In today’s briefing:
- Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback
- MonotaRO (3064) | Another Decade of Secular Growth
- Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears
- M3: Revenue and OP Beat Consensus but Don’t Rush to Make an Entry
- CyberAgent 3Q: Revenue and OP Miss Consensus as Game Titles Struggle
- 50% of Sales at Isetan-Mitsukoshi Flagships from Top 5% of Customers
- Renesas (6723) | Buy the Dip
Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback
- Shin Etsu Chemical (4063 JP) reported Q1 earnings after the close on 27 July, and they blew the lights out. Higher margins and 10-year record high Q1 progression ratios.
- The company also announced guidance which was pretty healthy, but progression ratios suggest it is conservative.
- The company announced its second ¥100bn buyback in three months. This one lasts 6 months so impact will be lower, but it will have some impact.
MonotaRO (3064) | Another Decade of Secular Growth
- MonotaRo is well placed to monetise the shift of enterprise MRO spending as it moves increasingly online
- The company’s new distribution centre will enable the company to increase capacity, speed up deliveries, and offer improved services to enterprise clients
- Structural growth stories are few and far between in Japan. MonotaRo is one of them and appears expensive on most valuation metrics. Our LT DCF model suggests 30% upside
Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears
- We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
- It also seems that investors are starting to move on from JT’s Russia exposure-related fears.
- Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.
M3: Revenue and OP Beat Consensus but Don’t Rush to Make an Entry
- M3 Inc (2413 JP) reported 1QFY03/2023 results yesterday. Revenue grew 22.8% YoY to JPY57.0bn (vs consensus JPY50.8bn) while OP decreased 24.2% YoY to JPY19.0bn (vs consensus JPY16.3bn).
- The decline in OP was due to decrease in profit from overseas business where 1QFY03/2022 benefited from the Medlive IPO.
- Though m3’s earnings have beaten consensus and the company’s core Medical Platform has seen some recovery in earnings, we would not be rushing to make an entry.
CyberAgent 3Q: Revenue and OP Miss Consensus as Game Titles Struggle
- CyberAgent Inc (4751 JP) reported 3QFY09/22 financial results after the market closed on 27th. Revenue for the quarter decreased 10.4% YoY to JPY 172.2bn vs consensus revenue of JPY 173.2bn.
- OP declined 76.7% YoY to JPY 10.4bn vs consensus JPY 16.0bn (miss of 35%) due to decline in profits from gaming. OPM declined to 6.0% from 23.2% in 3QFY09/21.
- Though CA has proven in the past that it can turn around its business with just one hit title, it has not yet been able to launch another hit title
50% of Sales at Isetan-Mitsukoshi Flagships from Top 5% of Customers
- Isetan-Mitsukoshi is dangerously dependent on a small number of wealthy customers for a lot of its revenue.
- Wealthy VIP customers account for around half of sales at both Isetan Shinjuku and Mitsukoshi Nihonbashi department stores
- But the wealth market is one of the few segments to continue to grow so should be a source of growth even while the rest of its market shrinks.
Renesas (6723) | Buy the Dip
- Renesas stock is down around 8% following quarterly earnings and a very conservative Q3 outlook
- We think the market is over reacting and believe that Renesas is a key beneficiary of secular growth in auto and industrial electronics
- The stock trades at a discount to global peers, despite a strong story for improving shareholder returns
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