Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

Shinko Electric Industries / Event-Driven

<ul>
<li>JPX-Nikkei 400 is composed of stocks listed on the Tokyo Stock Exchange selected based on multiple metrics relating to size, liquidity, financial performance, and corporate governance.</li>
<li>The annual rebalance of the JPX-Nikkei 400 Index takes place in August every year and the cut-off date for the data used for this rebalance is the end of June.</li>
<li>In this insight, we take a look at Quiddity's final predictions for Potential ADDs/DELs for the August 2022 review.</li>
</ul>


JPX-Nikkei 400 is composed of stocks listed on the Tokyo Stock Exchange selected based on multiple metrics relating to size, liquidity, financial performance, and corporate governance.
The annual rebalance of the JPX-Nikkei 400 Index takes place in August every year and the cut-off date for the data used for this rebalance is the end of June.
In this insight, we take a look at Quiddity's final predictions for Potential ADDs/DELs for the August 2022 review.


JPX-Nikkei 400 2022 Rebal: Final Predictions

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/132/original/2019-03-25_18-58-11.png?1553507902" class="editor-image img-responsive" data-smartkarma-image-id="83132"></figure>Source: Japan Analytics
</div>There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">S</a><a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">oftbank Group (9984 JP)</a>) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/206/original/2019-03-25_17-46-58.png?1553565764" class="editor-image img-responsive" data-smartkarma-image-id="83206"></figure><div class="content-caption">Source: Japan Analytics</div>OVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'.


Source: Japan Analytics
There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including Softbank Group (9984 JP)) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •Source: Japan AnalyticsOVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - Softbank Group (9984 JP)'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'. 

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

The slow-motion ‘train wreck’ that is the once-proud <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank Ltd (8358 JP)</a> ploughs on along its path of self-destruction.  Interim results were awful: a consolidated net loss of ¥98.5 billion (US$866 million), mostly incurred in 2Q FY3/2019 through loan-loss reserving and write-offs totalling ¥121.79 billion in respect of the bank’s “share house” debacle and other property investment lending disasters.  The stock remains highly volatile and remains vulnerable to further market reflection on the bank’s longer-term future despite a strong ‘bounce’ in the share price immediately following the results announcement. Full-year guidance implies that further reserving may yet be necessary later in the fiscal year, and there is still no word of a ‘white knight’ buyer for the Okano family’s 15% shareholdings.  It is tempting to believe that, if the credit losses on the bank’s dreadful misadventure have now been fully absorbed, Suruga Bank has achieved some sort of catharsis and can now start to recover.  Based on current evidence, however, the bank still seems a long way from redemption.  Caveat emptor (May the buyer beware!).

The slow-motion ‘train wreck’ that is the once-proud Suruga Bank Ltd (8358 JP) ploughs on along its path of self-destruction.  Interim results were awful: a consolidated net loss of ¥98.5 billion (US$866 million), mostly incurred in 2Q FY3/2019 through loan-loss reserving and write-offs totalling ¥121.79 billion in respect of the bank’s “share house” debacle and other property investment lending disasters.  The stock remains highly volatile and remains vulnerable to further market reflection on the bank’s longer-term future despite a strong ‘bounce’ in the share price immediately following the results announcement. Full-year guidance implies that further reserving may yet be necessary later in the fiscal year, and there is still no word of a ‘white knight’ buyer for the Okano family’s 15% shareholdings.  It is tempting to believe that, if the credit losses on the bank’s dreadful misadventure have now been fully absorbed, Suruga Bank has achieved some sort of catharsis and can now start to recover.  Based on current evidence, however, the bank still seems a long way from redemption.  Caveat emptor (May the buyer beware!).

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 6: Catharsis?

TATTERED - After rising 1.6% in four days at the start of the week before last, our Market Composite then fell by 3%, ended the period down 1.3% and only 1% above the one-year 'low' of March 23rd 2018. Japanese equities are currently trading on a trailing-twelve-month (TTM) earnings multiple of just 13.9x - a three-year low. Of the factors driving prices lower, we highlight 'Trust' and 'Trade' and focus on <a href="https://www.smartkarma.com/entities/23714" target="_blank" data-smartkarma-citation="entities:23714:1">Tateru (1435)</a> and <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358)</a> concerning the former.OUTLOOK - The rally we envisaged based on recent volume patterns lasted only for a week. The market is now overdue a bounce, at least in terms of the five-day relative strength index. Further, seasonality trends - <a href="https://www.smartkarma.com/insights/japan-seasonality-sell-in-july-and-say-goodbye-please-come-back-on-culture-day" target="_blank" data-smartkarma-citation="insights:23682">Japan: Seasonality - "Sell in July and Say Goodbye...Please Come Back on Culture Day"</a> - favour a rising equity market and weaker Yen into the end of the month, absent any adverse developments on the trade front.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/063/229/original/2018-09-08_21-25-10.png?1536481486" class="editor-image img-responsive" data-smartkarma-image-id="63229"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR RECOMMENDATIONS - Our sector recommendations have an implicit 3 'unit' market short by being overweight five sectors and underweight eight and have 'outperformed' by 2.3% over two weeks and by 12.3% over the last three months. COMPANIES - Our results and revision and stock performance reviews contain short comments on <a href="https://www.smartkarma.com/entities/3294" target="_blank" data-smartkarma-citation="entities:3294:1">Pigeon Corp (7956)</a> <a href="https://www.smartkarma.com/entities/4508" target="_blank" data-smartkarma-citation="entities:4508:1">Sekisui House (1928)</a> <a href="https://www.smartkarma.com/entities/11074" target="_blank" data-smartkarma-citation="entities:11074:1">Takara (2531)</a> <a href="https://www.smartkarma.com/entities/391" target="_blank" data-smartkarma-citation="entities:391:1">Sharp (6753)</a> <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564)</a> <a href="https://www.smartkarma.com/entities/9145" target="_blank" data-smartkarma-citation="entities:9145:1">Tokai Carbon (5301)</a> <a href="https://www.smartkarma.com/entities/237" target="_blank" data-smartkarma-citation="entities:237:1">Daiwa House (1925)</a> <a href="https://www.smartkarma.com/entities/4481" target="_blank" data-smartkarma-citation="entities:4481:1">Shin Etsu Chemical (4063)</a> <a href="https://www.smartkarma.com/entities/379" target="_blank" data-smartkarma-citation="entities:379:1">Sumco (3436)</a> <a href="https://www.smartkarma.com/entities/280" target="_blank" data-smartkarma-citation="entities:280:1">Tokyo Electron (8035)</a> <a href="https://www.smartkarma.com/entities/2" target="_blank" data-smartkarma-citation="entities:2:1">Yamato Holdings (9064)</a> and <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772:1">LINE (3938)</a>.

TATTERED - After rising 1.6% in four days at the start of the week before last, our Market Composite then fell by 3%, ended the period down 1.3% and only 1% above the one-year 'low' of March 23rd 2018. Japanese equities are currently trading on a trailing-twelve-month (TTM) earnings multiple of just 13.9x - a three-year low. Of the factors driving prices lower, we highlight 'Trust' and 'Trade' and focus on Tateru (1435) and Suruga Bank (8358) concerning the former.OUTLOOK - The rally we envisaged based on recent volume patterns lasted only for a week. The market is now overdue a bounce, at least in terms of the five-day relative strength index. Further, seasonality trends - Japan: Seasonality - "Sell in July and Say Goodbye...Please Come Back on Culture Day" - favour a rising equity market and weaker Yen into the end of the month, absent any adverse developments on the trade front.Source: Japan AnalyticsSECTOR RECOMMENDATIONS - Our sector recommendations have an implicit 3 'unit' market short by being overweight five sectors and underweight eight and have 'outperformed' by 2.3% over two weeks and by 12.3% over the last three months. COMPANIES - Our results and revision and stock performance reviews contain short comments on Pigeon Corp (7956) Sekisui House (1928) Takara (2531) Sharp (6753) Workman (7564) Tokai Carbon (5301) Daiwa House (1925) Shin Etsu Chemical (4063) Sumco (3436) Tokyo Electron (8035) Yamato Holdings (9064) and LINE (3938).

CAPITAL RAISING - WHOS NEXT? - A number of large capital increases have been announced by large and mid capitalisation Japanese companies in the last few months, the most recent of which have been from <a href="https://www.smartkarma.com/entities/7431" target="_blank" data-smartkarma-citation="entities:7431:1">Outsourcing Inc (2427 JP)</a> and <a href="https://www.smartkarma.com/entities/11796" target="_blank" data-smartkarma-citation="entities:11796:1">Daido Metal (7245 JP)</a>. The response to the dilution has been a predictable decline in share price, although, at least in the case of <a href="https://www.smartkarma.com/entities/7431" target="_blank" data-smartkarma-citation="entities:7431:1">Outsourcing (2427 JP)</a>, a good part of the response occurred before the announcement of the offering, as mentioned in <a href="https://www.smartkarma.com/profiles/713" target="_blank" data-smartkarma-citation="accounts:713">Mio Kato</a>'s note of yesterday - <a href="https://www.smartkarma.com/insights/outsourcing-2427-high-fixed-cost-burden-but-stronger-balance-sheet-opens-up-growth-again" target="_blank" data-smartkarma-citation="insights:23864">High Fixed Cost Burden but Stronger Balance Sheet Opens Up Growth Again</a>. In an attempt to suggest which companies are at risk of similar 'surprises', we have compiled a list of companies with similar financial profiles. 17 larger capitalisation and 22 mid capitalisation companies make the 'cut'.

CAPITAL RAISING - WHOS NEXT? - A number of large capital increases have been announced by large and mid capitalisation Japanese companies in the last few months, the most recent of which have been from Outsourcing Inc (2427 JP) and Daido Metal (7245 JP). The response to the dilution has been a predictable decline in share price, although, at least in the case of Outsourcing (2427 JP), a good part of the response occurred before the announcement of the offering, as mentioned in Mio Kato's note of yesterday - High Fixed Cost Burden but Stronger Balance Sheet Opens Up Growth Again. In an attempt to suggest which companies are at risk of similar 'surprises', we have compiled a list of companies with similar financial profiles. 17 larger capitalisation and 22 mid capitalisation companies make the 'cut'.

Japan

Tateru, Inc. offers real estate brokerage services. The Company mainly operates apartment management platforms and offers related leasing services. Tateru provides services in Japan.

Tateru Inc (1435 JP)

JPX-Nikkei 400 2022 Rebal: Final Predictions

I have segmented the JPX Nikkei 400 Potential ADDs and DELs based on conviction levels. The high-conviction ADDs might outperform the high...

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The slow-motion ‘train wreck’ that is the once-proud Suruga Bank Ltd (8358 JP) ploughs on along its path of self-destruction. Interim results were...

J. Brian Waterhouse

Japan Fortnightly Update: Tattered

TATTERED - After rising 1.6% in four days at the start of the week before last, our Market Composite then fell by 3%, ended the period down 1.3%...

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