Japan

In today’s briefing:

Toshiba – 3D Stake Reduction Reduces and Increases Risk
Nikkei 225 March 2023 Rebal Tomorrow
Rakuten Bank IPO – Thoughts on Valuation
Quiddity Leaderboard JPX-Nikkei 400: End-Mar 2023
Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business

Toshiba – 3D Stake Reduction Reduces and Increases Risk

By Mio Kato

An EDINET filing yesterday revealed that 3D Investment Partners had reduced their stake in Toshiba from 7.2% to 4.9%.
This significantly derisks the possibility of 3D becoming a forced seller and alters the risk reward here.
Nevertheless, it is still difficult to be especially bullish here given uncertainty regarding the tender vote is now a little higher.

Nikkei 225 March 2023 Rebal Tomorrow

The Nikkei 225 March 2023 Rebalance is 31 March at the close. There is about US$1.75bn of funding to sell against US$1.85bn of 3 names to buy.
The impact on the Buy Side is middling at 3, 6.4, and 6.9 days of ADV to buy. The three DELETES are larger on average but they are all smallcaps.
One trade – long an ADD vs a Peer – is still worth doing. Indexers buy the stock, it goes into a dark closet, and never comes out.

Rakuten Bank IPO – Thoughts on Valuation

Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m in its Japan listing in April 2023.
RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
In our earlier notes, we have looked at the company’s past performance and undertook a peer comparison. In this note, we provide our thoughts on valuation.

Quiddity Leaderboard JPX-Nikkei 400: End-Mar 2023

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2023 based on trading data as of end-March 2023.

Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business

Since listed companies have abundant cash reserves even if interest rates rise, they will use their cash to pay down debt but they are unlikely to use it for investments.
Cash is piling up on balance-sheet resulting from the inability to invest in growth and get out of the game of sharing the pie of the existing stable domestic market.
In order to raise profit margins significantly, a manager may find growth and invest in non-existing businesses or introduce game-changing products that disrupt the stability of the market.

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Mar 29

Daily Brief Japan: Toyo Construction, Mitsui O.S.K. Lines, Japan Real Estate Investment, Trial Holdings, Rakuten, Terumo Corp and more

In today’s briefing:

Toyo Construction (1890) Tries a Different Tactic – FEFTA!
Mitsui OSK(9104): Ex-Div – The Last Straw…
Japan Real Estate Investment (8952 JP) : Offering Could Be a Catalyst for Outperformance Vs Peers
Trial Holdings IPO – Sector Lagging Margins Warrant a Discount
Rakuten: 17% More Points in 2022
Terumo Corp (4543 JP): Sequential Decline Expected in Q4; Stronger Yen to Weigh on Performance
Japan Real Estate Investment Corp Placement – An Acquisition Out of the Blue

Toyo Construction (1890) Tries a Different Tactic – FEFTA!

This morning, Reuters is reporting that Toyo Construction (1890 JP) has asked the Japanese government to investigate alleged breaches of the Foreign Exchange and Foreign Trade Act by YFO.
Why? The Very Japanese family office of Nintendo’s founding family used Cayman entities to purchase Toyo shares and Toyo was re-labeled as having businesses in “Core Sectors” in October 2021.
Toyo has also repeated its complaint about changed “intentions” on large shareholder filings. That bit of the complaint is 10 months old. A closer look at the details within.

Mitsui OSK(9104): Ex-Div – The Last Straw…

Mitsui OSK is up 460% since June 2020. Almost gravity defying. Strong Container profits have lead to high dividends. Now Shareholders hang on for one more big payoff
Container rates have just about to reverted to pre-pandemic levels. Utilization is falling; Capacity coming on; Customers using spot. All points to potential losses next year for Containers and ONE
We expect a major profit decline=>div cut; How far could share price fall ? See the share price vs Shanghai Container Index correlation below. We are bearish Mitsui OSK.

Japan Real Estate Investment (8952 JP) : Offering Could Be a Catalyst for Outperformance Vs Peers

By Janaghan Jeyakumar, CFA

Today after market close, one of Japan’s largest office JREITs Japan Real Estate Investment (8952 JP) announced a US$150mn follow-on equity offering to fund their recent acquisition of two properties.
The primary offer quantity will be 35,200 units and there is an over-allotment quantity of 2,464 units.
In this insight, we take a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

Trial Holdings IPO – Sector Lagging Margins Warrant a Discount

Trial Holdings (5882 JP) is looking to raise up to US$393m in its Japan IPO.
TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
In this note, we talk about implied valuations in the IPO price range

Rakuten: 17% More Points in 2022

By Michael Causton

Loyalty points offer a significant incentive for consumers when deciding where to buy and many surveys confirm that points are a key factor in selection of online store.
With inflation biting, the big loyalty programmes are promoting points as a way to save on future purchases.
Rakuten is by far the largest provider (10 pts above anyone else) and is enjoying strong growth – which could help adoption of its mobile store.

Terumo Corp (4543 JP): Sequential Decline Expected in Q4; Stronger Yen to Weigh on Performance

By Tina Banerjee

Terumo Corp (4543 JP) raised FY23 revenue guidance due to greater than expected depreciation of Yen. However, excluding Fx, revenue growth expectation has been lowered to 5% from 6% earlier.
New guidance implies Q4FY23 revenue of ¥197B (-8% QoQ) and operating profit of ¥28.5B (-24% QoQ). Terumo assumed exchange rate of ¥130/USD for Q4FY23, similar level realized in Q1FY23.
Terumo has reduced FY23 operating and net profit guidance by ¥10B and ¥8.5B, respectively due to higher-than-expected inflation. Excluding Fx, operating profit is expected to decline 2% in FY23.

Japan Real Estate Investment Corp Placement – An Acquisition Out of the Blue

By Ethan Aw

Japan Real Estate Investment (8952 JP) is looking to raise around US$140m (JPY18.3bn) through a follow-on offering to acquire one new property and an additional co-ownership interest in another property.
The deal is a large one to digest at 10 days of three month ADV while there will be a dilution of approximately 2.7% of TSO (assuming overallotment option exercised).
In this note, we will look at the assets to be acquired, impact on forecast and portfolio, and run the deal through our framework.

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Mar 28

Daily Brief Japan: Nitori Holdings, Cosmo Energy Holdings, Seven & I Holdings, SBI Sumishin Net Bank, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
Cosmo Energy (5021) – It’s Even More On
Seven & I (3382) | New Plan Falls Short
Nitori: Low Valuation Multiples and A Strong Potential to an Earnings Beat
SBI Sumishin Net Bank IPO Trading – Rakuten Filing Will Add on More Pressure
Let Fujitec’s Case Be a Lesson to Companies and Investors in Japan

Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses

The review period for the Nikkei 225 (NKY INDEX) September rebalance ends end July. We highlight 3 potential inclusions and exclusions for the index.
There are a few alternate adds that are interesting and their inclusion in the index could move things around a fair bit.
Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 0.5x ADV on many index constituents.

Cosmo Energy (5021) – It’s Even More On

In mid-January, things between activist Yoshiaki Murakami and Cosmo Energy Holdings (5021 JP) came to a head. Cosmo announced a large buyback and possible takeover defence measures.
The buyback was a beefy chunk of the float because of the expected profit payout. On 9 February, Cosmo lowered its NP guidance by 40%. FY22 div stays at ¥150/share.
Last Thursday, Cosmo presented its NEW Mid-Term Management Plan. ROE targets similar. Profit targets up. Minimum div goes up; payout ratio goes up. More comes if financial health targets met.

Seven & I (3382) | New Plan Falls Short

Seven & I has revamped its corporate board and announced an updated MTP that improves capital allocation. However…
Activist investor ValueAct has turned hostile and is seeking to replace the President and three other directors
The stock price has declined by 12% from its year high and we see substantial upside to our intrinsic valuation

Nitori: Low Valuation Multiples and A Strong Potential to an Earnings Beat

Consensus estimates suggest that Nitori Holdings (9843 JP)‘s gross margin will experience a sudden change affecting profitability for a few quarters, before returning to 6-8% below the long-term trend.
We see no apparent reason for a drastic change in Nitori’s profitability and expect it to remain slightly below trend, in line with guidance.
Nitori is expected to reach ¥140bn and ¥150bn OP for FY24 and FY25, with valuation at 13.3x and 12.4x OP. This is reasonable given Nitori’s rare history of low multiples.

SBI Sumishin Net Bank IPO Trading – Rakuten Filing Will Add on More Pressure

SBI Sumishin Net Bank (7163 JP) (SSNB) raised around US$370m in its second listing attempt.
SBI Sumishin Net Bank is a Japanese digital bank set up as a 50-50 joint venture between Sumitomo Mitsui Trust Bank, Japan’s largest trust bank, and SBI Group.
In this note, we talk about the recent updates and trading dynamics.

Let Fujitec’s Case Be a Lesson to Companies and Investors in Japan

Fujitec’s board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.
Bringing manager’s buddy on as an “independent director” is not likely to contribute to sustainable growth in corporate value.
If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.

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Mar 27

Daily Brief Japan: Japan Airlines, Toyo Construction, Toshiba Corp, Rakuten Bank and more

In today’s briefing:

Nikkei 225 Index Rebalance: Passives Trade on Friday
Toyo Construction (1890) Plays Offence – A New Mid-Term Mgmt Plan with High Shareholder Payout
Weekly Deals Digest (26 Mar) – Toshiba, Toyo, Healius, Mincor, Rakuten Bank, SBI Sumishin, Harita
Rakuten Bank Vs SBI Sumishin Net Bank

Nikkei 225 Index Rebalance: Passives Trade on Friday

Oriental Land (4661 JP), Renesas Electronics (6723 JP), Japan Airlines (9201 JP) will replace Toyobo (3101 JP), Nippon Light Metal (5703 JP), Toho Zinc (5707 JP) in the Nikkei 225.
Estimated one-way turnover at the rebalance is 1.08% and will result in a round-trip trade of JPY 412.8bn (US$3.16bn) at the close on 31 March.
There has been recent pre-positioning on the stocks as well as movement in short interest over the last couple of months.

Toyo Construction (1890) Plays Offence – A New Mid-Term Mgmt Plan with High Shareholder Payout

YFO continues its fight on Board governance. Toyo Construction has shifted so the Board and a Special Committee will now examine the input Toyo says YFO has not provided.
Toyo also objected because it said YFO’s bid could not be sustained based on Toyo’s economics. Toyo’s fight should have been offence. With a new Medium-Term Management Plan, it is.
Toyo now promises strong revenue and double digit OP growth, and a ¥50/share (5.3%) dividend. Toyo is trying to pay off shareholders to support it against YFO. That’s fair/good.

Weekly Deals Digest (26 Mar) – Toshiba, Toyo, Healius, Mincor, Rakuten Bank, SBI Sumishin, Harita

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Rakuten Bank (5838 JP), SBI Sumishin Net Bank (7163 JP), Trial Holdings (5882 JP) and PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) IPOs.
Event-Driven developments – Toshiba Corp (6502 JP), Toyo Construction (1890 JP), Golden Energy & Resources (GER SP), Estia Health (EHE AU), Healius (HLS AU), Mincor Resources NL (MCR AU).

Rakuten Bank Vs SBI Sumishin Net Bank

Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise about $870 million. The pricing is on 5 April and the listing is on 21 April.
In Rakuten Bank IPO: The Investment Case, we highlighted the key elements of the investment case.
SBI Sumishin Net Bank (7163 JP), the key peer, will list on 29 March. In this note, we compare Rakuten Bank and SBI Sumishin across several key metrics.

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Mar 26

Daily Brief Japan: Toshiba Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Last Week in Event SPACE: Toshiba, Toyota Industries, Meituan, Kingsoft, Rakuten Bank
Passive Funds, Silent Shareholders, Are a Barrier to Corporate Governance

Last Week in Event SPACE: Toshiba, Toyota Industries, Meituan, Kingsoft, Rakuten Bank

By David Blennerhassett

Toshiba Corp (6502 JP)‘s Board is clearly giving this to shareholders and saying “We did our job. Now it’s up to you.”
Toyota Industries (6201 JP) admits to falsifying some engine emission tests. But the market dinging the company ~20% is excessive.
US$16bn of Meituan (3690 HK) shares from Tencent (700 HK) got delivered on 24 March 2023. That’s a lot.

Passive Funds, Silent Shareholders, Are a Barrier to Corporate Governance

While policy holdings have declined, passive funds have appeared among the top shareholders of many companies. The Bank of Japan’s ETF purchases have accelerated this growth.
The question is whether the passive funds that have appeared as major shareholders in each company are exercising their voting rights on reasonably reasonable basis that fulfills their fiduciary duties.
In reality, engagement is limited to a few companies due to the large number of portfolio companies and low management fees.This implies that the same is true for proxy voting.

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Mar 25

Daily Brief Japan: Toshiba Corp, Toyota Industries and more

In today’s briefing:

Toshiba – Thoughts On The Tender Opinion
Toyota Industries: Guilty As Charged. But Excessively Punished

Toshiba – Thoughts On The Tender Opinion

By Mio Kato

Toshiba released documents on the tender and a notice that the FY end dividend would be cancelled shortly after our last report was published.
They are interesting in that the Special Committee’s opinions are relatively frank but details on the valuation process are almost non-existent.
In addition, the information regarding other bids and alternatives was a little surprising to us.

Toyota Industries: Guilty As Charged. But Excessively Punished

By David Blennerhassett

Toyota Industries (6201 JP), one of the world’s leading forklift manufacturers, has admitted to fabricating the results of parts testing, forcing some forklift shipments to be halted.
TICO has decided to suspend the shipping of three models of forklifts equipped with the suspect engines, which account for ~6% of total forklift sales (in terms of count).
Shares, quite rightly, have taken a hit. But this correction appears excessive.

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Mar 24

Daily Brief Japan: Toshiba Corp, Rakuten Bank, Rakuten, Oisix ra daichi, Samantha Thavasa Japan, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Toshiba Board to Shareholders: “Yes, Meh But We Did Our Job, Now It’s Up To You (We’re Tired Too)”
Toshiba – The End… Hopefully
Toshiba (6502 JP): JIP’s JPY4,620 Tender Offer, Now for the Really Hard Part
Rakuten Bank IPO – Recent Filings Updates and Quick Thoughts on Valuation
Rakuten Bank IPO: The Investment Case
Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments
Oisix Hit as People Return to Work
Samantha Thavasa Attempts Rebirth but Losses Continue
Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?

Toshiba Board to Shareholders: “Yes, Meh But We Did Our Job, Now It’s Up To You (We’re Tired Too)”

Just post-close, the Nikkei reported Toshiba’s Board had agreed a JIP deal at “around ¥2trln.” Toshiba confirmed HOURS later indicating language was still being hashed out. And the dividend cancelled.
Toshiba “supports” the deal because it aligns a single shareholder with management goals. They cannot recommend to general shareholders because it is too low. But JIP was the only bidder.
It raises the question of whether activists will submit to “Toshiba Fatigue” at what the Board admits is too low a price, or whether there is still fight left.

Toshiba – The End… Hopefully

By Mio Kato

The Nikkei reported today that Toshiba’s board had chosen to accept JIP’s buyout offer.
The purported pricing of ¥2trn is a relatively modest premium but is not a surprise and no surprise is a positive here in our view.
All that remains is shareholder approval and while we doubt there will be too many celebrations on that front, there is likely to be relief.

Toshiba (6502 JP): JIP’s JPY4,620 Tender Offer, Now for the Really Hard Part

Toshiba Corp (6502 JP) announced a pre-conditional tender offer by Japan Industrial Partners (JIP), the preferred bidder at JPY4,620 per share, a 9.7% premium to the last close price.
The special committee opines that the offer is the best price that can be expected today, which sounds like we are recommending the offer as it is the only one.
The offer has several negatives: a 14% price reduction during the process, below the undisturbed price, below the mid-point IFA DCF range and no serious effort on Plan B.

Rakuten Bank IPO – Recent Filings Updates and Quick Thoughts on Valuation

Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m in its Japan listing in April 2023.
RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
In our earlier notes, we have looked at the company’s past performance. In this note, we talk about the updates from its recent filings.

Rakuten Bank IPO: The Investment Case

Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise about US$870 million. The pricing is on 5 April and the listing is on 21 April.
Rakuten Bank, wholly owned by Rakuten (4755 JP), is the largest Japanese internet bank as measured by the number of accounts and customer deposits.
The investment case rest on Rakuten Ecosystem’s competitive advantage, growth in accounts/deposits, robust loan book growth, rising margins and low NPL ratio.

Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments

As Rakuten Bank (5838 JP) prepares for an IPO in April 2023, we see the potential for Rakuten’s NAV discount to narrow significantly from its current level of over 52%.
We think the market could be unaware of the hidden value in smaller Rakuten businesses and other investments.
Rakuten-Bank, which seems like a small piece of Rakuten’s ecosystem producing as much as 26-31% of Rakuten’s market-cap could open markets’ eyes to the undervaluation of Rakuten businesses & investments.

Oisix Hit as People Return to Work

By Michael Causton

Oisix is Japan’s largest online food retailer but sales were flat in 1Q-3Q2022 as people returned to work and cooked less, and profits suffered as inflation brought increases in costs.
The company’s US operation also shrank as fewer people bought food online now that many Japanese are back to normal working patterns again.
But other international subsidiaries and its expanded wholesale businesses at home all grew strongly.

Samantha Thavasa Attempts Rebirth but Losses Continue

By Michael Causton

Once a major hit with young women, Samantha Thavasa has struggled to find relevance in the past five years.
Despite an injection of capital and management from new parent, Konaka, the business has continued to close stores.
While Konaka is restructuring the business, the brand’s low levels of recognition with the younger generation will likely mean further retreat.

Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?

Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.
Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company’s cash flow does not continue to increase.
ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.

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Mar 23

Daily Brief Japan: Rakuten, Rakuten Bank, Sumitomo Mitsui Financial Group, ASICS Corp, Nikkei 225 and more

In today’s briefing:

Rakuten Bank (5838 JP) IPO: Listing in April, TPX Inclusion in May, MSCI SC in August
Rakuten Bank (5838 JP) – Another Net-Bank IPO, This One With TOPIX and Other Index Inclusions
Japan Banks: Markets Overreact to SVB’s Collapse
ASICS (7936) | Running Is Recession Proof
SGX Nikkei 225 Climate PAB Futures: A Cleaner Way to Invest in Japan

Rakuten Bank (5838 JP) IPO: Listing in April, TPX Inclusion in May, MSCI SC in August

Rakuten Bank (EBANKZ JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 21 April.
News reports indicate a raise of US$800mn (JPY 106.8bn) at the mid-point of the IPO range, valuing the company at JPY 305bn (US$2.3bn).
The stock should be added to the TPX INDEX at the close on 30 May where trackers will need to buy over 14% of the stock issued in the IPO.

Rakuten Bank (5838 JP) – Another Net-Bank IPO, This One With TOPIX and Other Index Inclusions

Today, Rakuten (4755 JP) and Rakuten Bank (5838 JP) announced that Rakuten Bank had received TSE approval to list (English) on TSE Prime, with expected listing date 21 April 2023.
This had been in the works since July 2022, and they selected advisors in September 2022. The low end of the offer price range seems attractive. More diligence needed.
There will be index inclusions. Unlike SBI Sumishin Net Bank (7163 JP) which is going to TSE Standard, Rakuten Bank is going to Prime.

Japan Banks: Markets Overreact to SVB’s Collapse

Following the collapse of SVB and Signature Bank last week, Japan’s big four banks have fallen by around 15% due to their exposure to US government bonds.
However, the Japanese banks have managed the interest rate risk far better than the collapsed US banks and therefore, we feel the price drop is unwarranted.
With Japan likely to scrap its zero rates policy, we think this could be a rather intriguing opportunity to make generous gains on the long side in Japan’s banking sector.

ASICS (7936) | Running Is Recession Proof

Good news from Nike’s Q3 report, which bodes well for Asics March quarter
Why was Nike’s stock down? Margins were down 330bps on inventory mark downs
Running is recession proof according to the footwear makers themselves

SGX Nikkei 225 Climate PAB Futures: A Cleaner Way to Invest in Japan

SGX has launched futures on the Nikkei Climate 1.5°C Target Index. The index is based on the Nikkei225 and uses screens to remove stocks that do not meet certain criteria.
The Nikkei Climate 1.5°C Target Index has a high degree of overlap and correlation and low tracking error with the Nikkei 225 (NKY INDEX).
With increased interest in Climate/ESG investing, market participants can use the SGX-listed futures to get the same risk/reward characteristics as the Nikkei225 with atleast 50% lower Greenhouse Gas emission intensity.

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Mar 22

Daily Brief Japan: Tokyo Stock Exchange Tokyo Price Index Topix, Mitsubishi Motors and more

In today’s briefing:

The BIG March 2023 “Wednesday Thursday Trade”
Mitsubishi Motors (7211) | Modelling the Mid Term Plan
Who Is More Culpable, “Independent” Directors or or Domestic Institutions that Bias To the Company?

The BIG March 2023 “Wednesday Thursday Trade”

Every year it’s the same trade. But it isn’t really. But it kinda is. This year it is Wednesday and Thursday. There are risks to the analysis – notably allocation.
But, ceteris paribus, it is still possibly a ¥1,580,876,450,407 buying spree to take place on one day into the close later this month. Or something close to it.
And for a two-day period, over the last ten years, the average return is 1.60% on these two days with a 9:1 win ratio. Lots of angles here.

Mitsubishi Motors (7211) | Modelling the Mid Term Plan

The stock is down sharply over the past few weeks as investors price in higher interest rates and weaker spending on durables
Mitsubishi recently unveiled its mid-term plan and further details on its electrification strategy
If management can hit its targets, the stock would have significant upside. We have our doubts

Who Is More Culpable, “Independent” Directors or or Domestic Institutions that Bias To the Company?

Surprisingly, about half of shareholders did not vote in favor of the shareholder proposal to remove outside directors who implemented practices that were problematic in terms of corporate governance.
Domestic institutional investors are still unwilling to oppose the company even when, as in this case, there is a clear corporate governance problem with the company.
It’s extremely difficult for these outside directors to fully fulfill their responsibilities as independent directors on a board composed of “independent directors” who are friends brought in by top management.

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Mar 21

Daily Brief Japan: Trial Holdings, SCREEN Holdings, Takeda Pharmaceutical, Fast Retailing and more

In today’s briefing:

Trial Holdings Pre-IPO – Peer Comparison – Leading in Growth, Lagging in Margins
Screen Holdings (7735 JP): Positive Impression from Hikone Factory Tour
Takeda: Nimbus Acquired Psoriasis Drug Showing Positive Results in Key Trial
Fast Retailing: Japan Demand Not Enough to Warrant an Upside, Downside Risks Looming on The Horizon
Trial Holdings Pre-IPO -Thoughts on Valuation

Trial Holdings Pre-IPO – Peer Comparison – Leading in Growth, Lagging in Margins

By Shifara Samsudeen, ACMA, CGMA

Trial Holdings (5882 JP) is looking to raise around US$375m in its Japan IPO.
TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
In this note, we will undertake a peer comparison against some of its listed peers.

Screen Holdings (7735 JP): Positive Impression from Hikone Factory Tour

By Scott Foster

A tour of the Hikone factory last week left us impressed with Screen’s efficiency and the timing of its capacity expansion.
The company’s semiconductor production equipment sales are likely to decline this year, but outperform the industry as a whole due to low exposure to memory.
Buy for longer-term recovery after the recent advance has been digested.

Takeda: Nimbus Acquired Psoriasis Drug Showing Positive Results in Key Trial

Takeda Pharmaceutical (4502 JP) revealed over the weekend that experimental drug TAK-279 (acquired from Nimbus) for psoriasis is showing positive results suggesting it could become the best of its type.
On the other hand, Takeda’s dengue vaccine Qdenga has been granted approval in Brazil, a country with high prevalence of dengue.
Takeda’s top selling drug Entyvio’s exclusivity in the US will end in 2026 and the company continues to see strong progress with its development pipeline and M&A deals.

Fast Retailing: Japan Demand Not Enough to Warrant an Upside, Downside Risks Looming on The Horizon

We don’t think that a strong-looking demand in the domestic market is sufficient to warrant an upside to Fast Retailing (9983 JP)’s current consensus FY+2 EV/OP of 19.9x.
Although on the downside we see significant risks with China’s rebound, decelerating revenue growth in high growth markets and margin pressure from wage hikes and inventory growth.
Therefore, we think the company’s FY+2 EV/OP could potentially go down to around 15.0x, which is towards the bottom end of Fast Retailing’s pre-COVID FY+2 EV/OP range.

Trial Holdings Pre-IPO -Thoughts on Valuation