Daily BriefsJapan

Japan: Simplex Holdings, Mazda Motor, Invesco Office J Reit, Otsuka Holdings, Seven & I Holdings, ROHM Co Ltd and more

In today’s briefing:

  • TOPIX Inclusion: Simplex Holdings (4373 JP)
  • Mazda – Moving Upmarket With a RWD Is a Straight Six
  • Invesco Office – Last Index Deletion and Residual Arb
  • Otsuka Holdings (4578 JP): Well-Diversified Portfolio to Augment Revenue Growth
  • 2021 High Conviction: Seven & I Raises Speedway Synergies & India Expansion Could Break The Deadlock
  • Rohm (6963): Buy for Auto & COVID Recovery

TOPIX Inclusion: Simplex Holdings (4373 JP)

By Janaghan Jeyakumar, CFA

Japan-based systems integration company Simplex Holdings (4373 JP) was listed in the First Section (which will, in future, be named the “Prime Market”) of the Tokyo Stock Exchange (TSE) on 22nd September 2021.

When a company gets listed on the TSE First Section, it subsequently gets included in the TOPIX Index and as a result, TOPIX-tracking funds will have to purchase the stock during an Inclusion Event which presents interesting trading opportunities for active investors to generate sharp market-neutral returns in the space of few trading days. Alternatively, this can also be considered as a key point in time where short-term IPO investors could decide if they wanted to exit their positions by utilising this liquidity event.

Below is a look at the timeline and the parameters of the Inclusion Event and the potential trading opportunities surrounding it. 


Mazda – Moving Upmarket With a RWD Is a Straight Six

By Mio Kato

Mazda is continuing to implement its take on the Subaru revival playbook that once took Subaru’s stock from a GFC low around ¥250 all the way above ¥5,000 while it briefly led the automotive world in OPM.


Invesco Office – Last Index Deletion and Residual Arb

By Travis Lundy

The long and sordid history of the takeover of Invesco Office J Reit (3298 JP) was widely covered in these pages. The most recent event was the significant index deletion on 30 August 2021. 

The 30th rolled around and that produced a significant spike in volume, but a lot of the required trading volume appears to have been traded off-market. 

Since then, the shares have traded just below terms with the VWAP just above ¥22,700, which is just below the ¥22,750 takeover price. 

The NEW Nitty Gritty

Sorry it is Friday and I could not resist.. and we actually have to go back to the old.

After the close on the 30th, the Invesco Office J Reit (3298 JP) announced its plans to hold an EGM before the end of October which would approve an extension of the fiscal year so as to not trigger the adverse local tax treatment as per the previous insight (Invesco Office Index Deletion Monday 30 Aug) and others. It held that EGM today, and today unitholders agreed to consolidation and squeezeout. 

The announcement (Japanese, English) confirms that the consolidation (reverse stock split) of 2,200,662 units to 1 will take place on 12 November 2021, and that the last day of trading of the investment units will be 8 November 2021. 

There are other details about payment for the units inside, and astute investors will remember that this particular announcement triggers another index event. 

More on this below.


Otsuka Holdings (4578 JP): Well-Diversified Portfolio to Augment Revenue Growth

By Tina Banerjee

Otsuka has a leadership position in atypical antipsychotic drugs. The company is successfully diversifying its revenue stream in order to mend the hole created by patent expiry of its erstwhile flagship drug Abilify (accounted for ~25% of total revenue). Four global products, including Abilify Maintena, Rexulti, Samsca, and Lonsurf currently contribute more than 30% of total revenue. Better-than-expected revenue from these four global products led to record high business profit in 2020. The performance continued in this year and the company reported 8% y/y revenue growth in H1, leading to 2021 guidance raise. This insight analyses the potential of Otsuka’s global products, which have leading market positioning amid large addressable patient population. Four global products are expected to achieve revenue of ¥480 billion (20% CAGR during 2018–2021) in 2021, two years ahead of schedule, driven by indication and geography expansion. These products should play a crucial role in achieving the medium-term management plan (2019–2023), which calls for average annual revenue growth of 10% or higher to reach revenue of ¥1,700 billion and ROE of 8% of higher in 2023. Otsuka has a rich pipeline of late-stage (phase II/III) programs to compensate for the upcoming patent cliff for its mainstay products.    


2021 High Conviction: Seven & I Raises Speedway Synergies & India Expansion Could Break The Deadlock

By Oshadhi Kumarasiri

  • Our 2021 High Conviction call, Seven & I Holdings (3382 JP) delivered 2QFY22 results yesterday with revenue surpassing consensus estimate by around 9.7%. The company’s 2QFY22 operating income was 8% below consensus.
  • Although Q2 results seemed a bit weak on profitability with 0.3% YoY growth, we think it was driven mainly by a temporary rise in SG&A costs in the overseas convenience stores business due to the completion of the Speedway acquisition.
  • The initial price reaction to results was negative. Yet we think it’s mostly down to the overall weaknesses in the Japanese market.
  • Nevertheless, there are many positives to look forward to in the near term as the increase in the Speedway synergies, strong growth in America and the expansion into India could provide an impetus for Seven & I to break the resistance, which is currently at around the ¥5,400 level.

Rohm (6963): Buy for Auto & COVID Recovery

By Scott Foster

Rohm has dropped to the bottom of its recent trading range, presumably on concerns over the impact of COVID-19 on semiconductor assembly & test in Southeast Asia and the ongoing disruption of auto production. 

However,

  1. Guidance looks conservative. 1Q operating and net profit were 31% and 34% of FY Mar-22 full-year guidance, respectively.
  2. COVID infections in Southeast Asia have dropped back from recent peaks. 
  3. Rohm is a leading producer of Silicon Carbide wafers and power devices for Electric Vehicles. It is geared to both the recovery and technological advance of the auto industry.

With 38% upside to our ¥13,500 price target, we regard Rohm as a Buy both on a trading basis and as a longer-term investment. 


Before it’s here, it’s on Smartkarma