Daily Brief Japan: Kajima Corp, SBI Holdings, Toshiba Corp, Technopro Holdings, ASIRO , Rakuten, Oracle Corp Japan, Ibiden Co Ltd, Kansai Electric Power, Daiwa House Industry and more

• Leading Market Position with Diversified Operations: Kajima is one of Japan’s ‘Big Five’ general contractors, possessing a dominant position in the domestic construction market. The company is well-diversified across civil engineering, building construction, and a growing real estate development business, which provides a buffer against the cyclicality of the construction sector.
• Favorable Industry Tailwinds: The Japanese construction market is supported by robust public and private investment. Key drivers include large-scale urban redevelopment projects, government spending on national resilience and infrastructure renewal, and growing demand for advanced facilities like data centers and logistics centers.
• Shareholder-Focused Capital Allocation: Kajima has demonstrated a strong commitment to shareholder returns, evidenced by a 3-year dividend CAGR of over 21%. This is supported by a strategy to enhance profitability by focusing on high-margin projects and improving investment efficiency in its real estate development arm.

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• SBI Holdings is a major Japanese financial services conglomerate with a diversified business portfolio spanning Financial Services, Asset Management, Private Equity Investment, Crypto-assets, and Next Generation Business. The company is aggressively pursuing a growth strategy centered on digital transformation, strategic acquisitions, and expansion into new technological frontiers like Web3, AI, and semiconductors.
• The company has demonstrated strong top-line growth, with revenue surpassing ¥1 trillion for the first time in fiscal year 2023. Profitability is also on an upward trend, driven by its core financial services segment, particularly SBI Shinsei Bank, and a significant turnaround in its private equity investment business.
• SBI’s forward-looking strategy involves significant investments in high-growth areas, both domestically and internationally, with a particular focus on Southeast Asia and the Middle East. The company aims to generate 20-30% of its consolidated profit from overseas businesses in the medium term.

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• Privatization Marks New Chapter: After 74 years as a publicly traded entity, Toshiba was delisted in December 2023 following a successful $13.5 billion buyout by a consortium led by Japan Industrial Partners (JIP). This move ends a tumultuous period marked by accounting scandals, corporate governance crises, and battles with activist investors, allowing management to focus on a long-term revitalization strategy away from public market pressures.
• Strategic Refocus on Core Operations: Having divested numerous non-core businesses such as laptops, medical equipment, and home appliances, the new strategy centers on higher-margin and critical technology sectors. Key focus areas include energy systems, infrastructure, power semiconductors, and data-driven digital solutions, aiming to leverage the company’s technological strengths in areas critical to national security and global trends like decarbonization and digitalization.
• Path to Recovery Fraught with Challenges: Despite the potential benefits of privatization, Toshiba faces significant hurdles. The company is still recovering from a legacy of financial mismanagement and reputational damage. It operates in highly competitive global markets and must execute a complex turnaround plan to streamline operations, manage its debt, and regain its position as an innovative leader.

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• Technopro Holdings is the subject of a tender offer from private equity firm Blackstone at ¥4,870/share, which represents a significant premium but is considered potentially undervalued by some market observers.
• As a leading technology-focused staffing firm in Japan, the company is well-positioned to benefit from the country’s structural shortage of skilled engineers and increasing demand for digital transformation.
• Significant uncertainty surrounds the success of the Blackstone acquisition due to a high tender threshold of 66.67% and a large passive shareholder base, creating a key risk for investors at the current price.

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• ASIRO is a high-growth player in the burgeoning Japanese legal tech market, primarily operating online media platforms that connect consumers with legal professionals. The company is capitalizing on the digitization of Japan’s legal industry.
• The company has demonstrated impressive revenue growth, with a 3-year CAGR of 45.66%. However, this top-line growth has been accompanied by significant earnings volatility, including a net loss in the fiscal year ending January 2023, and a sharp decline in net income and EPS over the past 3 and 5 years.
• While the company’s growth and momentum scores are high, its value and profitability metrics warrant caution. The business model is sensitive to changes in online marketing costs and competition, which represents a key risk for investors.

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• Rakuten is at a strategic inflection point, with its established and profitable FinTech and E-commerce segments providing a stable foundation while the high-investment Mobile segment continues its protracted journey toward profitability. The core “Rakuten Ecosystem”strategy, which fosters user loyalty and cross-selling, remains a key competitive advantage.
• The Mobile segment’s persistent losses are the primary drag on group profitability and the main source of investor concern. However, the segment has shown signs of improvement, reaching monthly EBITDA profitability for the first time in December 2024 and targeting full-year EBITDA profitability in 2025.
• Future growth hinges on three key factors: (1) achieving sustained profitability in the Mobile segment to alleviate financial pressure on the group, (2) continued strong growth and margin expansion in the high-margin FinTech division, and (3) maintaining market leadership in the domestic e-commerce space against formidable competitors like Amazon.

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• Dominant Market Position with Strong Cloud Growth: Oracle Corp Japan is a leading player in the Japanese enterprise software market, particularly in database management systems where it holds a significant market share. The company is successfully leveraging its large installed base to drive strong growth in its cloud services, including Oracle Cloud Infrastructure (OCI) and Fusion Cloud applications, which are key drivers of future revenue.
• Robust Financials and Shareholder Returns: The company exhibits a strong financial profile with consistent revenue growth, high profitability margins, and a debt-free balance sheet. This financial strength allows for stable dividend payments and positions the company to invest in future growth opportunities, such as AI and multi-cloud strategies.
• Intensifying Competition and Slower Overall Growth: While cloud revenue is growing, the overall revenue growth rate lags the broader software industry. The company faces intense competition from hyperscale cloud providers like AWS, Microsoft Azure, and Google Cloud in the Japanese market. A deceleration in the cloud services growth rate has been noted as a potential risk to its competitive momentum.

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• Ibiden stands as a dominant force in the high-performance IC substrate market, strategically positioned to capitalize on the secular growth in AI and data centers through its key relationship with Nvidia.
• Recent financial performance has been robust, with Q1 FY25 results showing significant year-over-year growth, prompting management to upgrade the earnings outlook for FY25-27.
• Despite strong growth prospects and a leading market position, the company trades at a valuation discount to high-growth AI peers, presenting a compelling Growth at a Reasonable Price (GARP) opportunity, albeit with risks related to customer concentration and competitive pressures.

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• Profitability Surge Driven by Nuclear Restarts: Kansai Electric Power (KEPCO) has seen a dramatic recovery in profitability over the past two fiscal years, primarily due to the progressive restart of its nuclear power plants. This has significantly reduced its reliance on expensive imported fossil fuels, leading to substantial margin improvement and record net income.
• Strategic Focus on Decarbonization and Growth: Management is pursuing a dual-pronged strategy of ensuring a stable energy supply through its nuclear assets while aggressively expanding its renewable energy portfolio. The company has laid out a “Zero Carbon Vision 2050″and plans significant investments in offshore wind and other renewables to drive future growth.
• Persistent Corporate Governance and Regulatory Risks: Despite efforts to reform, KEPCO has a history of significant corporate governance and compliance issues, which remain a key concern for investors. The company operates in a highly regulated industry, making its earnings susceptible to changes in government energy policy, tariff structures, and stringent safety standards for its nuclear operations.

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• Diversified Business Model Mitigates Cyclicality: Daiwa House Industry‘s strength lies in its multifaceted business portfolio, spanning single-family houses, rental housing, condominiums, commercial and business facilities, and environmental energy. This diversification helps to cushion the company against downturns in any single segment of the construction and real estate market.
• Strong Foothold in a Mature Market with Pockets of Growth: While Japan’s overall population is declining, Daiwa House is well-positioned to capitalize on key growth areas. These include the rising demand for logistics facilities driven by e-commerce, the need for modern healthcare and nursing facilities for an aging population, and urban redevelopment projects. The company is also expanding its overseas operations to tap into global growth.
• Commitment to Sustainability and Innovation: Daiwa House has placed a strong emphasis on environmental initiatives, such as developing zero-energy consumption housing and investing in renewable energy. This focus on sustainability not only addresses societal needs but also enhances the company’s brand image and long-term competitiveness. Their use of precast concrete technology also allows for reduced construction times and costs.

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