Japan

In today’s briefing:

Japan Post Bank (7182) October TOPIX FFW Upweight Upon Us
Takeda: Guidance Lowered Due to Setbacks in Clinical Trials but Pipeline Development Continues
Misumi Group (9962 JP): Weak Sales in September, but Most Bad News Discounted
Japanese Banks – Stay the Bullish Course
Remain Overweight and Add Exposure to Japan; Buys in Insurance, Services, Tech, Staples, Utilities

Japan Post Bank (7182) October TOPIX FFW Upweight Upon Us

By Shifara Samsudeen, ACMA, CGMA

Japan Post Bank (7182 JP) gets a dramatic upweight in TOPIX on Monday 30 October. There is a LOT of stock to buy. Call it US$2.2bn.
Shares have to come from someplace. Basically it will all come from retail or from those who pre-positioned themselves in the stock (buying from retail). Some could come from short-sellers.
The stock WAS not cheap vs regional banks (what I see as their best set of comps) and the Q2 Unrealised Loss on Securities has ballooned. But care is needed.

Takeda: Guidance Lowered Due to Setbacks in Clinical Trials but Pipeline Development Continues

Takeda’s 2QFY03/2024 revenues increased 4.1% YoY beating consensus estimates by 6%. However, Takeda reported an operating loss of ¥49.3bn for the quarter due to impairment losses.
As we expected, recent setback in some of Takeda’s clinical trials have led to write-downs and triggered a downward revision to full-year profit guidance.
There has been excessive price reaction to these setbacks, however, Takeda continues to progress with its pipeline development with some newly launched drugs showing great potential.

Misumi Group (9962 JP): Weak Sales in September, but Most Bad News Discounted

By Scott Foster

Total sales remained weak in September, dropping 3.5% YoY. In 1H of FY Mar-24, sales were down 4.3%. Month-to-month, though, they have been trending sideways.
Die Components have been holding up best, followed by Factory Automation. The VONA e-commerce business has been more volatile, but still shows a lack of traction.
Operating profit dropped 31% in 1H, but management is guiding for a 23% increase in 2H. This looks optimistic, but most of the bad news should be in the price.

Japanese Banks – Stay the Bullish Course

By Victor Galliano

So far in 4Q23, Japanese banks’ share prices have registered a mixed performance, in part due to the unsettled global market conditions; yet the Japanese bond yield curve keeps steepening
We assess the top twelve Japanese commercial banks by market capitalisation, and we believe that Japanese banks remain good value with, a rare thing, improving fundamentals
Ahead of the September results, we stick with our buys on Resona, Mizuho and SMFG; Resona has lagged deserving to re-rate further, and we add Hachijuni to our buy list

Remain Overweight and Add Exposure to Japan; Buys in Insurance, Services, Tech, Staples, Utilities

By Joe Jasper

The MSCI ACWI index (ACWI-US) continues to test major support at $90.50-$91.50, though no decisive break yet; as long as this support area holds, we remain constructive on global equities.
MSCI EM (EEM-US) continues to test $37 support, while MSCI ACWI ex-US (ACWX-US) and EAFE (EFA-US) are testing supports at $45 and $65-$66, respectively
Remain overweight and add exposure to Japan; the TOPIX remains in a 1.5-year RS uptrend (vs. MSCI ACWI), and continues to hold above 5-month support at 2200-2215

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Oct 27

Daily Brief Japan: Keisei Electric Railway Co and more

In today’s briefing:

Keisei Electric: Activists Arrive As Expected

Keisei Electric: Activists Arrive As Expected

By Oshadhi Kumarasiri

Just as we suspected earlier in the year, there is now talk of an impending investor activism campaign targeting Keisei Electric Railway Co (9009 JP).
The activist is Palliser Capital, a multi-strategy fund based in London and run by former employees of Elliott Management, a company well-known for its activist campaigns in Japan.
Their proposal is simple and straightforward, requesting for a 35% reduction in Keisei Electric’s Oriental Land holding.

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Oct 26

Daily Brief Japan: Cosmo Energy Holdings , Japan Tobacco, Appier Group, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Cosmo Energy (5021) – Headed to an EGM Showdown for the Poison Pill
Japan Tobacco High Conviction Call: Could Leave 2023 Guidance in the Dust
Appier (4180) | The Ups and Downs
% of Female Board Members Is a Measure of a Company’s Seriousness About Improving Its Practices

Cosmo Energy (5021) – Headed to an EGM Showdown for the Poison Pill

Japanese activist Murakami-san and Cosmo Energy Holdings (5021 JP) have been duking it out for 18 months. He now has 20%. Wants more. Management wants to exercise the poison pill.
Cosmo’s efforts are not completely honest, but Murakami-san’s efforts are clearly designed to benefit Murakami-san over general shareholders, and Cosmo has finally explained the reasons publicly. Read the doc (Japanese).
At 1.0x book, lower refining margins vs earlier in the year, and difficulty for Murakami-san to force the issue, one must take more care here than one did 40% ago.

Japan Tobacco High Conviction Call: Could Leave 2023 Guidance in the Dust

By Oshadhi Kumarasiri

Despite conservative 2023 guidance last quarter, Japan Tobacco (2914 JP) is primed to exceed expectations in the 3rd quarter of 2023.
Despite no new domestic price hikes, Japan Tobacco’s volume recovery post-hikes is expected to help sustain the revenue and profit growth momentum.
New price increases in the Philippines and the UK, coupled with last year’s hikes spillover, are expected to boost Japan Tobacco’s earnings; and the yen’s depreciation amplifies these gains.

Appier (4180) | The Ups and Downs

By Mark Chadwick

Appier’s stock initially surged 20% following strong Q2 results but later declined 25%, influenced by small-cap stock volatility, AI-induced valuations, and e-commerce sensitivity.
The AI company’s competitive position remains strong compared to Braze; the differing stock price performance and valuation suggests significant upside.
Appier’s thesis remains intact and we expect the company to benefit from key trends in consumer marketing, first-party data and AI solutions.

% of Female Board Members Is a Measure of a Company’s Seriousness About Improving Its Practices

The groups with over 30% female board members and 25%-30% have higher percentage of foreign shareholders, suggesting that overseas investor engagement drives raising the ratio and that awareness is high.
Groups with 0% female board members include small companies and are distant from overseas investor engagement, but are unlikely to improve practices substantially, given that they have no female executives.
The group with over 30% female board members had noticeably higher ROE and Tobin’sQ than those with 25%-30%, which suggests that the high ROE was highly valued by overseas investors.

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Oct 25

Daily Brief Japan: Kokusai Electric , Gs Yuasa Corp, Shimano Inc, Ryohin Keikaku and more

In today’s briefing:

Kokusai Electric IPO: Trading Debut
Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade
Shimano (7309) | A Clear Road Ahead
Ryohin Keikaku: Finally Fixing Its Biggest Weakness?

Kokusai Electric IPO: Trading Debut

By Arun George

Kokusai Electric (6525 JP) priced its IPO at JPY1,840 per share to raise secondary proceeds of US$723 million. The shares will start trading on 25 October.
We previously discussed the IPO in Kokusai Electric IPO: The Bull Case, Kokusai Electric IPO: The Bear Case and Kokusai Electric IPO: Lower Price Range Is Reasonable.
The peers have modestly derated since the lowered IPO price range was announced on 10 October. However, the IPO price remains attractive. Our DCF valuation is JPY2,058.

Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade

By Brian Freitas

Solactive has announced the constituent changes for the Global Lithium Index. There are 8 adds and 9 deletes with implementation at the close on 31 October.
Estimated one-way turnover is in excess of 22% and will result in a one-way trade of US$490m. There are 11 stocks with estimated passive flows greater than 1x ADV.
The index is not very widely tracked and there could be big moves in stocks today and over the next few days – especially where there is multiple days ADV.

Shimano (7309) | A Clear Road Ahead

By Mark Chadwick

Shimano Q3 results show a 32% YoY net sales decline, led by a 38% drop in bike component sales, BUT both sales and profit beat expectations
The company maintains cost control, sees improving gross margins, and reduces inventories, while cash flow and balance sheet remain strong
With the upward revision in full-year guidance, we believe the market will look through the still challenging Q4 outlook and focus instead on 2024 normalization and relatively low valuation

Ryohin Keikaku: Finally Fixing Its Biggest Weakness?

By Michael Causton

Ryohin Keikaku’s biggest weakness is its unwieldy and expensive supply chains, with hundreds of suppliers across its three main categories of household, apparel and food.
The Muji operator just acquired a large team from one of its principle clothing supply partners, Mitsubishi, to finally streamline its supply chains and improve cost performance in clothing.
This should have a positive impact on its cost of goods, margins and inventory levels, allowing for quicker responses to trends at a lower price at home and overseas.

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Oct 24

Daily Brief Japan: Oriental Land, Nikkei 225, Kokusai Electric , TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Oriental Land: Google Search Signals Potential Miss; Guidance Could Challenge Consensus Optimism
EQD | Nikkei 225 MONTHLY Rally May Be Finally Coming
Kokusai Electric IPO Trading – Decent Demand, Now for the Real Test
Companies with over 50% Independent Directors Have High Profitability and Stock Valuations

Oriental Land: Google Search Signals Potential Miss; Guidance Could Challenge Consensus Optimism

By Oshadhi Kumarasiri

During 2QFY24, Tokyo Disneyland and Tokyo DisneySea both saw a QoQ decline in Google search interest.
This suggests to us that there might be an earnings miss when Oriental Land (4661 JP) reports its FQ2 results on October 30, 2023.
Additionally, there are potential downside risks to both FY24 and medium-term consensus projections following a revised FY24 guidance announcement.

EQD | Nikkei 225 MONTHLY Rally May Be Finally Coming

By Nico Rosti

The Nikkei 225 (NKY) INDEX closed last week down at 31259.36. It’s currently trading between the Q2 and Q3 WEEKLY support levels and down for 4 months, so it’s OVERSOLD.
The index could reverse this week, or fall more into the end of October, but if this week closes down, the odds are very good for a rally in November.
Consider going LONG between here and supports in the 30600-30400 price area, a MONTHLY reversal could last at least 2-4 weeks (a month).

Kokusai Electric IPO Trading – Decent Demand, Now for the Real Test

By Sumeet Singh

KKR raised around US$730m via selling a stake in Kokusai Electric’s (6525 JP) (KE) Japan IPO.
KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
In our previous notes we have looked at the company’s past performance, undertaken a peer comparison and looked at valuations. In this note, we talk about the trading dynamics.

Companies with over 50% Independent Directors Have High Profitability and Stock Valuations

While the number of companies with majority of independent directors is still small (15.7% of the Metrical Universe as of September 2023), the number of those companies is steadily increasing.
The group of companies with over 50% independent director are superior in market capitalization, ratio of foreign shareholders, ratio of female board members, ROE, ROA, Tobin’s Q, and Metrical Score.
Given that the presence of overseas investors remains high, profitability, share price valuation, and corporate governance practices such as independent director ratios will continue to improve in the future.

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Oct 23

Daily Brief Japan: Persol Holdings and more

In today’s briefing:

Japan – Increase in Shorts on Some Interesting** Stocks

Japan – Increase in Shorts on Some Interesting** Stocks

By Brian Freitas

CyberAgent, Lixil Group, Hakuhodo Dy Holdings, Kobayashi Pharmaceutical, Welcia Holdings, Persol Holdings, Kurita Water Industries, GMO Payment Gateway, Keio Corp and NGK Insulators have underperformed the Nikkei225 over the recent past.
The underperformance could lead to adjustments in global passive portfolios and liquidity events on some of the stocks.
Short interest has increased on some stocks and there could be more pre-positioning to come over the next few weeks.

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Oct 22

Daily Brief Japan: Kurita Water Industries, Shinko Electric Industries, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Index Rebalance & ETF Flow Recap: NKY, ASX, Liontown, J&T Express, JP/IN Positioning, IndusInd Bank
Last Week In Event SPACE: Shinko Electric Industries, MGM China, Decente, Sankei Real Estate,
Challenge Is to Simultaneously Reduce Cash on Hand and Achieve Profitability over Cost of Capital

Index Rebalance & ETF Flow Recap: NKY, ASX, Liontown, J&T Express, JP/IN Positioning, IndusInd Bank

By Brian Freitas

Light & Wonder (LNW US)/ Light & Wonder (LNW AU) replaced United Malt Group Ltd (UMG AU) in the S&P/ASX 200 (AS51 INDEX) last week.
Newcrest Mining (NCM AU) stops trading this week and should be replaced by Newmont Mining (NEM US) CDIs in the ASX indices.
Another week of ETF outflows for China with the largest outflows from trackers benchmarked to the CSI 1000 Index.

Last Week In Event SPACE: Shinko Electric Industries, MGM China, Decente, Sankei Real Estate,

By David Blennerhassett

If Descente Ltd (8114 JP) earnings disappoints, buy the dip. Itochu Corp (8001 JP) is buying for the long-term.
MGM China Holdings (2282 HK) has gained market share in mass table market, VIP, and total revenue. Yet MGM’s FY24E EV/EBITDA is ~40% below its two-year forward average EV/EBITDA pre-Covid.
If you had a J-REIT portfolio, Sankei Real Estate (2972 JP) would go in and push something else out or smaller. I think one gets beta-plus, which is usually called alpha.

Challenge Is to Simultaneously Reduce Cash on Hand and Achieve Profitability over Cost of Capital

Managers self-analyze the factors that lead to P/B of below 1x, as companies fail to appreciate their growth potential and to ensure profitability in excess of their cost of capital.
This seems to be dilemma in that companies’ failure to realize sufficient profitability, along with insufficient growth investments, prevents them from sharing the image of corporate value growth with investors.
Managers believe that the first step is to improve ROE by reshuffling business portfolios and promoting profitability improvement, but reducing excess cash and increasing shareholder returns should be pursued simultaneously.

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Oct 20

Daily Brief Japan: Recruit Holdings, TSE Tokyo Price Index TOPIX and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

Recruit: Share Price Continues to Fall with Labor Markets Further Slow Down
The Rift Between Managers and Shareholders of Standard Market-Listed Companies Is Likely to Deepen

Recruit: Share Price Continues to Fall with Labor Markets Further Slow Down

Recruit’s share price is down more than 10% over the last 30-days despite there being a significant improvement in job openings in the US for the month of August.
The web traffic on both Glassdoor and Indeed also have declined in September compared to August where there was a MoM improvement in August 2023.
Though Recruit has guided for a decline in earnings, we think there is further downside to the company’s guidance.

The Rift Between Managers and Shareholders of Standard Market-Listed Companies Is Likely to Deepen

Many of the companies that didn’t meet the listing criteria for the prime market still failed to gain market recognition over an 18-month period and moved to the standard market.
It is believed that TSE expects more companies to gradually drop out of Prime Market by raising the hurdle for effort targets that aren’t explicitly stated in the listing criteria.
As quality differences gradually emerge between the Prime and Standard markets, the rift between management awareness and shareholders of Standard market-listed companies is likely to deepen in the future.

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Oct 19

Daily Brief Japan: Shinko Electric Industries, Descente Ltd, Kenedix Office Investment Co, Sankei Real Estate, Money Forward , Softbank Group and more

In today’s briefing:

Shinko Electric (6967) Update – MitCorp In The Mix?
ANTA Sports Investor Day Targets DESCENTE (8114) For Growth
Shinko Electric (6967 JP): Bidders Circle for Fujitsu’s Stake
Kenedix J-REIT Family Merger – Still Room (But Less Time) To Move (Redux-Ish)
Sponsor of Sankei Real Estate (2972) To Buy More Units in Revival Plan
Money Forward (3994) | A Deep Dive into the Corporate Business
SoftBank Group (9984 JP): More Downside Risk to the NAV than Upside Potential

Shinko Electric (6967) Update – MitCorp In The Mix?

Yesterday about 5 minutes before the close, Shinko Electric Industries (6967 JP) went into kehai, rising 8.6%, then falling back to end + 3% on the day.
This morning, the stock opened down 2%, rose 4%, fell 4%, then rose 4%. All in the first 45 minutes. Then it fell back 4% and ended down 2% today.
The proximate cause of all of this was a Reuters article out 5mins before the close yesterday suggesting Mitsubishi Corp (8058 JP) is considering bidding for Shinko Electric.

ANTA Sports Investor Day Targets DESCENTE (8114) For Growth

Yesterday, Anta Sports Products (2020 HK) held its Investor Day in Beijing. They talked about Descente Ltd (8114 JP) and their plans.
The presentation made by the Descente China Chairman talked about the evolution of performance and the target for 2026, suggesting higher profit now and growth going forward than market expectations.
None of this changes my outlook for why Itochu Corp (8001 JP) is buying Descente shares in the market. And the stock is going up.

Shinko Electric (6967 JP): Bidders Circle for Fujitsu’s Stake

By Arun George

Reuters reported that Mitsubishi Corp (8058 JP) is considering a joint bid for Fujitsu Ltd (6702 JP)’s 50% stake in Shinko Electric Industries (6967 JP).
Fujitsu first flagged a potential stake sale in its 1HFY22 results last October. Previously rumoured suitors include Apollo Global Management, Bain Capital, Dai Nippon Printing, JIC and KKR.
Shinko’s shares are up 73% YTD, which is not excessive compared to Ibiden Co Ltd (4062 JP) (up 63.2% YTD). The valuation is undemanding, which facilitates a potential offer.

Kenedix J-REIT Family Merger – Still Room (But Less Time) To Move (Redux-Ish)

A month ago I wrote there was still time, and room, to move on the Kenedix Merger.
Now there’s less time, but the situation and relationships are better understood.
Tracking Excess Volume during the period since the announcement is interesting. And it may tell you less than you think.

Sponsor of Sankei Real Estate (2972) To Buy More Units in Revival Plan

On 16 October, the Asset Management Co of Sankei Real Estate (2972 JP) announced earnings, the execution of a Revival Plan, and said the sponsor, Sankei Building would buy more.
They’ll buy for up to 220 days starting sometime before Feb-end. Presumably after the Revival Plan transactions have been executed.
The REIT is cheap to peers. It is small to peers. It needs some reviving. But when a sponsor promises to buy, it pays to take a look.

Money Forward (3994) | A Deep Dive into the Corporate Business

By Mark Chadwick

Money Forward’s Corporate SaaS business is thriving, with +44% year-over-year growth in ARR, a 139,000-strong customer base, and a healthy CAC-to-LTV ratio of 3.7x.
Despite strong fundamentals, the stock’s 20% decline is attributed to market fixation on quarterly earnings and concerns about rising interest rates.
The company’s untapped potential lies in the mid-market segment, where cross-selling opportunities across 18 paid products could significantly boost ARPA, tapping into a TAM estimated at $15 billion.

SoftBank Group (9984 JP): More Downside Risk to the NAV than Upside Potential

By Victor Galliano

There is downside risk to SoftBank’s NAV, due to valuations relating to Arm and the Vision Funds including LatAm; on aggregate, these holdings account for 70% of group equity value
We believe that Arm’s super-premium valuation is unsustainable; there is lack of transparency on the valuations relating to the unlisted Vision Fund holdings, especially in SVF2
We estimate that SoftBank shares trade at a 44% NAV discount, tighter than the average at the end of the last eight quarters; add to this Arm’s current over valuation

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Oct 18

Daily Brief Japan: Ryoyo Electro, TSE Tokyo Price Index TOPIX, Intloop and more

In today’s briefing:

Ryoyo (8068) – Ryosan (8140): Recent and Former Activist Targets To Merge
Parent-Subsidiary Listing Strategy Expected to Be Even More Attractive
Initiating Coverage – Intloop (9556)

Ryoyo (8068) – Ryosan (8140): Recent and Former Activist Targets To Merge

Today post-close, Ryoyo Electro (8068 JP) and larger equity affiliate (20.1%) Ryosan Co Ltd (8140 JP) announced their final Management Integration Plan (merger by holdco) after signalling a deal May23.
Activist-Ish-Y Silchester sold their stake in Ryosan to Ryoyo in February at a 20% premium. Activist Murakami-san had a top10 Ryosan stake end-March, went substantial 27 June, now owns 10%.
Both low-margin/ROE electronics traders have been subject to activist campaigns over the years. Both “survived”. Now they are banding together to be a bigger independent low-margin electronics trader.

Parent-Subsidiary Listing Strategy Expected to Be Even More Attractive