Category

Japan

Japan: Cosmo Energy Holdings, NTT (Nippon Telegraph & Telephone), KDDI Corp, BASE Inc, Mitsubishi Heavy Industries, Nexon, Internet Initiative Japan, Softbank Group and more

By | Daily Briefs, Japan

In today’s briefing:

  • Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks
  • NTT (9432) – Salutary Earnings Salutary Buyback, More to Go
  • KDDI (9433) Results OK, Forecasts OK, Buyback Even Better, But No Longer Cheap
  • KDDI (Buy) Q4 21 Results Reaction: FY22 Profits Steady and Wide-Ranging Mid-Term Plan
  • Base Inc: Shoppers Return to Offline, More Downside Left
  • Mitsubishi Heavy (7011 JP) | Just Getting (Re)Started
  • Japan Emerging as Leadership; Actionable Themes: Japan and Defensives
  • IIJ (Buy) – Q4 21 Results Reaction: Reliable Growth and Margin Expansion
  • Weekly Wrap – 13 May 2022

Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks

By Travis Lundy

  • Cosmo Energy Holdings (5021 JP), subject of a selldown by its major shareholder (discussed here), then a large stake purchase by activist Murakami-san (discussed here) announced earnings and a buyback.
  • The buyback is large enough to matter to other shareholders. 
  • The shareholder structure is interesting enough that investors need to pay attention to the possibilities.

NTT (9432) – Salutary Earnings Salutary Buyback, More to Go

By Travis Lundy

  • The three Japanese telecoms reported earnings this week. Softbank Corp (9434 JP) was disappointing (and slightly confusing). KDDI Corp (9433 JP) was much of a muchness.
  • NTT (Nippon Telegraph & Telephone) (9432 JP)  looked the best, and announced the largest buyback – ¥400bn or 3%. But it comes from a government sale, not the market. 
  • Nevertheless, the company is doing what it promised and executing on its promise. And despite the “bullishness” in the revenue forecast, earnings forecasts to March 2023 look conservative.

KDDI (9433) Results OK, Forecasts OK, Buyback Even Better, But No Longer Cheap

By Travis Lundy

  • KDDI reported earnings today, offering a near meaningless March 2022 results presentation slide deck, and an only slightly more meaningful new Mid-Term Plan.
  • The only clarity provided is on the bit which makes up about a third of future OP as the two-thirds (mobile telephony ARPU-related revenues) will see considerable pain this year. 
  • The buyback is nice, but KDDI is no longer cheap, and may have relative upside only against Softbank Corp. 

KDDI (Buy) Q4 21 Results Reaction: FY22 Profits Steady and Wide-Ranging Mid-Term Plan

By Kirk Boodry

  • Guidance for modest growth in FY22 operating income is broadly in line with expectations and reassuring after a range of potential outcomes in reports from NTT and Softbank  
  • The company has issued a mid-term plan with a positive message on growth from new businesses and in-line guidance for capex/shareholder returns but a lack of FY24 finanical targets
  • On balance, the message is positive as a stable business and rising shareholder returns makes KDDI an attractive option in a frothy market

Base Inc: Shoppers Return to Offline, More Downside Left

By Oshadhi Kumarasiri

  • BASE Inc (4477 JP) is up more than 27% today as the Mothers Index bounced back 4.5% following a steep sell-off during the last one-month period.
  • Nevertheless, results were disappointing on both the top line and the bottom line with Q1 revenue and operating loss of ¥2,512m (consensus ¥2,659m) and ¥272m (consensus ¥139.2m) respectively.
  • After disappointing the market with a guidance range that was significantly below consensus in 2021, Base Inc has withheld from providing 2022 guidance.

Mitsubishi Heavy (7011 JP) | Just Getting (Re)Started

By Mark Chadwick

  • MHI reported a strong 7% growth in the order backlog to ¥5,500 billion
  • MHI is a beneficiary of the global energy crisis, geared into gas turbine and nuclear supply chains
  • The stock is trading below book value (10 year average 1x) at a time when the core energy order book is as strong as ever

Japan Emerging as Leadership; Actionable Themes: Japan and Defensives

By Joe Jasper

  • Downtrends remain intact for Japan’s TOPIX/Nikkei 225, Hong Kong’s Hang Seng, Europe’s EURO STOXX50, Germany’s DAX, China (MCHI-US), and all the MSCI global indexes (ACWI, ACWI ex-US, EM, and EAFE).
  • The majority of these indexes are in well-defined downtrends; that means when the downtrends eventually reverse, it will be clear and we will be ready to buy/turn bullish.
  • Relative strength on Japan’s TOPIX is reversing topside a 4.5-year downtrend, signaling Japan is emerging as leadership. We highlight buy opportunities in Japan and also in defensive Sectors

IIJ (Buy) – Q4 21 Results Reaction: Reliable Growth and Margin Expansion

By Kirk Boodry

  • Q4 and FY22 guidance beat driven by growth in corporate DX demand and margin discipline
  • Company expects FY22 double-digit revenue growth as mobile headwinds fade and has re-set its mid-term profitability target. Implied FY23 OP is 28% higher than year-ago forecasts
  • Near-Term profitability beat ties in to shareholder returns and FY21 DPS has been raised to ¥48 from ¥46 with further growth in FY22. We remain at Buy.

Weekly Wrap – 13 May 2022

By Charles Macgregor

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

  1. China Jinmao Holdings
  2. Guangzhou R&F Properties
  3. Sunac China Holdings
  4. Greenland Hong Kong Holdings
  5. Evergrande

and more…


Before it’s here, it’s on Smartkarma

Japan: Softbank Group, Tokyo Electron, Subaru Corp, NTT (Nippon Telegraph & Telephone), Nissan Motor, SUMCO Corp, Takeda Pharmaceutical, Olympus Corp and more

By | Daily Briefs, Japan

In today’s briefing:

  • Softbank – Not Pretty
  • Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here
  • TEL – Margin Disappointment
  • Subaru – One Of The Better Weak Yen Plays
  • NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes
  • Nissan – Significant Upside But Peers Are Better
  • Sumco – Still Underestimated
  • Morning Views Asia: Greenland Holdings Corp, Softbank Group
  • Takeda 4QFY22: Top Line Expands and Pipeline Development Progresses Despite OP Drop
  • Olympus (7733 JP) Q4FY22: Net Profit More Than Doubled; Record High Profit Projection for FY23

Softbank – Not Pretty

By Mio Kato

  • Softbank results were about as ugly as expected and the only major new information in our view was that they took a small (too small) write-down on their private holdings. 
  • Masayoshi Son did Masayoshi Son things regaling investor with tales of “To the moon bro!” but offered little of substance to suggest a turnaround was near. 
  • Ultimately we keep coming back to the question of where margin calls might be struck.

Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here

By Kirk Boodry

  • Softbank reported record losses, as expected, including some writedowns in the private portfolio. That may not be enough to assuage concerns with valuations still in free fall
  • Management says tech’s day will come again and it is best to be more defensive for now, including a slower pace of investing, which we think is positive
  • Concern on weak tech and high leverage likely keep the discount in the mid-50s range.  There was nothing today to signal an inflection is at hand

TEL – Margin Disappointment

By Mio Kato

  • TEL generated ¥169bn in OP in 4Q, well above consensus at ¥150bn and even our ¥160bn estimate. 
  • The issue is that this was on ¥565bn in revenue, well above ourselves and consensus, due to ramping R&D and depreciation expenses. 
  • Those expenses also meant that guidance of ¥716bn in OP was just barely above consensus at ¥692bn.

Subaru – One Of The Better Weak Yen Plays

By Mio Kato

  • Subaru 4QFY22 was relatively strong compared to previous quarters with revenue of ¥737bn (+4.4% vs. consensus) but material prices pushed OP down to ¥13.3bn (-48.6% vs. consensus). 
  • The FY23 guidance was relatively weak at just ¥3,500bn in revenue (+4.5% vs. consensus) and OP guidance of ¥200bn (-1.0% vs. consensus). 
  • However with the yen where it is we believe Subaru is on track for a return to double digit OPM and OP of ¥370-450bn.

NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes

By Kirk Boodry

  • Q4 results and FY22 guidance are in line with expectations and management is confident it is on track to meet its FY23 ¥370 EPS commitment
  • Returns to shareholders modestly better than expected with a ¥400bn buyback and the possibility of a further dividend hike later in the year still on the table
  • We remain positive on NTT shares which trade at an attractive 10-11x EPS with further support from expanding shareholder returns

Nissan – Significant Upside But Peers Are Better

By Mio Kato

  • Nissan generated total revenue of ¥2,271bn (-12.0% vs. consensus) and OP of ¥56bn (+33.3% vs. consensus) in 4QFY22. 
  • This enabled the company to hit ¥247bn in OP vs. our start of year projection of ¥250bn (when guidance was for breakeven). 
  • Guidance looked superficially weak at ¥10trn in revenue (-0.4% vs. consensus) and ¥250bn in OP ¥250bn (-21.1% vs. consensus) but margin assumptions are silly and we expect ¥500bn in OP. 

Sumco – Still Underestimated

By Mio Kato

  • Sumco 1Q revenues were on the strong side, 1.5% above consensus but OP beat by 9.9%. 
  • As we have been flagging, consensus is underestimating operating leverage and that was before the weakening of the yen. 
  • Revenue guidance for 2Q was 4.9% above consensus and OP 12.8% higher but we expect results to be an even larger beat.

Morning Views Asia: Greenland Holdings Corp, Softbank Group

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Takeda 4QFY22: Top Line Expands and Pipeline Development Progresses Despite OP Drop

By Shifara Samsudeen, ACMA, CGMA

  • Takeda Pharmaceutical (4502 JP) reported 4QFY03/2022 results yesterday. Reported revenue grew 13.4% YoY to JPY873.3bn (vs consensus JPY825.7bn) while the company reported operating losses of JPY1.7bn.
  • Revenue from Top 14 drugs grew 20.3% YoY, while revenue from top-seller Entyvio grew 15.0% YoY during the quarter. Excluding Entyvio, other top 13 drugs grew 23.3% during the period.
  • Takeda’s shares moved down 2.0% at the end of yesterday’s trading and down 3% during today’s trade as profit drop disappointed the market.

Olympus (7733 JP) Q4FY22: Net Profit More Than Doubled; Record High Profit Projection for FY23

By Tina Banerjee

  • Olympus Corp (7733 JP) reported strong double-digit revenue growth in Q4 on continued medical business recovery. Net profit has more than doubled and 40% ahead of consensus.  
  • The company has achieved growth to above pre-pandemic level in FY22 and CAGR of >7% over last two years. Operating margin improved significantly to 19.3%.
  • Olympus is on track to achieve more than 20% operating margin in FY23. Management projected a record high net profit of ¥154 billion for FY23.

Before it’s here, it’s on Smartkarma

Japan: Toyota Motor, Ricoh Company Ltd, Chukyo Bank, Softbank Corp, Shinko Electric Industries, Beenos Inc, Capcom Co Ltd, Ichigo Inc, Inpex Corp and more

By | Daily Briefs, Japan

In today’s briefing:

  • Toyota – Guidance Meaningless With A ¥115 Assumption
  • Ricoh (7752) Buyback – Big, But Not. But Not Small.
  • Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value
  • Softbank Corp Q4 21 Results Reaction: Behind the Headlines, Disappointing Guidance
  • Shinko Electric (6967 JP): Reality Check – Risk on the Downside
  • Beenos Decides to Lock-In Profits from Incubator Investments
  • Capcom – Can They Keep Suppressing Profit?
  • FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold
  • Toyota Guides for a 22% Profit Drop–Tough to Buy This Dip For Now
  • Inpex – Upside Remains After Revised Guidance

Toyota – Guidance Meaningless With A ¥115 Assumption

By Mio Kato

  • Toyota results were weak missing by 2.9% and OP by 8.5% due to weak volumes, material costs and some evidence of pulling forward costs. 
  • Guidance was for a sharp YoY decline from ¥3trn in OP to just ¥2.4trn but this assumes limited price hikes and ¥115/$ so… who cares? 
  • We expect the weak yen, rising hybrid penetration and volume recovery to drive OP into the ¥3.6-4.0trn range.

Ricoh (7752) Buyback – Big, But Not. But Not Small.

By Travis Lundy

  • Ricoh Company Ltd (7752 JP) announced earnings disappointed, but guidance is above forecast as some Q4 business was pushed back.
  • The company also announced a buyback. The headline at 7.5% of shares out is big. Reality is lower. 
  • This sets up a somewhat complex dynamic of flows in near space and far space, and relative to peers. But we look at it anyway.

Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value

By Travis Lundy

  • Chukyo Bank (8530 JP) and Aichi Bank (8527 JP) have decided to join forces to become the largest regional lender in the Nagoya area. 
  • This is probably driven by MUFJ’s efforts to rid itself of non-core assets, but in doing so, it is allowing for an accretive structure for minorities.
  • This ends up being a cheap bank on a slightly complicated pro-forma basis.

Softbank Corp Q4 21 Results Reaction: Behind the Headlines, Disappointing Guidance

By Kirk Boodry

  • Softbank Corp will meet its mid-term business plan commitment of ¥1,000bn in FY22 operating income but it needs a boost from valuation gains from PayPay to get there
  • Operationally, it is forecasting a 11% EBITDA decline driven by mobile revenue erosion and higher marketing expense with the lack of a growth contribution from Z Holdings apparent
  • The good news is the dividend is unchanged.  We expect a better story from NTT and KDDI later in the week but stable returns provide support

Shinko Electric (6967 JP): Reality Check – Risk on the Downside

By Scott Foster

  • Shinko may look attractively valued, but it is highly geared to a slowdown in demand. Rising materials costs and depreciation accentuate downside gearing.
  • Management is guiding for another year of strong sales growth, but may be ignoring the possibility of a decline in remote-work and other COVID-related demand.
  • Rolling over, but still up 6.7x since March 2020. Not worth the risk in the current environment.

Beenos Decides to Lock-In Profits from Incubator Investments

By Oshadhi Kumarasiri

  • Beenos Inc (3328 JP) results beat with revenue at ¥7.2bn (+4.6% vs consensus) and OP of ¥431m (+21.4% vs consensus).
  • FY22 guidance was raised across Beenos’ core e-commerce businesses due to the favourable impact of the yen depreciation on overseas demand and changes to shipping methods and rates.
  • What caught our eye the most was Beenos’ decision to gradually realise gains from its VC investments.

Capcom – Can They Keep Suppressing Profit?

By Mio Kato

  • Capcom results were previously flagged with a late guidance upgrade and so were unsurprising. 
  • Guidance was a touch above consensus at both the revenue and OP levels but look somewhat conservative even on assumed unit volumes. 
  • But we think there is significant upside to unit volumes and Capcom’s biggest challenge will be to hold down profit so they can generate double digit growth the year after.

FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold

By Brian Freitas

  • The next FTSE EPRA Nareit Index review will use data from 23 May. The changes will be announced on 1 June and implemented at the close on 17 June.
  • Potential inclusions at the review include Frasers Hospitality Trust (FHT SP) and Ichigo Inc (2337 JP), though both are very close to the basis point threshold for inclusion.
  • Digital Core REIT (DCREIT SP) has still not published an audited annual report in English and is unlikely to be included in the index at the June rebalance.

Toyota Guides for a 22% Profit Drop–Tough to Buy This Dip For Now

By SC Capital

  • Toyota is famous for conservative guidance, but today’s FY3/23 estimates of a 22% decline in pretax profit raised some eyebrows. Raw materials & logistics are to blame. 
  • Adjusting for various conservative assumptions by Toyota for FY3/23, flat profits are possible, but margin deterioration appears unavoidable.  
  • On flat profits in FY3/23, the 12x PER & 5.5x EV/EBITDA are not particularly cheap. Toyota is in the “Guidance Dog House” until it can produce a significant beat. 

Inpex – Upside Remains After Revised Guidance

By Mio Kato

  • Inpex delivered the expected strong 1Q with revenue of ¥485bn (+6.5% vs. consensus) and OP of ¥228bn (-3.8% vs. consensus). 
  • Guidance was revised to ¥1,851bn (+7.2% vs. consensus) at the revenue line and to ¥924bn (+9.5% vs. consensus) at the OP line. 
  • The company’s revised guidance reasonably matches with 1Q market conditions for crude oil prices and ¥/$ but the depreciating yen means upside still remains.

Before it’s here, it’s on Smartkarma

Japan: Nintendo Co Ltd, Sony Corp, Nikkei 225, Comany Inc, Chiyoda Corp, Sumitomo Metal Mining, Tokyo Stock Exchange Tokyo Price Index Topix, Daikin Industries and more

By | Daily Briefs, Japan

In today’s briefing:

  • Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL
  • Another BIG SONY (6758) Buyback, But…
  • Sony – That Revenue Guidance Tho
  • Nintendo – A Stock Split And Not Much Else
  • Nikkei Remains a Compelling Short
  • Comany (7945) – Another Ridiculously Low-Priced MBO
  • Chiyoda – Just Getting Started
  • SMM – Guidance Makes Little Sense
  • Japan’s Governance: About an Article on Natural and Human Capital Disclosures
  • Daikin (6367 JP) | Blowing Cold Air on the Guidance

Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL

By Travis Lundy

  • Nintendo has announced in-line-ish results for March 2022, and quite disappointing forecasts for March 2023. Mio Kato called it on 30 March as a sell. Excellent timing. 
  • Nintendo has a buyback tomorrow and if you don’t like the guidance, you should DEFINITELY read on below.
  • But Nintendo also announced something truly extraordinary – a stock split. Everyone pooh-poohs the impact of a stock split but… in this case it is probably not nothing.

Another BIG SONY (6758) Buyback, But…

By Travis Lundy

  • A release showed up on TDNET last week that Sony Corp (6758 JP) had completed its ¥200bn 25mm share (2.02%) buyback program announced 28 April 2021. 
  • The details showed they had actually bought back 8.2mm shares spending only ¥97bn, despite the shares trading below T-1 Announcement Date Price for four months straight. 
  • Today, with earnings, SONY announced a NEW buyback. ¥200bn, 25mm shares, 2.02%. Same as last year. 

Sony – That Revenue Guidance Tho

By Mio Kato

  • Sony results were in-line with revenue of ¥9.92trn barely below ¥10trn consensus and OP of ¥1.20trn also just below consensus at ¥1.21trn. 
  • Guidance was interesting however as Sony guided for revenue of ¥11.4trn and a slight decline in OP. 
  • We believe that is either extreme conservatism or potentially a sign of very aggressive and interesting investment plans.

Nintendo – A Stock Split And Not Much Else

By Mio Kato

  • Nintendo results were in-line with both revenue and OP within 1% of consensus. 
  • Guidance was extremely weak missing consensus by 5.5% at the revenue line and 20.5% at the OP line. 
  • Nintendo gonna Nintendo so this is nothing to panic about but it isn’t positive either… though the stock split is.

Nikkei Remains a Compelling Short

By Thomas Schroeder

  • Nikkei remains a compelling short with uptick resistance at 26,600/800 with the next downside target at 25,000. RSI bear wedge is a compelling set up.
  • Nikkei offers downside on the back of the RSI bear wedge with firm trend and price resistance just under 27k. Sideways congestion sides with fresh lows.
  • USD/JPY looking more crowded near 132 as the rising wedge matures for a pullback trade.

Comany (7945) – Another Ridiculously Low-Priced MBO

By Travis Lundy

  • Comany Inc (7945 JP)‘s Chairman Tsukamoto is 71. Together with younger Tsukamoto family members he is conducting an MBO to buy out minorities at a 76% premium. 
  • This most likely gets done, and it is tough to trade anyway because it is horribly illiquid.
  • But it is another example of an MBO done at the wrong price. TOB PER is low. But the entire thing is financed by net receivables. Ex-receivables, EV is zero.

Chiyoda – Just Getting Started

By Mio Kato

  • Chiyoda results were slightly weak driven by a poor gross margin in the fourth quarter but revenue guidance was punchy at ¥500bn vs. consensus at ¥354bn. 
  • We had flagged previously that Chiyoda would be moving to the favourable portion of the construction s-curve shortly and that appears to be coming through. 
  • That drove OP guidance of ¥20bn which is far above consensus at ¥14bn and could eventually help Chiyoda reduce potential dilution.

SMM – Guidance Makes Little Sense

By Mio Kato

  • SMM beat at the PTP level by 10% driven by the surge in nickel prices but guided for just ¥194bn undershooting consensus by 9.3%. 
  • We do not find guidance credible at all as it would defy historical trends to a very large degree. 
  • In fact we believe that excluding one-off gains from the sale of Sierra Gorda, PTP could actually be up YoY.

Japan’s Governance: About an Article on Natural and Human Capital Disclosures

By Aki Matsumoto

  • The Nikkei article reported that, “Disclosure of sustainability-related information in securities reports is expected to become mandatory from fiscal 2023.”
  • The requirement to disclose information on sustainability in annual reports, which are legal documents, is extremely significant.
  • The use of international standards for sustainability disclosure will make comparative analysis with other companies easier, and is expected to help raise the bar for companies that lag behind.

Daikin (6367 JP) | Blowing Cold Air on the Guidance

By Mark Chadwick

  • Daikin reported FY3/22 OP ¥316 bn, in-line with guidance and Nikkei preview. The company guided for FY3/23 OP of ¥340 billion (+7.5% yoy) on a 9% rise in projected sales
  • Guidance seems conservative as the company is using a USD/JPY rate of ¥116 and EUR/JPY ¥126. We highlight sales/margin risks making guidance a stretch 
  • Daikin’s premium valuation multiple will come under pressure in a rising interest rate environment. We would sell into today’s bounce.

Before it’s here, it’s on Smartkarma

Japan: NTT (Nippon Telegraph & Telephone), Appier Group Inc, Denso Corp, Canon Inc, Kura Sushi Inc, Skylark Co Ltd, Zenkoku Hosho and more

By | Daily Briefs, Japan

In today’s briefing:

  • NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”
  • Appier – Explosive US Growth
  • NTT (Buy) – An Exciting Day for Data but Not Much Has Changed
  • Denso – Strong Overshoot Potential And Only Modest Execution Risk
  • Canon (7751) – Buyback Looks Small But Shareholder Structure Matters
  • Kura Sushi (2695): Detective Conan in April, Dragon Ball in May
  • Skylark Holdings (3197): April Sales on an Improving Trend; Over 1,000 Robots in Operation
  • Zenkoku Hosho (7164): FY3/22 OP Achieved Guidance, but Not Strong Enough; Credit Costs Remain Low

NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”

By Travis Lundy

  • NTT (Nippon Telegraph & Telephone) (9432 JP) and NTT Data Corp (9613 JP) this morning announced a 1pm joint presser. Imaginations ran wild and NTT went up 12+%.
  • The reality is more subdued (as it should have been for a during-market-hours-presser) and it involves a restructuring of a small NTT subsidiary which happens to own NTT Data shares.
  • But it is still positive. It is something of a win-win for both parties.

Appier – Explosive US Growth

By Mio Kato

  • When we reviewed Appier’s 2021 results we rambled on about the US for about half of our note discussing explosive growth potential. 
  • We said that while Appier touted a >50% QoQ growth rate in the US we suspected it was actually closer to 100%. 
  • In 1Q it accelerated to >180% QoQ growth prompting the sell side to go all surprised Pikachu.

NTT (Buy) – An Exciting Day for Data but Not Much Has Changed

By Kirk Boodry

  • NTT and NTT Data will reorganize overseas assets into a new operating company run through NTT Data
  • The transaction results in little change for consolidated results at NTT Group although segment reporting may change and it will buy up to ¥100bn more of NTT Data
  • Restructuring could help unlock the potential of Dimension Data which has been a consistent laggard since NTT acquired it in FY11

Denso – Strong Overshoot Potential And Only Modest Execution Risk

By Mio Kato

  • Denso 4QFY22 revenue was strong at ¥1,506bn (+4.8% vs. consensus) but increases in raw material prices resulted in OP of just ¥85bn (-31.8% vs. consensus). 
  • The company’s FY23 guidance was conservative projecting just ¥6,350bn (+2.2% vs. consensus at +15.1% YoY) but OP guidance was for ¥560bn (+5.3% vs. consensus).  
  • We expect volume to grow further and the depreciating Yen should favourably impact ASPs next year.

Canon (7751) – Buyback Looks Small But Shareholder Structure Matters

By Travis Lundy

  • Canon Inc (7751 JP) on Monday announced a share buyback programme.
  • It isn’t very big. But it bears consideration because of other things going on. 
  • Shareholder structure is of much more importance than many investors appreciate. Here even more so.

Kura Sushi (2695): Detective Conan in April, Dragon Ball in May

By Mita Securities

  • Same-store sales were in line with the pre-pandemic levels, and our impression is neutral.
  • Same-store sales of other revolving sushi formats in April (compared to April 2021 and April 2019) were 105.3% and 104.2% for Sushiro (Food & Life Companies), 108.4% and 94.5% for Genki Sushi, and 103.7% and 87.1% for Kappa Sushi, respectively.
  • The number of stores at the end of April was 512 in Japan (+2MoM), 37 in the U.S. (+/-0 MoM), and 45 in Taiwan (+/-0 MoM)

Skylark Holdings (3197): April Sales on an Improving Trend; Over 1,000 Robots in Operation

By Mita Securities

  • Skylark Holdings (3197, the company) disclosed monthly data for April (on a preliminary basis). All of its restaurants resumed normal operations on March 22
  • April same-store sales were significantly higher than in April 2021. Although the sales are still weaker than the pre-pandemic levels, the situation has been improving.
  • Same-store sales were 110.6% vs. April 2021 (99.0% for March), 182.0% vs. April 2020 (92.8% for March), and 77.4% vs. April 2019 (71.0% for March)

Zenkoku Hosho (7164): FY3/22 OP Achieved Guidance, but Not Strong Enough; Credit Costs Remain Low

By Mita Securities

  • Compared to our forecast, operating revenue and the number of new guarantees executed were lower. On the other hand, credit-related expenses were lower than our assumption
  • The company’s OP guidance for FY3/23 is 40.970bn yen (+3.8% YoY), more conservative than our forecast of 43.137bn yen and the QUICK consensus forecast of 43.653bn yen
  • The company disclosed that it purchased two RMBS, etc. in FY3/22. The total amount of the underlying assets was 60bn yen.

Before it’s here, it’s on Smartkarma

Japan: ASICS Corp, Tokyo Electron, Bank Of Iwate, Tokyo Stock Exchange Tokyo Price Index Topix, Aisin Seiki, MatsukiyoCocokara and more

By | Daily Briefs, Japan

In today’s briefing:

  • Asics (7936) | Stepn into the Metaverse
  • Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now
  • JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips
  • Japan’s Government: About an Article on Wage Disparity Between Men and Women
  • Aisin – Low Margins But Volume Is Key
  • MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

Asics (7936) | Stepn into the Metaverse

By Mark Chadwick

  • Asics reports Q1 results on 11 May – we expect a beat to consensus numbers 
  • We are bullish on Asics for the long term market share opportunity in China and margin expansion driven by digital
  • The rather amazing tie-up with STEPN for NFTs highlights potential new ways to monetise Asics brand value

Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now

By Mark Chadwick

  • Tokyo Electron reports FY3/22 results on 12 May. We expect the company to meet guidance and analyst expectations  
  • But the outlook may disappoint. Management may guide FY3/23 more conservatively than analysts who are looking for operating profit to grow 20% to ¥700 bn 
  • Despite favorable industry conditions and strong outlook for WFE, we think that the stock could continue to de-rate

JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

By Travis Lundy

  • Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.
  • Bank Of Iwate (8345 JP) is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.
  • The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.

Japan’s Government: About an Article on Wage Disparity Between Men and Women

By Aki Matsumoto

  • The Nikkei Newspaper on April 15 published an article about wage gap between men and women. I would like to discuss this issue, referring to surveys conducted by the government
  • The direct cause of this issue is that there is disparity between men and women even among regular employees, and that large percentage of women are employed in non-regular labor.
  • Indirect factors can be attributed to the working environment and legal system that tolerates the above. This problem is also connected to issues of human rights and diversity.

Aisin – Low Margins But Volume Is Key

By Mio Kato

  • Aisin’s 4QFY22 was weak on margins with revenue of ¥1,049bn (+3.9% vs. consensus) and OP of ¥43bn (-33.4% vs. consensus). 
  • Guidance had a similar tone with the company projecting ¥4,450bn in revenue (+2.4% vs. consensus) but OP of ¥190bn (-29.6% vs. consensus) which we think is too conservative. 
  • While results were disappointing we expect volume growth to be the key catalyst next year and cheap valuations should support strong upside.

MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

By Mark Chadwick

  • Merger synergies such as integrated purchasing will result in higher gross margins. A more efficient cost structure and sales synergies will boost the bottom line 
  • We expect consumption to normalize in Japan as people get used to “living with covid.”  Higher foot traffic will drive a resumption of high margin cosmetics 
  • Inbound travel should be partially normalized this year and we believe the market will quickly price this in once borders reopen. We see 21% upside 

Before it’s here, it’s on Smartkarma

Japan: Misumi Group, Hitachi Transport System and more

By | Daily Briefs, Japan

In today’s briefing:

  • Misumi Group (9962 JP): Watch Out for Recession
  • Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

Misumi Group (9962 JP): Watch Out for Recession

By Scott Foster

  • The shares look cheap on FY Mar-23 guidance, but operating profit has dropped back after a surge and 1H looks difficult.
  • On the positive side, the VONA e-commerce business is catching up with Factory Automation as a source of profit. Annual sales and profitability have reached new highs.
  • Management has rebalanced the business. The main risk now is macro-economic. 

Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

By David Blennerhassett


Before it’s here, it’s on Smartkarma

Japan: Yamada Denki, Hitachi Metals, Hoya Corp, Ohsho Food Service and more

By | Daily Briefs, Japan

In today’s briefing:

  • Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE
  • Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio
  • Hoya – Getting Towards Genuinely Bullish Levels of Cheapness
  • Ohsho Food Service (9936): Solid Sales for April; Announced Price Hikes

Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE

By Travis Lundy

  • Yamada Denki (9831 JP) reported earnings (Revs -7.6% (slight beat), OP -28.6% (slight miss), NP -2.4% (slight miss)), and slightly upbeat forecasts to Mar-2023 (Revs +4.6%, OP +12.5%, NP +2.9%) 
  • They also announced an unchanged dividend at ¥18/share, and a VERY BIG BUYBACK. This is one of the largest, most aggressive, on-market buyback programs I have ever seen.
  • Previous buybacks have been duds. Yamada Denki is not playing around this time. This time it will be a buy.

Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

By Travis Lundy

  • Last week Hitachi Metals (5486 JP) reported decent earnings and strong forecasts against what is probably significantly stale consensus expectations. 
  • “The Consortium is not aware of any significant problems with procedures/responses under the Competition Act and will continue to strive to complete these procedures and responses as early as possible.”
  • That caused a jump, but that is the same language used in the 30 Nov 2021 release. Yes, I think this gets done, but Reward/Risk is smaller now.

Hoya – Getting Towards Genuinely Bullish Levels of Cheapness

By Mio Kato

  • Hoya’s 4Q beat slightly with revenue beating consensus by 2.2% and PBT beating by 7.0%. 
  • Those beats were better than peers such as Advantest and Lasertec and qualitative guidance suggests that YoY growth is likely driven by the Lifecare segment in particular. 
  • That contrasts with our negative outlook for peer momentum and we expect Hoya’s recent underperformance to reverse in short order.

Ohsho Food Service (9936): Solid Sales for April; Announced Price Hikes

By Mita Securities

  • All-store sales of 6.649bn yen (107.7% vs. April 2021) were the record high for April. In-store dining sales were 118.4% vs. April 2021, and delivery sales were 111.8% vs. April 2021.
  • In April, the company opened two new stores (two directly-owned stores) and closed one store (one franchised store)
  • The company announced that it would raise the retail price of approximately 20% of all items on its grand menu by 20 to 30 yen excluding tax, effective May 14

Before it’s here, it’s on Smartkarma

Japan: Komatsu Ltd, Pan Pacific International Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, Yamaha Motor and more

By | Daily Briefs, Japan

In today’s briefing:

  • Komatsu – Sensible Top Line Guidance But Margins Too Conservative
  • Pan Pacific International: A Reasonably Strong Third Quarter Warrants Further Upside
  • Japan’s Governance: About an Article on Human Rights Due Diligence
  • Yamaha Motors (7272 JP) | Staying the Course in Choppy Macro Waters

Komatsu – Sensible Top Line Guidance But Margins Too Conservative

By Mio Kato

  • Komatsu reported 4QFY22 results on the 28th of April and recorded revenue of ¥787bn (6.2% above consensus) and OP of ¥94.5bn (13.1% above consensus). 
  • They also guided for revenue to increase 7.1% YoY vs. HCM which guided for a 6.3% fall driving a significant and premature share price decline. 
  • The market has corrected some of that fall as it appears to increasingly agree with our call that HCM’s guidance was nonsense conservatism.

Pan Pacific International: A Reasonably Strong Third Quarter Warrants Further Upside

By Oshadhi Kumarasiri

  • Although consensus looks a bit challenging, there could be a decent OP beat yet again in the third quarter.
  • Meanwhile Pan Pacific International Holdings (7532 JP)’s valuation is still cheap and has decent potential for multiple expansion.
  • Thus, there could be more upside to PPIH if the company dismisses whatever the remaining concerns over profitability through a reasonably strong third-quarter performance.

Japan’s Governance: About an Article on Human Rights Due Diligence

By Aki Matsumoto

  • On November 30, 2021, Nikkei Shimbun published article titled “Human Rights Risks in Supply Chains, 52% of Listed Companies Understand.” I would like to consider the issues in the article.
  • The METI survey shows that only a small number of companies have developed human rights policies and conducted human rights due diligence.
  • It’s clear that progress will not be made unless management itself takes the initiative and takes action to root a corporate culture of respect for human rights within the company.

Yamaha Motors (7272 JP) | Staying the Course in Choppy Macro Waters

By Mark Chadwick

  • The share price of Yamaha Motors has sunk to a low of 1x book on concerns that the marine business has peaked 
  • Recent results and commentary from Brunswick suggest that the market remains as buoyant as ever 
  • We would be buying the stock ahead of earnings, expecting a similarly bullish outlook from Yamaha 

Before it’s here, it’s on Smartkarma

Japan: Nihon M&A Center, Takara Bio Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • Nihon M&A: Earnings Drop Due to New Revenue Recognition Criteria; Guidance Seems Unrealistic
  • Takara Bio (4974 JP): FY23 Looks Uncertain as COVID-19 PCR Testing Number Decline Is Inevitable

Nihon M&A: Earnings Drop Due to New Revenue Recognition Criteria; Guidance Seems Unrealistic

By Shifara Samsudeen, ACMA, CGMA

  • Nihon M&A Center (2127 JP) reported 4QFY03/2022 results last week. Revenue declined 20.5% YoY to JPY6.1bn (vs consensus JPY7.6bn) while OP decreased 60.3% YoY to JPY889m (vs consensus JPY3.1bn)
  • Revenue for FY03/2022 increased 16.1% YoY to JPY40.4bn (vs guidance JPY39.bn) while OP increased 7.1% YoY to JPY16.4bn (vs guidance JPY18bn).
  • The company also announced in December last year that there were irregularities in recording sales and the share price has declined 47% since then.

Takara Bio (4974 JP): FY23 Looks Uncertain as COVID-19 PCR Testing Number Decline Is Inevitable

By Tina Banerjee

  • Takara Bio Inc (4974 JP) reported 55% y/y growth in revenue during the first nine months of FY22, mainly driven by 129% y/y surge in COVID-19 PCR test reagent revenue.
  • Although Takara Bio is likely to beat its FY22 guidance, uncertainty is prevailing for revenue earning potential beyond FY22, when the COVID-19 test demand will fade away.  
  • We would stay away from this idea for now and wait on the sideline for a clarity of growth potential and recovery in the base business in FY23 and beyond. 

Before it’s here, it’s on Smartkarma