Daily BriefsJapan

Japan: Dai Ichi Life Insurance, Oisix ra daichi, Toyota Motor, Softbank Group, Toshiba Corp, Tottori Bank, Hitachi Ltd and more

In today’s briefing:

  • Dai-Ichi Life (8750)’s New Mid-Term Plan and Very Big Buyback
  • Oisix Ra Daichi – Set For a Nice Beat But…
  • Toyota – Electrifying Lexus
  • JPX-Nikkei 400 Rebalance: Pre-Event Basket Adjustments for March-End
  • Toshiba – Rumoured Deal for Kioxia a Big Positive
  • Tottori Bank (8383 JP):  Trapped in the Sands
  • Hitachi Ltd. (6501): GlobalLogic Acquisition Expensive but Accretive

Dai-Ichi Life (8750)’s New Mid-Term Plan and Very Big Buyback

By Travis Lundy

Seemingly perpetually undervalued major Japanese life insurer Dai Ichi Life Insurance (8750 JP) after the close today announced a new Mid Term Management Plan for the years 2021-2023, called “Re-Connect 2023.”

The last medium-term plan had goals of delivering ¥250bn of Adjusted Profit in FY2020 (a goal it beat in FY2019 but will miss this year), ¥230bn of new business value in FY2020 – a number it hasn’t come close to in the mid-term plan and will miss this year, a medium-long-term goal of average Embedded Value growth of 8.0%, a goal it has missed entirely with FY18 and FY19 coming in at -0.6% and -2.8%, and a solvency ratio of 170-200%. Last year was 195% and this year should be quite well above 200%. 

Of more immediate importance, the Company also announced an VERY BIG BUYBACK of “up to 170,000,000 shares” (15.25% of shares out) spending “up to ¥200 billion.”

The headline is big. The actuality is smaller, but it is DEFINITELY worth a slightly deeper dive below.

It may even have an effect on Japan Post Insurance (7181 JP) because of the Huge Japan Post Insurance Buyback Mooted – Decks Cleared. Time To Buy situation from last December (further discussed in Japan Post Insurance Update – Three Reasons To Buy. Any Overhang Slightly Higher).  

Oisix Ra Daichi – Set For a Nice Beat But…

By Mio Kato

Consensus of ¥7.0bn in OP for Oisix Ra Daichi this year looks excessively conservative as results are likely to be over ¥8bn, easily clearing even the consensus high. As the end of lockdowns approaches, however, it is important to examine exactly how much of recent stellar performance is sustainable.

Toyota – Electrifying Lexus

By Mio Kato

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

JPX-Nikkei 400 Rebalance: Pre-Event Basket Adjustments for March-End

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.

A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. 

Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio based on March-end data. 

Toshiba – Rumoured Deal for Kioxia a Big Positive

By Mio Kato

Positive news flow for Toshiba continues as the Nikkei reported that both Micron and Western Digital have expressed interest in acquiring equity affiliate Kioxia for as much as $30bn. With Toshiba owning 40.2% of the company that would be a significant haul for the company regardless of whether the quoted figure is market cap or EV.

Tottori Bank (8383 JP):  Trapped in the Sands

By J. Brian Waterhouse

Tottori Prefecture, in the Chugoku Region of western Japan, is famous for its extensive sand dunes that attract tens of thousands of visitors every year. Tottori is also home to one of Japan’s smallest regional banks, the rather obscure Tottori Bank (8383 JP) which celebrates the centenary of its founding later this year.

From an investment viewpoint, it appears to be trading on a ‘give away’ price-to-book ratio of just 0.23x.  Dig a little deeper, however, and the bank’s many weaknesses are soon revealed: evident lack of scale, geographically trapped in a shrinking local economy, margins under relentless pressure, a chronically high overhead ratio, little ability to absorb ‘normal’ levels of credit losses and risible RoE and RoA ratios.  This is a bank in need of serious restructuring of its business.  While some domestic entrepreneurs such as SBI Holdings (8473 JP) might be tempted to take a look at such a bank as an investment opportunity, foreign investors would be well advised to steer clear.  

Caveat emptor!  (May the buyer beware!)

Hitachi Ltd. (6501): GlobalLogic Acquisition Expensive but Accretive

By Scott Foster

Hitachi Ltd. dropped 7.3% yesterday, the market taking a dim view of the price management plans to pay for GlobalLogic: 8x revenues and more than 35x EBITDA on what looks like an optimistic forecast for FY Mar-22.

But while the price is high, the acquisition should increase Hitachi’s profits and profit margins, accelerate the digital transformation of its infrastructure and other businesses, and greatly expand its staff of IT professionals and global client base.

The impact on Hitachi’s balance sheet is manageable, in our estimation. We recommend buying into the sell-off. 

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