In today’s briefing:
- Mori Trust Sogo – Mori Trust Hotel REIT Merger
- Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- 2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
- PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised
- Without Disclosure and Ensuring Transparency, the Black Box on Compensation Will Increase
Mori Trust Sogo – Mori Trust Hotel REIT Merger
- Yesterday, Mori Trust Sogo Reit (8961 JP) (MTR) and Mori Trust Hotel Reit (3478 JP) (MTH) announced a merger to be effective 1 March 2023. MTR will be the survivor.
- The ratio is 1.00 : 0.92 MTR:MTH but MTR will conduct a 2:1 stock split on effective date to make it 1.00 : 1.84 to allow retail to continue holding.
- This will effectively increase the size of MTR by 35%, and re-distributes earnings structure. There will be index consequences.
Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.
- Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
- As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.
2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
- Although spending on non-necessities withered from March 2020 onwards, some low-cost retailers of discretionary items continued to grow.
- Workman’s mix of high cost performance and engagement with the ever more active outdoor market has, and will, support expansion, even if same-store sales growth has slowed.
- Future category expansion will deliver higher same-store sales as well as top line growth. 1,500 stores (from 1,000) is certain but 2,000 is possible thanks to new categories like footwear.
PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised
- PHC Holdings (6523 JP) has revised mid-term plan for FY23–26, targeting revenue of ¥420 billion in FY26, representing 5.4% CAGR. CGM will be one of the key growth engines.
- During H1FY23, total revenue increased 3% y/y to ¥171 billion, mainly driven by a 3% growth in diabetes management business, which contributed 32% of total revenue.
- In response to the recent depreciation of the Japanese yen, PHC has raised FY23 revenue guidance to ¥358 billion (+5% y/y) from ¥350 billion earlier.
Without Disclosure and Ensuring Transparency, the Black Box on Compensation Will Increase
- Progress on ESG initiatives should be evaluated objectively. With insufficient transparency and disclosure of compensation, there is concern that incorporating ESG factors into compensation will further increase uncertainty.
- Leadership is required for management to seek the evolution of essential initiatives so that ESG efforts don’t fall into “numbers matching” and not be intimidated by temporary setbacks or modifications.
- There are the following unresolved issues: non-disclosure of individual director compensation, bias toward fixed compensation, opaque compensation formulas, and ensuring the independence of the Compensation Committee.
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