Co Ltd</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9142.T</td>
<td>Kyushu Railway Co</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9504.T</td>
<td>Chugoku Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9509.T</td>
<td>Hokkaido Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9603.T</td>
<td>H.I.S. Co Ltd</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.








Inclusions
Exclusions


Name
Code
Name
Code


1766.T
Token Corp
2124.T
Jac Recruitment Co Ltd


2222.T
Kotobuki Spirits Co Ltd
2206.T
Ezaki Glico Co Ltd


2264.T
Morinaga Milk Industry Co Ltd
2432.T
DeNA Co Ltd


2317.T
Systena Corp
3254.T
Pressance Corp


2593.T
Ito En Ltd
3668.T
Colopl Inc


2811.T
Kagome Co Ltd
4246.T
DaikyoNishikawa Corp


3563.T
Sushiro Global Holdings Ltd
4587.T
PeptiDream Inc


3635.T
Koei Tecmo Holdings Co Ltd
4681.T
Resorttrust Inc


4189.T
KH Neochem Co Ltd
4751.T
CyberAgent Inc


4348.T
Infocom Corp
4902.T
Konica Minolta Inc


4527.T
Rohto Pharmaceutical Co Ltd
5486.T
Hitachi Metals Ltd


4686.T
Justsystems Corp
5703.T
Nippon Light Metal Holdings Co Ltd


4816.T
Toei Animation Co Ltd
5714.T
DOWA Holdings Co Ltd


4921.T
Fancl Corp
5975.T
Topre Corp


5105.T
Toyo Tire Corp
6269.T
Modec Inc


5631.T
Japan Steel Works Ltd
6324.T
Harmonic Drive Systems Inc


5857.T
Asahi Holdings Inc
6463.T
TPR Co Ltd


6005.T
Miura Co Ltd
6473.T
Jtekt Corp


6035.T
IR Japan Holdings Ltd
6641.T
Nissin Electric Co Ltd


6134.T
Fuji Corp (Aichi)
6755.T
Fujitsu General Ltd


6465.T
Hoshizaki Corp
6806.T
Hirose Electric Co Ltd


6532.T
BayCurrent Consulting Inc
7012.T
Kawasaki Heavy Industries Ltd


6670.T
MCJ Co Ltd
7606.T
United Arrows Ltd


6753.T
Sharp Corp
7867.T
Tomy Co Ltd


6754.T
Anritsu Corp
8227.T
Shimamura Co Ltd


8354.T
Fukuoka Financial Group Inc
8628.T
Matsui Securities Co Ltd


8572.T
Acom Co Ltd
9404.T
Nippon Television Holdings Inc


9044.T
Nankai Electric Railway Co Ltd




9142.T
Kyushu Railway Co




9504.T
Chugoku Electric Power Co Inc




9509.T
Hokkaido Electric Power Co Inc




9603.T
H.I.S. Co Ltd






JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

<p>Today after the close it was <a href="https://www.globenewswire.com/news-release/2020/10/06/2103999/0/en/Danone-intends-to-sell-its-stake-in-Yakult.html" target="_blank" rel="noopener">announced</a> that <a href="https://www.smartkarma.com/entities/danone-sa" target="_blank" data-smartkarma-citation="entities:21403:1" rel="noopener">Danone SA (BN FP)</a> - currently the largest shareholder in <a href="https://www.smartkarma.com/entities/yakult-honsha-co-ltd" target="_blank" data-smartkarma-citation="entities:17153:1" rel="noopener">Yakult Honsha (2267 JP)</a> - intended to sell down the last of its stake after a 20-year run.</p><p>The press release notes <em>"Danone's collaboration with Yakult began in 2004."</em></p><p>That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.</p><div>
<p>Yakult and Danone signed an <em>Alliance Agreement</em> in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their <em>Strategic Alliance</em> and signed a <em>Memorandum of Understanding on a Collaborative Relationship</em>.</p>
<p>The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. </p>
</div><div>
<p>That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. </p>
<h2>The NEW News</h2>
<p>Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the <a href="https://ml-eu.globenewswire.com/Resource/Download/768c55f8-a7c0-4ba7-b4e8-9f01bf4bef68" target="_blank" rel="noopener">announcement</a>).</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/665/original/Screenshot%202020-10-06%20at%204.58.37%20PM.png?1601974734" class="editor-image img-responsive" data-smartkarma-image-id="163665"></figure><p></p>
<p>The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.</p>
<p>After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.</p>
<p>This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. </p>
<p>Much more below the fold.</p>
</div>

Today after the close it was announced that Danone SA (BN FP) - currently the largest shareholder in Yakult Honsha (2267 JP) - intended to sell down the last of its stake after a 20-year run.The press release notes "Danone's collaboration with Yakult began in 2004."That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.
Yakult and Danone signed an Alliance Agreement in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their Strategic Alliance and signed a Memorandum of Understanding on a Collaborative Relationship.
The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. 

That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. 
The NEW News
Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the announcement).

The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.
After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.
This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. 
Much more below the fold.


Danone Sells The Last of Their Yakult - Buy the Cleanup

Japan

EZAKI GLICO CO., LTD. produces and sells confections including chocolate snacks, candy bars, cookies, and chilled desserts.  The Company also produces prepared foods such as retort pouches and curry powders.

Price Gauge
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Ezaki Glico (2206 JP)

Death Rattle for Defensives?

While it is not a given that a switch from a high growth, high interest rate environment to a low growth, low interest rate environment is a good...

Pelham Smithers Associates

BOJ Outcome: Symbolic Stimulus (As We Predicted)

As forecast by Europacifica, BOJ offered symbolic (modest) easing today.- Though it left overnight rates at -0.1%, the BOJ increased its ETF...

Naomi Fink

BOJ: The 80 Trillion Yen Question

The Bank of Japan July policy meeting ends tomorrow (Friday 29 July), and markets remain divided as to its outcome. Although expectations of...

Naomi Fink

JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

There are 32 inclusions and 27 exclusions from the JPX Nikkei 400. The changes will be effective after the close of trading on 27 November and the...

Brian Freitas

Danone Sells The Last of Their Yakult - Buy the Cleanup

Today after the close it was announced that $Danone

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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