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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