In today’s briefing:
- Asian Dividend Gems: Septeni Holdings
- Kobelco (5406.T) – Diversified Industrial at Deep Value
- The Yen’s Volatility & Japanese Hotel REITs: A Tourism-Driven Comeback Story
- Japanese Big Cap Banks – Key Fundamental Tailwinds Drive Our Positive Picks
- AS ONE (7476 JP) – A Royalty on Japan’s Scientific Advancement
- Towa (6315): Buy for Orders Rebound
- Japan Business System (5036 JP) – Cloud Integration Profitability Recovering Sharply
- A Dialogue with a Skilled Outside Director Will Create Value. This Premise Is Important
- Nippon Aqua (1429 JP) – Innovator in Living Environments
- Polaris Holdings (3010 JP) – Scaling New Heights Through Strategic M&A and Surging Inbound Demand
Asian Dividend Gems: Septeni Holdings
- Septeni Holdings is one of the leaders in Japan in the digital marketing business which mainly includes digital advertising, marketing support, data & AI-driven solutions.
- The company has also aggressively raised dividend payouts which is a clear sign of improving corporate governance.
- The company is also well positioned to deliver sales growth rate of about 5-7% per year in the next 2-3 years with 20%+ per year growth in operating profit.
Kobelco (5406.T) – Diversified Industrial at Deep Value
- Earnings stable over 3 years as machinery and power offset weak steel margins; ROIC gradually improving.
- Focus on KOBEMAG®, machinery expansion, and carbon-neutral projects with disciplined capex.
- Trades at ~5x P/E due to low ROIC, past governance issues, and misperception as a pure steel cyclical.
The Yen’s Volatility & Japanese Hotel REITs: A Tourism-Driven Comeback Story
- The JPY Yen has depreciated 25% against USD for the last 5 years, this has made Japan an extremely attractive destination for foreigners
- The Japan’s hotel sector is known by its low supply, partly due to higher development cost and labour shortage. We think REVPAR and ADR will continue to be strong
- We like Japan Hotel REIT and Invincible for their hotel exposure. We think investors should closely monitor the Yen movement as well as BOJ policy
Japanese Big Cap Banks – Key Fundamental Tailwinds Drive Our Positive Picks
- The Bank of Japan left the short-term interest rate unchanged, but the governor stated that the tapering of JGB buying will continue, albeit with an eye on market stability
- This implies that the JGB yield curve is likely to continue steepening going forward, which is constructive for Japanese banks; in addition, market lending rates to April continue to rise
- We reassert buys on Resona, Mizuho, Shizuoka and Kyoto aided by our proprietary scorecard, and based on two core attributes; gearing to higher interest rates and cross-holdings to market capitalization
AS ONE (7476 JP) – A Royalty on Japan’s Scientific Advancement
- As scientific progress increasingly depends on more complex equipment and precision instruments, we believe wholesaler and distributor AS ONE is well-positioned to capture demand through expanding its presence in the high-end segment.
- Demand for scientific supplies and lower-end scientific equipment remains stable, providing a resilient, recurring revenue base.
- The company’s growth has consistently outpaced and shown limited correlation with national R&D spending.
Towa (6315): Buy for Orders Rebound
- After nearly two years of decline, TOWA’s new orders appear to have hit bottom this quarter and should start to recover in the three months to September.
- Sales and profits should follow a similar trajectory with management expecting nearly 60% of FY Mar-26 sales and more than 80% of operating profit to be recorded in 2H.
- Rising demand for AI-related high-bandwidth memory (HBM) and GPU packaging should drive growth for the next 2-3 years, bringing the projected P/E ratio for FY Mar-28 down to 12X.
Japan Business System (5036 JP) – Cloud Integration Profitability Recovering Sharply
- In Q2 FY24/9 financial results reported exactly one year ago, profit attributable to owners of parent declined -74.1% due to recording an impairment loss of JPY 1,720mn in the 2Q as an extraordinary loss for the entire unamortized balance of goodwill associated with the acquisition of consolidated subsidiary NEXTSCAPE Inc.
- In SIR’s follow-up report, we wrote “management promptly recognizing the impairment and withdrawing the FY25/9 OP MTP target effectively minimizes future down-side risk.
- In the meantime, core business performance continues to grow at double-digits. ”
A Dialogue with a Skilled Outside Director Will Create Value. This Premise Is Important
- The reason why many companies have previously rejected requests by overseas investors to meet with outside directors is that they’ve prioritized information control over constructive dialogue with shareholders and investors.
- The fact that companies begun to provide opportunities for communication with outside directors will hopefully lead to shifts in value-creating management, but it’ll not easy to spread to many companies.
- Even if more companies provide opportunities for communication between outside directors and investors in the future, dialogue with unskilled outside directors will not be fruitful.
Nippon Aqua (1429 JP) – Innovator in Living Environments
- Nippon Aqua Co., Ltd. (hereinafter, “the Company”) is a high-growth enterprise listed on the Prime Market of the Tokyo Stock Exchange.
- Guided by its management philosophy—“Contribution to society through the creation of living environments that are friendly to people and the earth”—the Company leverages insulation and waterproofing technologies to drive energy efficiency and support a sustainable society.
- It holds the leading domestic share in on-site urethane foam insulation installation and operates its business through three key divisions: Single-family homes , Buildings, and Waterproofing.
Polaris Holdings (3010 JP) – Scaling New Heights Through Strategic M&A and Surging Inbound Demand
- Supported by Star Asia Group, Polaris Holdings now operates six hotel brands and is scaling up with a goal of 100 hotels and 15,000 rooms by FY3/27.
- Shifting to a low-risk, fee-based model and a well-balanced fixed and variable lease structure to optimize risk-adjusted returns, its strategic mix of assets is enhancing earnings stability and growth potential.
- Backed by strong financial foundations and effective capital deployment, Polaris is also expanding into new hotel types, strengthening its platform, and positioning for sustainable, scalable growth amid rising inbound demand.
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