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Japan Strategy – Sold in May and Went Away? Buy in June as the Markets Bloom
• Japanese investors firmly believe in chart patterns. And for good reason: they invented them. These patterns form the basis of stock selection in Japan. • Price and emotion-based trading signals found in candlestick charts originated in the mid-1700s, thanks to a legendary rice trader in Osaka. • An inverse head-and-shoulders pattern and a golden cross on the Nikkei 225 suggests we may be entering a new bull phase, with a potential 19% leg higher to ~¥45,000 and possibly more on the Topix.
Equity trading activity in May and June may have changed everything.
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VIDEO: Visit to 2025 Japan Energy Summit
There was strong representation of LNG and hydrogen technologies from Japan Organization for Metals and Energy Security (JOGMEC) and JERA, the merged power divisions of Tokyo Electric Power Co. and Chubu Electric Power.
Here is a short video report on a visit to a energy trade show held alongside the 2025 Japan Energy Summit, an annual international event showcasing new technologies and the work of key Japanese energy players.
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VIDEO: Visit to Japan Drone 2025
Visiting the booths of the show to see the latest technology and what Japanese manufacturers are currently offering.
Japan Drone is the only international exhibition and conference annually held in Japan featuring drones (UAS) and its market.
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Japan Strategy: Japan’s Commercial Drone Industry Takes Flight
• As Japan grapples with an aging population, commercial drones are becoming a critical part of the nation’s evolving workforce. • Having missed out on the consumer drone boom a decade ago to the Chinese, Japan has been playing catch-up in airframes, components, and more recently, large heavy drones. • The drone attack by Ukraine on Russian airbases was an eye-opener, not just for that specific operation, but for how commercial drone technology is being militarised.
The distinction between commercial and military drones is becoming increasingly blurred
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Japan Strategy – USDJPY could head into the 120s this year
• Nikkei and Bloomberg have both highlighted a punchy call from Nomura’s FX strategy team: the yen is projected to strengthen to ¥136 (a 6% gain) by the end of Q3 based on fundamental asset shift. • The U.S. Treasury has urged the Bank of Japan (BoJ) to continue hiking interest rates, pushing the yen in that very direction, dovetailing with the stance of both the BoJ and Ministry of Finance (MoF) and expectations of a stronger yen. • Trade negotiators from the U.S. and Japan have downplayed currency discussions, but the Treasury and BoJ have not. The catalyst is the successful conclusion of trade negotiations and the G7 meeting next week.
Yen weakness and Japan-U.S. trade talks are linked
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Softbank Corp (9434)
We met with Softbank Corp to catch up on Q4 results and the outlook for FY25.
Follow up after Q4 results and model update
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Toyota Motor (7203 JP)
Toyota Industries (TICO) has accepted a proposed buyout by a holding company which will be established by Toyota Real Estate, and officially announced that it will delist from the stock exchange. This is an important development that will solve the company's management issues and promote transparency in Toyota Group's governance. We recognized the negative risk that the handling of TICO's 9% stake in Toyota and the scheme for Toyota's investment in the holding company could have had on Toyota's valuation.
The delisting scheme for TICO will dramatically unwind group crossholdings
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Herd On the Street – Japanese Equity Short Report
Recommendations – Short Sell Nomura (8604), RED FLAGS on Japan’s top three megabanks MUFG (8306), SMFG (8316), Mizuho Financial Group (8411)
Crowded Financials: Positions in Japan’s Financials Have Ballooned
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Toyota Motor (7203 JP)
In late May, Toyota held an Intelligent Technologies Conference at its Higashi-Fuji Technical Center, where it presented the core technologies and demonstrated applications it is developing as part of its SDV strategy. The company has further refined its roadmap for expanding the SDV value chain and achieving a 20% ROE. As an AI company, Toyota will collaborate with industries surrounding mobility to generate profits in the SDV value chain.
SDV strategy analysis in Intelligent Technologies Conference
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Internet Initiative Japan (3774)
IIJ exited FY24 with renewed strength in corporate DX revenue even as 2 June 2025 concerns over VMWare repricing and an April email breach fade. That is reflected in management guidance which met consensus and Astris Japan / Telecoms expectations for high single-digit revenue growth and a return to OPMs BUY above 10%. We have tweaked our model after talking with the company about the FY25 outlook although our forecasts and valuation are largely Kirk Boodry unchanged. With 28% upside to our target price, we remain at Buy. +81 3 6868 8785 boodry@astrisadvisory.com
Follow-up after year-end results
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Japan Strategy: Escalate to De-escalate to Negotiate
Japan mirrors U.S. transactional trade tactics, using firm but non-confrontational strategies to protect domestic interests while leveraging U.S. priorities. • Trade negotiations now encompass defence, space, and energy collaboration, tying military spending, economic alignment and industrial partnerships to tariff relief. • Japan’s deliberate, unhurried approach prioritises long-term stability, using structured proposals to defend key sectors like autos, steel, and currency policy.
Perhaps Japan is giving the U.S. a taste of its own medicine
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NTT (9432)
NTT has confirmed reports that came out overnight that it would buy a majority stake in SBI Sumishin Net Bank and invest separately in parent company SBI Holdings. Headline pricing of ¥4,900/share is a 49% premium to the pre-deal close but that applies only to the public float and the blended price/share is closer to ¥4,230 (+29% premium). All in, DoCoMo will spend ¥420bn for 65% of the online bank although its voting rights will be 50% alongside strategic investor SMBC. The deal fills out DoCoMo’s fintech portfolio sooner rather than later and is somewhat surprising as we thought the NTT Data buyout earlier this month and DoCoMo comments in February had taken an acquisition off the table. But the size of the deal is manageable and a faster time-to-market is positive. We remain at Buy.
SBI Sumishin deal price is better than headlines suggest
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Japan Auto OEM/OE Supplier Sectors
This note provides a detailed review of the fundamentals of the OEM sector under the tariffs. We also reviewed specific measures taken by individual companies. We believe that the G7 summit to be held on June 15 is likely to produce some agreement on US-Japan tariff negotiations.
Reassessing fundamentals under the tariffs: Denso looks attractive
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Softbank Group (9984 JP)
A rebound in ARM’s valuation eases some of the NAV pressure.
Update for Q4 results: $1.4bn more in semi exposure
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VIDEO: Visit to Defence and Security Equipment International (DSEI)
Japan is rapidly expanding its defence capabilities, exports, and partnerships amid rising regional threats. • Domestic and international interest in Japanese defence technology is growing, with SMEs playing an increasing role • DSEI Japan 2025 highlights Tokyo’s strategic pivot toward greater military autonomy and industry reform.
DSEI Japan is a biannual, fully integrated defence exhibition serving the international defence community with a focus on Indo-Pacific security.
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DSEI 2025 – A Serious Show of Force
Japan is rapidly expanding its defence capabilities, exports, and partnerships amid rising regional threats. • Domestic and international interest in Japanese defence technology is growing, with SMEs playing an increasing role • DSEI Japan 2025 highlights Tokyo’s strategic pivot toward greater military autonomy and industry reform.
Rapid Growth in the Expo Reflects Rising Defence Budgets and Security Concern
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Japan Equity Strategy – Greece is the way we are feeling
Yet, Japan has no National Debt
Japan has the highest gross debt-to-GDP ratio of any country, and has been compared with Greece and the US by the ”one model fits all” debt-rating agencies. As interest rates rise, the cost of servicing debt goes up… or does it really, when most of government debt is owned by government pension funds and the central bank? Rumblings of a sovereign debt downgrade have started, but before anything like that happens, there needs to be a fresh look at Japan’s debt burden.
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Japan Strategy - Biofuel Boost
Japan Strategy: Auto Tariffs, Japan Counters with Corn
Auto tariffs remain a major hurdle in Japan-U.S. trade talks, but partial U.S. exemptions elsewhere suggest tariffs are up for negotiation. Japan plans to increase U.S. corn imports, not for food but for ethanol production, aligning with its national energy strategy. Japan’s biofuel roadmap targets E10 by 2030 and E20 by 2040, with nearly all ethanol currently imported from the U.S., could be accelerated if Japan makes its own.
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KDDI (9433)
Q4 24 results flash: beat
The Matsuda era has arrived. In the first results meeting presided over by new CEO Hiromichi Matsuda, KDDI posted Q4 results and FY25 guidance that was largely in-line with expectations supported by plans for shareholder returns that were much more generous than we expected. Operationally, mobile service has returned to growth whilst corporate DX sales have improved as IoT growth offsets BPO weakness. This is a good quarter with a great returns story. We remain at Buy.
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Rakuten Group (4755)
Q1 25 results flash: mixed
These were uninspiring results. Q4 revenue was in line, helped by a solid beat for Rakuten Bank but that was offset by a dip in form for the mobile business after its star turn in Q4 whilst eCommerce growth also came in weaker than expected. The company does not expect any direct impact from new tariff policies out of the US but there are indirect impacts to overseas ad sales, Kobo device exports and the Rakuten Rewards business that could slow non-core growth. Shares have largely traded flat in 2025 but are down 14% from recent highs in February. We think the stock is fairly priced and remain at Neutral.
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Herd On the Street – Japanese Equity Short Report
May 2025: The effect of rising food inflation
We are negative on consumer spending and concerned about frugality on food, beverage manufacturers and general household spending going into the early summer.
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Subaru (7270 JP)
Due to uncertainty surrounding the impact of tariffs, SUBARU refrained 14 May 2025 from announcing earnings guidance. The dividend plan of ¥115 per share limits downside risk of the share price, but we believe substantial Japan / Auto OEM improvement in tariff conditions is necessary for any reversal. SUBARU NEUTRAL announced a policy to defend its unit sales and market share despite the tariff burden and aims to achieve a recovery even if profit levels are Takaki Nakanishi depressed in the short term. The company indicated that ¥100 bn OP is +81 90-2212-8853 the last line of defence for the current fiscal year. nakanishi@astrisadvisory.com
4Q earnings flash: In-line
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IIJ (3774)
Q4 24 results flash: in-line
IIJ posted results and guidance that were largely in line with consensus and Astris expectations. Q4 revenue was ahead of target on a robust order book for system integration even as recurring revenue growth stepped up from Q3. Corresponding operating profit and EBITDA for the quarter came in weaker than we expected but the outlook for FY25 is better and indicates the company is back on a growth track after VMWare pricing issues last year. We remain at Buy.
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Softbank Group (9984)
Q4 24 results flash: steady
Since the end of March, concerns had been building about Softbank’s tech portfolio and its ability to fund new AI investments but the recent rebound market rally, culminating in a 4.4% gain for NASDAQ overnight, has taken some of the pressure off. The two main takeaways for us were 1) the surprise Q4 profit balanced by 2) a lack of clarity on progress at Stargate and with the Cristal sales venture in Japan. Outside of that, the company re-iterated its financial guardrail policy and said that markets have been receptive to funding Softbank’s AI investments so far, which is positive whilst establishment of a robotics holding company is intriguing. We remain at Buy.
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Nissan Motor (7201 JP)
Lack of speed. To our eyes, with high expectations for CEO Espinoza's 13 May 2025 decision-making ability and speed, the plan seemed typical of Nissan. We strongly commend the new executive team for bringing Japan / Auto OEM additional restructuring measures to a decision just one month after NEUTRAL taking office. Nevertheless, we felt that the plan lacked exciting developments for the new Nissan. We wonder if the timeline for Takaki Nakanishi FY3/28 is a little too lengthy. +81 90-2212-8853 nakanishi@astrisadvisory.com
4Q Results Flash: Negative
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Yamaha Motor (7272 JP)
The outboard motor business has become tougher than expected. 13 May 2025 Canadian competitor Brunswick announced a significant downward revision of its earnings forecast due to tariffs and weak demand. We Japan / Auto OEM recognize the risk that the downturn in the US leisure goods market NEUTRAL affected by tariffs will have a material impact on Yamaha Motor. Takaki Nakanishi
1Q Results Flash: Negative
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Suzuki (7269 JP)
Suzuki taking a prudent stance in announcing its company plan for the 12 May 2025 new fiscal year. We believe that there is considerable upside potential as the company will be able to achieve earnings close to our estimates. Japan / Auto OEM Suzuki reaffirmed that the impact of tariffs will be quite minimal. BUY Although domestic demand in India remains sluggish, the company's strategy of making India an export base is proving a success, and it Takaki Nakanishi expects exports from India to grow substantially from 330k units in +81 90-2212-8853 the previous period to 400k units in FY3/26. nakanishi@astrisadvisory.com
4Q Earnings Flash: In-line
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Mazda Motor (7261 JP)
We anticipated that it would be difficult for Mazda to present earnings 12 May 2025 and dividend estimates at this stage, and we are not surprised that the company has left its plans undecided. Details will likely be Japan / Auto OEM announced in the 1Q results. Mazda has reemphasized its plan to NEUTRAL strengthen its earnings structure by cutting fixed costs by ¥100.0bn and variable costs by ¥100.0bn toward FY3/27. Takaki Nakanishi +81 90-2212-8853
4Q Results Flash: In-line
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NTT (9432)
Q4 24 results flash: mixed
NTT has posted financial results for Q4 that missed expectations whilst FY25 guidance is also weaker than expected despite the financial boost from data center sales at NTT Data announced yesterday. NTT also announced a ¥200bn share buyback to reassure investors that the policy on shareholder returns hasn’t changed despite its NTT Data announcement yesterday. We would have liked to see a larger step up in profitability but a return to YoY growth with room to invest in the business is also positive. We remain at Buy.
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Softbank Group (9984)
ARM read-across: guidance stumble on murky outlook
ARM posted solid Q4 results but guidance for Q1 was not as strong whilst the company did not provide full-year targets as its customers are uncertain about how actual sales will progress this year. Management remains bullish on long-term prospects as ARM-based chips represent 50% of shipments to hyperscalers whilst the outlook for growth in higher-royalty CSS sales remains positive. ARM shares fell 10% in late trading after the print but we think the overall message was better than that.
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NTT (9432)
NTT Data acquisition confirmed
NTT has confirmed it will tender for the 42% of NTT Data it does not own at ¥4,000/share, a 34% premium to the pre-deal price and a 23% premium to the all-time high reached earlier this year. As we discussed before, we believe the deal makes sense strategically although the transaction is dilutive to our NTT target price by c. 3% or ¥6/NTT share as it is priced higher than the ¥3,200 value for NTT Data implied in our NTT model. We are lowering our target price from ¥207 to ¥201 and remain at Buy.
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Softbank Corp (9434)
Q4 24 results flash: in-line
Softbank Corp posted Q4 results ahead of forecasts but guidance for FY25 is a touch below our expectations, largely on accelerated AI and R&D investment. Telecom operations continue to deliver with growth rates for consumer mobile and corporate business solutions steady QoQ. This was a solid quarter but a 12% YTD jump in the share price indicates much of that upside is built in already and we remain at Neutral.
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Mitsubishi Motors (7211 JP)
The company plan has factored in a relatively realistic impact of tariffs 08 May 2025 on earnings. However, sales volume assumptions appear optimistic in each region, and we believe that substantial challenges remain to be Japan / Auto OEM overcome. The update of KPIs in the medium-term business plan, NEUTRAL “Challenge 2025,” revealed significant miscalculations in sales volume and profit plans. We recognize that the improvement of product Takaki Nakanishi competitiveness is a significant achievement. The challenge of building +81 90-2212-8853 a sustainable earnings base will be left to the next medium-term nakanishi@astrisadvisory.com business plan.
4Q Results Flash: In-line
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Toyota Motor (7203 JP)
Toyota conducted an interim assessment of the two years under the 08 May 2025 Sato leadership and implemented comprehensive strategy updates for the future. Toyota will promote a fundamental change in how it makes Japan / Auto OEM money. Although tariffs will have a negative impact on short-term BUY earnings, they also provide an opportunity to further refine Toyota's competitive strengths. We recognize that Toyota has reached an Takaki Nakanishi important turning point in its group governance reform. We hope this +81 90-2212-8853 will lead to positive progress for Toyota's corporate value. nakanishi@astrisadvisory.com
4Q Earnings Flash: In-line
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LY Corp (4689)
Q4 24 results flash: positive
LY Corp posted Q4 results and FY25 guidance that was largely in-line with expectations although we expect headlines will focus more on the ¥150bn buyback and a possible PayPay IPO later this year as preparations for a listing have kicked off. It is still early days as the timing and location (US or Japan) have yet to be confirmed whilst macro issues remain an issue but confidence in the underlying business is deserved. We remain at Buy.
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Japan–U.S. Trade: Storm Clouds Begin to Clear
Emerging Agreements Set a Blueprint for Asia—and Potentially the World
Japan is negotiating trade relief, offering concessions in autos, agriculture, and LNG imports, with outcomes likely to influence broader Asia–U.S. trade following Golden Week. Asian nations are using LNG imports and defence procurement, including joint shipbuilding, as strategic tools to ease U.S. tariff pressure, strengthen bilateral security and trade ties. A yen rebound is to be expected, boosting Japanese purchasing power. Investment opportunities may re-emerge in auto, energy, banking, defence, and shipbuilding sectors once trade tensions ease.
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Deep Dive: Hydrogen, its a Gas Gas Gas...
A deeper look as of 2025 at Hydrogen as a fuel in Japan..
Japan has been developing its use of hydrogen as a fuel, from transport to power generation. This report follows the short video that summarised the main exhibitors at Smart Energy Week focusing on Hydrogen and goes into greater depth on the current level of development of hydrogen as a fuel in Japan.
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Toyota Motor (7203 JP)
On April 25, Bloomberg published a scoop article titled “Akio Toyoda 28 Apr 2025 is said to plan record Toyota Industries buyout” followed by a number of media outlets. Toyota and Toyota Industries Corporation (TICO) Japan / Auto OEM issued an official statement that “No decision has been taken at this BUY time”. Although we believe the Bloomberg article contains some inaccuracies, we surmise that the probability of a delisting and buyout Takaki Nakanishi is relatively high. We report our thoughts below. +81 90-2212-8853 nakanishi@astrisadvisory.com
Our thoughts on reports of Delisting of TICO and Toyota's buyout
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VIDEO: Visit to Hydrogen & FC Expo
A look at the latest in Hydrogen as a fuel.
Japan has been developing its use of hydrogen as a fuel, from transport to power generation. This short video summarises the main exhibitors at Smart Energy Week focusing on Hydrogen. This video will be followed by a deep dive report on the topic.
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Sky Perfect JSAT (9412)
Q4 24 results flash - positive
Sky Perfect posted results that were modestly short of revised guidance for FY24 even as FY25e guidance exceeded expectations with revenue and operating income 2% and 6% ahead of our forecasts respectively. Of particular note is an acceleration in spending with capex budgeted to more than double whilst investors received a punchy dividend increase for the second straight quarter. We raised our targets at the end of March on higher hopes for the space segment but today’s announcement implies that media segment results should come in better too. We remain at Buy.
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China domestic drivers should be enough to counter trade slowdown for metals
Global uncertainty soars, but China domestic reacceleration on track
After proving relatively robust through the first quarter, even metals prices couldn’t stay immune to the broader risk sell off on the back of Trumps Tariffs. Markets are understandably concerned about how deep a US recession could become and consequent knock-on effects. However China is already well underway in countering the long-expected export slowdown, having begun their stimulus in September last year and accelerated it since the US election in November. With China looking to do what it has done many times in the past two decades, pushing the domestic economy counter to the global/export economy, I still feel the outlook for metals demand remains constructive near term, even if longer term uncertainty has risen. A key risk near term will be currency volatility. Traditionally a weaker US$ is good for metals and for emerging market growth, but China also appears to be trying to push the RMB lower against a weakening US$ to offset some of the tariff measures. While supportive to domestic growth, a weaker RMB has traditionally not been a positive signal for metals prices. Copper, aluminium, zinc, steel and steel raw materials are my order of preference. Nickel and lithium continue to battle against more abundant supply dynamics however so should remain challenged, while thermal coal is equally seeing more than sufficient supply as demand increasingly disappoints from all major markets as renewables generation surges.
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Aisin (7259 JP)
Aisin's share price jumped nearly 10% immediately after the 25 Apr 2025 announcement of a large share buyback. This seems to be a slight overreaction given that the buyback represents 17.2% of the total Japan / Auto OEM number of shares outstanding, and we are concerned about a short- BUY term reversal. The company has factored in tariff costs of ¥20.0bn in its profit plan. We believe that the reliability of the figures is low, Takaki Nakanishi but we appreciate the message that the company will be able to +81 90-2212-8853 avoid a decline in profits after factoring in certain risks. nakanishi@astrisadvisory.com
4Q Results Flash: In-line
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Denso (6902 JP)
Excluding the impact of tariffs, the company's plan was largely in line with expectations. We believe the issue lies not in tariff costs Japan / Auto OEM but in unit volumes. Much of the tariff costs incurred by suppliers BUY are likely to be passed on to OEMs. On the other hand, substantial downside risks to new vehicle production volumes are emerging Takaki Nakanishi due to rising new vehicle prices, an economic slowdown, and +81 90-2212-8853 deteriorating consumer sentiment, prompting us to recognize investment risks for suppliers. nakanishi@astrisadvisory.com
4Q Earnings Flash: In-line
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Softbank Group (9984)
OpenAI’s new valuation driven by upgraded projections
Softbank Group’s $30bn investment in OpenAI at a post-money $300bn valuation is driven in part by expectations of higher revenue from agentic AI and monetization of the free user base. A report from the Information website (link below) puts FY29 revenue at $125bn, implying a 102% CAGR from 2024 and implying a level of sales that puts the company just outside the Top 50 highest globally on current year comparisons. The company also expects to be free cash flow positive by FY29 (+$12bn) although losses over the next three years could be as much as $46bn.
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Japan Strategy – Japan and U.S. Going Into Battle on Trade
Trade Talks Are Underway, Driven by Optics and Strategy
Japan–U.S. Trade Strategy: Symbolic Wins and Strategic Optics. Both Japan and the U.S. are approaching the trade talks with political optics in mind. Japan is expected to offer visible concessions—such as increased local production and investment in automation—while the U.S. seeks tangible “wins” to showcase to voters, particularly around trade deficits, job creation, and defence burden-sharing. The negotiations will centre on automobiles, with Japanese manufacturers like Toyota, Honda, and Nissan pledging greater U.S. output. Technology companies, especially in robotics and automation, may benefit from assembly shifts. Japan is also exploring investment in U.S. LNG infrastructure (notably the Alaska project), aiming to secure energy partnerships while reducing Russian dependence. Currency and Defence at the Forefront. The weak yen is expected to become a core issue, with potential agreements around strengthening the currency through Bank of Japan rate hikes. Defence spending and military cooperation will also be in focus, with Japan edging toward its 2% of GDP commitment and facing U.S. pressure to define its strategic role in potential future conflicts involving American forces.
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IIJ (3774)
Cyberattack could impact security revenue
IIJ reports that its corporate email product IIJ Secure MX Service has been hacked, impacting up to 6,493 corporate accounts and 4mn addresses. IIJ is not the first in our coverage to be hit by a cyberattack this year as NTT Group had a similar data breach last month (18K accounts), but it is still not a good look for a cloud/security provider. The company says it first became aware of the issue last week, so it probably does not impact Q4 financial results, although management will need to have a comprehensive update for investors when it reports in May.
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Trump, Tariffs and Tokyo
How US Trade Policy Negotiations Will Focus on USDJPY
Trump’s tariff calculation hit Japan hard despite existing low tariff barriers with the US, suggesting there is more to the method than meets the eye. Japan will however emerge as a stable, strategic player in an unstable global economy and as an oasis in Asia for foreign investment.Scott Bessent’s appointment signals a focus on yen-dollar dynamics as the negotiating table is dusted off for fist pounding.
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Softbank Group (9984)
Playing with political fire
With a 16% decline for the week, Softbank Group has been among the larger market losers in the wake of the tariff shock coming out of the US. Not only are tech valuations falling but Softbank’s discount to NAV is widening too (55% v 52% on Tuesday) and approaching levels last seen during the mini-meltdown in August last year. There are a couple of issues at play.
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SUBARU (7270 JP)
We have factored in some of the impact of the Trump tariffs, 4 Apr 2025 which have now been clarified, into our earnings estimates. As the tariffs on Japan are more severe than those in the USMCA, Japan / Auto OEM contrary to our expectations, we find it difficult to maintain our NEUTRAL BUY rating. We lower our rating to NEUTRAL and recommend waiting for a better opportunity to reinvest. Nevertheless, based Takaki Nakanishi on the shareholder return policy, we anticipate the launch of a +81 90-2212-8853 ¥60bn share buyback at the May earnings announcement. There nakanishi@astrisadvisory.com may be a good trading opportunity if the shares are oversold. Summary of Rating and Target Price
Downgraded to NEUTRAL
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Japan Auto OEM/OE Supplier Sectors
The Trump administration announced reciprocal tariffs. 7 Apr 2025 We got the strong impression that the Trump tariff policy is leaning towards a fundamental “industrial policy”. In Japan / Auto OEM/OES the foreseeable future, there would be no major changes, and we believe a substantial impact on the auto industry Takaki Nakanishi is inevitable. The risk of a global recession is increasing. +81 90-2212-8853 It will take some time before night turns to dawn. nakanishi@astrisadvisory.com
Reflecting the impact of the battle in US tariffs on earnings estimates
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Japan Auto OEM/OE Supplier Sectors
The Trump administration announced reciprocal tariffs 7 Apr 2025 that exceeded imagination. We gained a strong impression that the Trump tariff policy is leaning towards Japan / Auto OEM/OES a fundamental “industrial policy”. In the foreseeable future, there would be no substantial changes, and we Takaki Nakanishi believe a substantial impact on the auto industry is +81 90-2212-8853 inevitable. It will take some time for an inflection point. nakanishi@astrisadvisory.com
Reflecting the impact of the battle in US tariffs on earnings estimates
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Softbank Group (9984)
A deeper look at OpenAI as the fiscal year ends
Softbank confirmed today everything that we have been hearing regarding an OpenAI investment. There were no last-minute reveals or additions.
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Japan fintech
Cashless payments surpass 40%
Ministry of Economy, Trade, and Industry (METI) data indicates that cashless accounted for 43% of total payments in 2024, up 11% YoY and meeting government targets for hitting 40% by 2025 one year early. Japan continues to lag most other markets in transitioning away from cash but it is closing in on the 50-60% penetration seen in the US and UK. In terms of absolute volumes, credit card usage increased the most but QR code payment apps like PayPay continue to grow faster.
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Sky Perfect JSAT (9412)
IR Day highlights and an update to our model and valuation
We haven’t written as much about Sky Perfect JSAT or even the space business overall as we would have liked but Sky Perfect JSAT’s IR Day gives us an opportunity to rectify that.
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Japan Auto OEM Sector Flash
Update on the impact of the Trump auto tariffs We have reviewed the impact of the auto tariffs announced 27 Mar 2025 on March 26 and updated the earnings impact. We had hoped that exemptions or reduced tariffs would be granted Japan / Auto OEM for imports from Japan, so we were disappointed by the imposition of these harsh tariffs. Until the future Takaki Nakanishi implementation becomes clear, this is a strong blow to +81 90-2212-8853 sector performance. The impact of the tariffs is certainly nakanishi@astrisadvisory.com heavy, but we should also focus on the opportunities that will arise from Trump's environmental deregulation. We think there is a chance for a turnaround in sector Operating Profit Sensitivity by Automobile Tariff performance from June onwards.
Japan Auto OEM Sector Flash
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Japan Equity Strategy: The Trend is Your Friend
The Trend of Rising Ordinary Profits is Firmly Reestablished.
With increased domestic and international demand, a resurgence in inbound tourism, and improving yen exchange rates, Japanese companies are experiencing a renewed trend of rising profits. Small and mid-sized businesses (SMEs) are shifting toward profit growth, raising expectations for wage increases as input costs decline. The trend is your friend. However, Japanese stocks have been stuck in a rut, and investors have yet to capitalize on this momentum.
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Rethinking the Fundamentals for FY2025
Nissan following the breakdown of their merger talks, (2) our thoughts on the financial strategies of Subaru and Japan / Auto OEM/OES Suzuki, (3) re-examining the impact of Trump's tariffs, and (4) updating our medium-term financial forecasts. Takaki Nakanishi Although the sector is exposed to severe external risks, it +81 90-2212-8853 is still possible to generate alpha. We maintain our BUY nakanishi@astrisadvisory.com on Toyota, Suzuki, and Subaru. Among the OE suppliers, we prefer Aisin. Summary of Rating and Target Price
This report discusses (1) the outlook for Honda and
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Rethinking the Fundamentals for FY2025
Nissan following the breakdown of their merger talks, (2) our thoughts on the financial strategies of Subaru and Japan / Auto OEM/OES Suzuki, (3) re-examining the impact of Trump's tariffs, and (4) updating our medium-term financial forecasts. Takaki Nakanishi Although the sector is exposed to severe external risks, it +81 90-2212-8853 is still possible to generate alpha. We maintain our BUY nakanishi@astrisadvisory.com on Toyota, Suzuki, and Subaru. Among the OE suppliers, we prefer Aisin. Summary of Rating and Target Price
This report discusses (1) the outlook for Honda and
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Japan telecoms
Mercari Mobile: eCommerce is the target
Mercari has launched an MVNO. They are a bit late to the game but Mercari has launched a new consumer-facing mobile service alongside its eCommerce and fintech offerings. The new service can help tie those two offerings together (indeed, payment is through Merpay or Mercard only for now) whilst Mercari uniquely offers users the ability to buy or sell unused data volumes in 1GB increments, tying mobile directly into the C2C commerce platform. Headline pricing of ¥990/2GB and ¥2,390/20GB is roughly competitive with MVNOs like IIJmio, which charges ¥440 for 2GB/data and ¥2,240 for 35GB with incremental (campaign) pricing of ¥500 for voice calling.
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Japan Auto OEM Sector Flash
25% tariffs on Canada and Mexico officially launched The stock market reacted relatively calmly to the news of 04 Mar 2025 the official launch of the tariffs. It is likely that the market has already factored in the news and perceives that it would Japan / Auto OEM be difficult to continue the high tariffs for the long term. We completely agree. The next thing to watch is the progress of Takaki Nakanishi reciprocal tariffs and automobile tariffs on April 2. The tariff +81 90-2212-8853 debate will likely heat up in the April-June period. nakanishi@astrisadvisory.com Nevertheless, considering the current state of the US economy, we believe maintaining high tariffs for a long period will be difficult. We are relatively optimistic that the Comparison of production ratios in CY2024 stage should come relatively soon where we can assess the real tariff risk.
Japan Auto OEM Sector Flash
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VIDEO: Visit to Smart Energy Week
De-carbonization, biomass and wind energy
As Japan is tied into fossil fuels in the energy mix will through the next two decades, there is a growing corporate interest in business involvement in decarbonisation. Using biomass as a fuel source for generating electricity is relatively new, but may become interesting as the excessive amount of pollen shedding cedar trees that are a target for harvesting for energy. And offshore wind-power, seemingly as inaccessible as nuclear fusion, is still on the road to becoming a reality. In this video, Neil Newman visits Smart Energy Week 2025 to find out the latest for Astris Advisory.
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Japan Equity Strategy – Artificial Intelligence Going Cheap
Hardware, not software, should remain the investor focus.
No matter how cleverly coded software products can be, each evolution of IT tech requires more infrastructure. Why cheap and compact AI from China surprised the market is beyond me. From calculators to Electric Vehicles, it always happens. AI software products remain a solution looking for a problem. Developer share price valuations escalate without making money. So, invest in hardware.
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Honda Motor (7267 JP)
In light of changes in environmental regulations, CEO Mibe 20 May 2025 announced a recalibration of the company's automotive electrification strategy in his annual update. The new strategy Japan / Auto OEM focuses on (1) electrification centered on intelligence and (2) a NEUTRAL review of the powertrain portfolio. HEVs equipped with NOA (the next-gen ADAS) are anticipated to support the company's volume Takaki Nakanishi growth and earnings expansion. Over the medium to long term, we +81 90-2212-8853 believe that this decision will lead to a revaluation of Honda's auto nakanishi@astrisadvisory.com business, which has not been given a meaningful enterprise value in the SOTP due to concerns over excessive BEV investment. Valuation and Target Price
2025 Business Update: The battle moves to the realm of intelligence
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Suzuki (7269 JP)
The message in Suzuki's new medium-term business plan (MBP) is to 20 Feb 2025 achieve sustainable growth centered on India by continuing aggressive investments while also enhancing financial discipline, and increasing Japan / Auto OEM shareholder returns in a well-balanced manner. The fact that the company BUY has set a target of 13% ROE by FY2030 and 15% in the first half of 2030s, while maintaining appropriate financial leverage, is highly commendable. Takaki Nakanishi We believe that the company's plan is to reduce the negative value in +81 90-2212-8853 the Suzuki stub value (excluding Maruti Suzuki) and to increase its nakanishi@astrisadvisory.com attractiveness as an investment.
Emphasis on growth investments with strong financial discipline
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Japan Equity Strategy – Having The Last Word
Tariff targets China, Canada, and Mexico; equity markets are up. The US and Japan are down.
Tariff – ‘the most beautiful word in the dictionary.’ China might agree, with the HSI up +8% and CSI 300 +2.69% month-to-date in US$ terms, while the Nikkei 225 is down -1.54% and DJI -0.98%.* President Trump's love of tariffs started when he was a real estate developer, believing Japan was taking advantage of Americans and hindering US businesses. During his second presidency, it is essential to focus on his objectives rather than the tariffs to understand what will happen and where investments should be directed.
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Honda Motor (7267 JP)
Even though the negotiations for a merger were terminated, Honda 13 Feb 2025 confirmed that it would continue the ¥1.1tn share buyback program. We appreciate the company's strong financial discipline. The Japan / Auto OEM earnings base supported by the motorcycle business continues to be NEUTRAL robust. On the other hand, with the merger with Nissan not going ahead, Honda now needs to provide an adequate explanation of how Takaki Nakanishi it will be able to achieve its SDV and AD/ADAS strategies. +81 90-2212-8853 nakanishi@astrisadvisory.com
3Q Results Flash: In-Line
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Nissan Motor (7201 JP)
Nissan was the same as usual. The restructuring plan did not differ 13 Feb 2025 substantially from the outline presented in November. The speed of management decisions showed no particular change. In aiming for Japan / Auto OEM restructuring by itself, a new alliance is the key to sustainability. NEUTRAL Other than the logic of “new cars will be released”, there were no fresh measures, and we felt that there was a lack of evidence to be Takaki Nakanishi confident about the success of standalone reform. +81 90-2212-8853 nakanishi@astrisadvisory.com
3Q Results Flash: Negative
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Honda Motor (7267 JP)
Even if assuming the worst-case scenario, issuing extremely low 13 May 2025 guidance risks causing misunderstanding in the market, and we cannot agree with this policy. Honda's bad habit of causing “Honda Japan / Auto OEM shocks” in its stock price with its earnings announcements has NEUTRAL returned. A short-term negative impact on the stock price is unavoidable, but we do not believe that the intrinsic enterprise value Takaki Nakanishi has been damaged. The stock price correction could be an +81 90-2212-8853 opportunity to re-enter. nakanishi@astrisadvisory.com
4Q Results Flash: Negative
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Japan Auto OEM Sector
“Honda/Nissan's merger talks collapse” - Thoughts on future developments Honda and Nissan officially terminated the Memorandum of 13 February 2025 Understanding (MOU) for the merger. The termination itself was not a surprise, as there had been media speculation on February 5th. We Japan / Auto OEM summarize the truth behind the breakup at the press conference and examine the future developments. Takaki Nakanishi +81 90-2212-8853
Japan Auto OEM Sector
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Yamaha Motor (7272 JP)
After the announcement, the share price fell by more than 5%. 12 Feb 2025 Yamaha Motor posted a total of ¥50bn in one-off expenses for FY12/24. The profits for FY12/25 should rebound, thanks to non- Japan / Auto OEM recurring one-off expenses and the restructuring effects: NEUTRAL nevertheless, the level of profits is far from market expectations. In the short term, there are concerns that some of the core businesses Takaki Nakanishi may worsen. There are no major surprises in the medium-term +81 90-2212-8853 business plan, making it a weak catalyst for the share price to bounce nakanishi@astrisadvisory.com back.
4Q Results Flash: Negative
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Japan Equity Strategy – PM Ishiba Earns His Keep
Japan is likely the safest safe haven for investors in 2025 outside the US.
Japan appears more of a safe haven today than it has in years, following the first summit between Prime Minister Shigeru Ishiba and President Donald Trump. A trade spat was never seriously considered, but addressing trade imbalances was—and a relatively easy fix at that by snubbing Russian LNG imports. The dispute over Nippon Steel acquiring US Steel has been resolved, becoming 'investment’ in the US as promised. PM Ishiba will smoothe the way back home.
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Deep Dive – The Final Front Ear – Japan in Space
Episode II: Putting Things In Odd Places.
Disaster movies “Deep Impact” and “Armageddon” imagined it, but here comes the real thing, a large rock from the heavens that may hit us in seven years’ time. The US, Japan and China are developing defenses, the US has tested one, Japan and China plan to test theirs. All use kinetic energy to change the course of an asteroid. Japan’s precision landings on heavenly bodies, chasing space junk and new launch systems highlight potential new businesses for Japan’s space companies.
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Internet Initiative Japan (3774)
Q3 24 results flash: mixed
IIJ posted Q3 results that beat for revenue but missed at the OP line although EBITDA and net income were broadly in line. We consider this an encouraging quarter as operating profit (+9%) and EBITDA (+10%) grew at the highest rate since Q1 23, which puts full-year financial targets within reach whilst Q3 orders received rebounded strongly from Q2 and were the highest ever. We remain at Buy.
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Subaru (7270 JP)
The share price rose 9% after the announcement, following better-than- 07 Feb 2025 expected 3Q results and news of stronger shareholder return policies. Despite having a large amount of cash on hand, the company has Japan / Auto OEM continued to have overly cautious and vague shareholder return policies. BUY We highly commend CFO Mizuma for carrying out this reform as his final important task. We believe that SUBARU's environmental regulation risk Takaki Nakanishi is easing, hence we raised our rating to BUY on January 9th, citing stable +81 90-2212-8853 earnings and strengthened shareholder returns. nakanishi@astrisadvisory.com
3Q earnings flash: positive
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Mazda Motor (7261 JP)
Supplier compensation of over ¥5bn was included in 3Q (Oct-Dec) 7 Feb 2025 OP as a one-off factor which was one of the reasons for the shortfall in earnings. Sales in N. America remained strong, but the fierce Japan / Auto OEM competitive environment in each region did not bring about the NEUTRAL desired earnings growth. The comments included a prudent view for the next fiscal year. We think the results were in-line, with no Takaki Nakanishi surprises. +81 90-2212-8853 nakanishi@astrisadvisory.com
3Q Results Flash: In-line
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LY Corp (4689)
Q3 24 results flash: beat and surprise dividend raise
Solid eCommerce and fintech results have driven another quarterly beat and LY Corp is on track to exceed its full-year profitability targets with c. 80% progress to both EBITDA and EPS guidance already locked in. The company has mostly exceeded quarterly expectations since its operational nadir in 2023 but an increase in the dividend for the first time since the LINE/Yahoo merger and talk of further buybacks makes the recovery seem more real. We remain at Buy.
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Suzuki (7269 JP)
The 3Q results contained many positive elements. The much- 06 Feb 2025 anticipated new medium-term business plan is scheduled to be announced on February 20th. The company plans to build a growth Japan / Auto OEM strategy with a detailed financial strategy that is more conscious of BUY the cost of capital. Suzuki has shown its ambition to go into detail for the first time on capital efficiency, cash flow allocation, and Takaki Nakanishi shareholder return policy. We view this plan as an important driver of +81 90-2212-8853 the share price and regard it as an important thesis for our BUY rating. nakanishi@astrisadvisory.com
3Q Earnings Flash: Positive
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Sky Perfect JSAT (9412)
Q3 24 results flash: beat and raise
This was a great quarter. The company largely met or exceeded Q3 consensus and raised its full-year targets across the board. Expectations for FY24e EBITDA and net income have been raised by 4% and 6% respectively whilst a 23% increase in the dividend means shareholders benefit immediately. Management also laid out plans to drive mid- to long-term space revenue growth that make our current forecasts look conservative. We remain at Buy.
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KDDI (9433)
Q3 24 results flash: mixed quarter
KDDI posted mixed results with retail mobile sales predictably weaker than previous quarters but business service revenue also coming in light. The former was offset somewhat by stability in the roaming revenue stream coming out of Rakuten whilst the contribution from Lawson remained relatively robust despite expectations of seasonal easing. The company is largely on-track to meet its FY24e financial targets despite an OP miss this quarter, as it laps a tough Q4 last year.
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Toyota Motor (7203 JP)
The results were reassuring, with stable and extremely strong 05 Feb 2025 profitability maintained. One-off costs for the current fiscal year reached ¥520bn, and once these have run their course, stable results Japan / Auto OEM for the next fiscal year can be expected. Toyota is pursuing its own BUY SDV value chain and intends to accelerate the structural transformation from its existing one-time sale automobile business to Takaki Nakanishi a mobility business that makes money from recurring payments +81 90-2212-8853 throughout the entire vehicle life cycle. nakanishi@astrisadvisory.com
3Q Earnings Flash: Positive
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Thoughts on the news that “Nissan withdraws the Merger MOU”
negotiations for the merger are close to the end. We expect the details will be announced on the 13th of February. Nissan needs to Japan / Auto OEM fulfill its important responsibility of explaining the rationality of its independent turnaround plan. Honda needs to explain how it will Takaki Nakanishi build a new strategy to successfully implement its SDV strategy. +81 90-2212-8853 There are many uncertain factors for both companies, and it is nakanishi@astrisadvisory.com difficult to take clear investment action at this point, in our opinion.
Based on various media reports, the probability is increasing that the 5 February 2025
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Sky Perfect JSAT (9412)
Investment program continues apace
Sky Perfect JSAT has entered into a capital and business alliance with ArkEdge Space to help build and operate constellations of micro-satellites. Financial details were not disclosed but the investment falls under the ¥10bn investment allocation for space start-ups and venture funds that the company announced last year.
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Softbank Group (9984)
Support for generative AI in Japan too
Softbank Group rolled out the CEOs of ARM and OpenAI in a presentation to Japanese corporates on the launch if its new domestic Enterprise-focused generative AI service called Cristal. Its first customer will be the Softbank Group companies themselves, which have identified annual spending of up to ¥450bn ($3bn) over time. That aspect of the presentation was compelling enough to lift shares of Softbank Corp. and LY Corp into positive territory despite a terrible day for markets. There were also tentative signs of support for Softbank Group, although it has a bigger challenge in convincing investors that a massive OpenAI investment on a valuation 4x that of a year-ago makes sense. An OpenAI product reveal and a massive push into Japan do help. We remain at Buy.
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Mitsubishi Motors (7211 JP)
In addition to the expected harsh external environment, higher quality 3 Feb 2025 costs hit 2H earnings hard, resulting in a more severe profit plateau than expected. As for FY3/26 earnings, the company indicated an Japan / Auto OEM improvement thanks to a recovery in wholesales unit volumes and the NEUTRAL effect of new models. However, given the much lower than anticipated earnings in 2H, we believe that the risk of a large cut in the consensus Takaki Nakanishi for next fiscal year may be unavoidable. +81 90-2212-8853 nakanishi@astrisadvisory.com
3Q Results Flash: Negative
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VIDEO: Visit to RoboDEX Robot show.
RoboDEX 2025 Robot Trade Show in Tokyo
Neil Newman visited RoboDEX robot trade show in Tokyo and encountered Japanese humanoid robots.
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Denso (6902 JP)
The 3Q results had few surprises. Denso continued to change its business portfolio, strategically focus on growth areas. Although the Japan / Auto OEM company's view on the prudent outlook for FY3/26 is a concern, BUY there is no change to the mid-term growth story, in our opinion. Takaki Nakanishi
3Q Results Flash: In-Line
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Aisin (7259 JP)
The 3Q earnings were in-line with expectations, with no surprises. 31 Jan 2025 Quarterly OP has normalized for the first time in three years, and margins have recovered to 5%. Restructuring effects and a recovery Japan / Auto OEM in unit sales are driving the fundamentals, and the growth can BUY continue into FY3/26, in our view. The delay in the EV shift is improving the business potential of Aisin’s drivetrain business, as Takaki Nakanishi many OEMs are shifting to HEV/PHEV electric powertrains. This is an +81 90-2212-8853 important BUY thesis. nakanishi@astrisadvisory.com
3Q Results Flash: In-line
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Japan Equity Strategy – Good Things Come In Threes
Three things that may surprise in 2025
Last week at the British Chamber of Commerce in Japan's Shinnenkai, I gave a short speech and chose to steer away from conventional economic topics like the Bank of Japan's policy rate hike, the strengthening yen, or rising wages. Instead, I offered three bold predictions for 2025: Japan will enjoy a politically dull yet economically strong year despite global unpredictability; Japanese robots will perfect folding T-shirts, ushering in a new era for domestic assistance and disability aids; and Japan could lead in achieving nuclear fusion with a net energy gain, potentially integrating it into the energy mix by 2035.
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Critical Minerals
Metals should surprise to the upside in 2025 against poor expectations
Metals and Commodities Outlook: Metals like copper, zinc, and aluminum show strong potential for price increases in 2025 due to supply constraints and rising Chinese demand. Iron ore, nickel, and lithium markets are stabilizing, while thermal and metallurgical coal could recover driven by Indian steel growth. China and India in Trade: China diversifies away from U.S. dependency, expanding renewable energy and reducing oil imports. India faces challenges, including energy costs and decreased FDI, but economic growth and fiscal incentives may spark recovery in 2025. India’s Economic Recovery: Despite 2024 disappointments, India anticipates improved growth due to tax cuts, infrastructure spending, and controlled inflation. Key risks include global trade shifts and reliance on Russian energy.
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NTT (9432)
As expected, NTT Law to be amended not abolished
Press reports indicate the government will introduce legislation to the next Diet session to amend rather than abolish NTT Law. This has really been the only potential path as results from a Ministry of Industry Affairs and Communications (MIC, the regulator) review back in October recommended that key elements of the Law remain in place so it should come as no surprise. We are taking this opportunity to publish an update to our forecasts after Q2 results, although the changes our minor and our ¥207/share valuation by fiscal year-end is the same. We remain at Buy.
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Japan Equity Strategy – Defence and Security 2025
We are 25 miles from Russia, 70 miles from Taiwan, and 31 miles from Korea. Nervous?
We sit in the most heavily armed part of the world, with parts of Japan 25 miles from Russia, 70 miles from Taiwan, and 31 miles from the Korean Peninsula. The JSDF is undergoing an expensive transition costing 2% of GDP. Record tax collections in FY2024/25, and unrealised national assets, could fund more. The GCAP fighter plane project with the UK and Italy, planned for service in 2035, has taken an interesting turn. Japan is responsible for its stealth airframe design.
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Softbank Group (9984)
Masa has his mojo back
Softbank, alongside Oracle and OpenAI, has announced a $100-500bn project to build AI infrastructure in the US. The revelation of concrete plans for its expected $70bn+ AI pivot is good news for Softbank. Not only were ARM shares up 4% on the reveal, but we expect markets will start to build AI upside into their valuations now that we know where Softbank intends to go. We remain at Buy.
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Softbank Group (9984)
We are waiting for an AI pivot but TikTok comes first
Despite the apparent volatility in the share price, Softbank Group shares have essentially been range-bound for more than a year now when adjusted for NAV. Masa’s trip to Mar-a-Lago did not move the needle very much, although a positive resolution to the TikTok dilemma this weekend could unlock an eventual ByteDance IPO and boost NAV. Outside of that, updates on Softbank’s AI plans remain the focus. The company has been silent but press reports in December and January have filled in some of the gaps on what we might expect. Shares continue to look cheap at 50% of NAV and we remain at Buy.
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Japan Equity Strategy - Humanoid Robots in Japan
Perhaps the next big thing in home appliances starts to appear this year.
Humanoid robots are set to play a transformative role in society and economies and, with their own ChatGPT moment on the horizon, it is time to look at the players.
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Japan Auto OEM/OE Supplier Sectors
We reiterate our neutral stance on the OEMs and 10_Jan_ 2024 bullish stance on the OE suppliers, maintaining our preference order of (1) OE supplier > (2) OEM. We Japan / Auto OEM/OES believe that the OEM sector has reached a stage where the benefits of Trump 2.0 should be recognized over Takaki Nakanishi the disadvantages. We have raised Toyota to the top +81 90-2212-8853 pick in the sector and changed the order of preference nakanishi@astrisadvisory.com from (1) Suzuki > (2) Toyota > (3) Honda to (1) Toyota > (2) Suzuki > (3) SUBARU. Summary of Rating and Target Price Rating Target Price (¥) Expected
Investment Strategy for CY2025 and 3Q Earnings Preview
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Japan Equity Strategy: T minus ten...and counting
Ten days before MAGA re-starts. What could this mean for Japan?
It will be a turbulent year ahead. Several wars rage around the world, governments collapsing as a reinvigorated President Donald Trump returns. Mitigating rapidly changing risks in 2025 will challenge investors as the two largest economic rivals, the US and China, influence investment decisions. The next three largest economies—Germany, Japan, and India—all have depth and breadth in their stock markets. Japan appears positioned to outperform.
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Japan Equity Strategy – It looked a bit like Christmas
Japan has its own commercial style Christmas running up to New Year. And it feels like it may have been a good one.
Japanese spending picks up during seasonal festivities: Hanami picnics early in the year, summer holidays, trips to admire the autumn leaves, and a very commercial Christmas and New Year celebration.
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Flash Note on Japan Auto OEM
Honda and Nissan officially announce the start of merger talks We believe that Nissan has a chance to revive under a 23 Dec 2024 governance structure led by Honda. The merger represents a challenge to acquire future competitiveness and Japan / Auto OEM maximize corporate value for both companies. Honda will determine if Nissan can be a real partner that delivers the Takaki Nakanishi necessary changes to the alliance as an essential condition +81 90-2212-8853 for proceeding with the merger. Honda sees the nakanishi@astrisadvisory.com negotiations for merger as an opportunity to optimize its excess capital and has announced a share buyback of New Vehicle Sales ¥1.1tn (1bn shares, 23.7% of the total number of shares outstanding). There is a high probability that this will 000units 12,000 increase Honda's share price. 10,000 8,000 7,360
Flash Note on Japan Auto OEM
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Softbank Group (9984), Buy
Friends in high places
There has been a flurry of excitement over Masa Son’s trip to Mar-a-Lago to announce plans to invest $100bn and create 100K jobs over the next four years in AI and related infrastructure. There are strong parallels with 2016 when Masa made a similar trip and pledge ($50bn and 50K jobs). Masa has described Trump’s second electoral win as the double-down presidency and that he would double down too. Here we go.
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Japan fintech tracker Q2 24
Asset sales and restructuring are on the rise
There has been a flurry of corporate activity with Rakuten selling more fintech assets, KDDI restructuring its fintech JV with Mitsubishi UFJ, and DoCoMo reportedly leaning towards buy versus build to get into online banking. That has boosted shares of SBI Sumishin and Rakuten Bank although the real winner over the last month has been Monex Group.
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Japan Equity Strategy - Where Do We Go From Here?
The outlook for Japan's markets with Prime Minister Ishiba and President Trump
A minority government is in place, policies are tangled, and the LDP getting things done will be like waiting for a vending machine to accept a crumpled ¥1000 note. Meanwhile, across the Pacific, a reinvigorated Donald Trump is back to run the country; a lot will change, and much will get done very quickly. Japan might not change much, but in the U.S., who knows what’s coming? This could be a strong reason to be overweight equities in both countries.
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Rakuten Group (4755), Buy
Q3 24 results flash: beat
Rakuten Group posted Q3 results ahead of expectations and the first profitable quarter on an OP basis in the mobile era, driven largely by solid performance for fintech stalwarts Rakuten Card and Rakuten Bank. Headline mobile numbers look better too, but these have been adjusted for contributions from the mobile ecosystem and like-for-like performance came in exactly as expected.
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Softbank Group (9984), Buy
Q2 24 results flash: beat
Softbank Group posted Q2 financial results ahead of expectations powered by investment gains and a lower tax bill. There are a few key takeaways as Vision Fund upside was enough to push cumulative returns back into the black for the first time in nine quarters even as reported NAV on a yen basis was down QoQ on a weaker dollar.
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Internet Initiative Japan (3774), Buy
Q2 24 results flash: in-line
IIJ posted Q2 results that largely met consensus and Astris expectations. Revenue grew 12% in Q2, a fourth consecutive quarter for double-digit gains driven by one-time sales from system integration projects (+31%) but supported by recurring sales growth of 8% as corporate DX tailwinds continue to blow. We were particularly encouraged by cloud revenue growth of 9% with some of that benefit coming from VMWare repricing. Going forward, headline numbers should look more impressive as VMWare pricing pass-throughs drive gains in OP instead of losses. We remain at Buy.
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Softbank Corp (9434), Buy
Q2 24 results flash: beat and raise, but expected
Softbank Corp posted results modestly ahead of expectations partially fueled by the outperformance at LY Corp announced earlier this week. Similarly, management has raised its FY24e guidance, which now sits in line with consensus expectations. In the core mobile business, service revenue grew for the fourth consecutive quarter, helped by a return to net adds growth in Q2 and stable ARPUs. We believe the share price largely reflects the operational upside in mobile and the positive contribution from LY Corp. We remain at Neutral.
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NTT (9432), Buy
Q2 24 results flash: beat
After NTT Data’s shiny numbers yesterday, an earnings beat was already in the cards for NTT and it delivered that and a little bit extra. Q2 operating income of ¥484bn was ¥34bn higher than consensus forecasts as Data upside (of c. ¥17bn) was augmented by upside across the other business lines. DoCoMo’s topline was softer than we would have liked with service revenue erosion of 3% v 2% last quarter but NTT has described mobile improvement as an H2 story already so that weakness may already be baked into expectations. Looking ahead, we expect visible progress on issues that have held investors back such as concerns about regional business profitability and mobile weakness - and remain at Buy.
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LY Corp (4689), Buy
Q2 24 results flash: beat and guidance raise
LY Corp has posted another solid quarter driven by a beat in ad sales and robust EBITDA growth in the fintech business. The quarter was strong enough for management to raise its full-year targets for EBITDA and EPS to levels ahead of consensus and Astris forecasts, providing some confidence that the quarterly beat is sustainable. That should provide support for the shares to move higher and with 35% potential upside to our FY24e target price, we remain at Buy.
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The Final Bell – Oct 2024 Japanese Market Review
Ineffective New Management, same problem with the yen, no snow
The downfall of the hapless ruling Liberal Democratic Party was the highlight of October, the old guard badly punished by the electorate for losing touch with reality. Markets were positioned for political turbulence, though there was little follow through, equities underpinned, and everything continued in Japan’s micro-economic climate. Back to the same problem with yen, a further weakening raising the costs of imports and input costs to both companies and the home and back focus for MoF and BoJ.
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KDDI (9433), Buy
Q2 24 results flash: modest beat and buyback sweetener
This was a solid print with core businesses performing as expected and profitability modestly ahead of expectations. That the latter was helped by contributions from the Lawson investment is reassuring. Mobile revenue continued its recovery albeit with different drivers than we had forecast. Meanwhile, the company is buying back a record amount of shares for the second year running and will split its shares 2:1 by yearend. There is a lot to like in this report and we remain at Buy.
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Sky Perfect JSAT (9412), Buy
Q2 23 results reaction: in-line on space segment growth
Sky Perfect JSAT has posted Q2 results broadly in-line with consensus and Astris expectations, helped by continued robust performance in the satellite segment (revenue +9%, OP +29%). Media results were mixed with better revenue and less subscriber erosion than expected (37K net subs lost for Q2 23 v 67K a year ago) but a one-time ¥0.8bn charge on valuation losses impacting segment profit. Corresponding announcements on carbon neutral efforts and an expanded agreement on broadband resale with Starlink are encouraging and we remain at Buy.
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Japan Equity Strategy – Greece is the way we are feeling
Yet, Japan has no National Debt
Japan has the highest gross debt-to-GDP ratio of any country, and has been compared with Greece and the US by the ”one model fits all” debt-rating agencies. As interest rates rise, the cost of servicing debt goes up… or does it really, when most of government debt is owned by government pension funds and the central bank? Rumblings of a sovereign debt downgrade have started, but before anything like that happens, there needs to be a fresh look at Japan’s debt burden.
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Aisin (7259 JP)
2Q numbers below expectations, full-year guidance revised 31 Oct 2024 downward, and no changes in shareholder return plans all came together to cause the share price to fall by over 5% immediately Japan / Auto OEM after the announcement. 2Q results included over ¥10bn in one-off BUY factors, and the results are not that gloomy, in our view. The share price is likely to bounce back. The cancellation of the basic Takaki Nakanishi agreement to establish a joint venture with Mitsubishi Electric +81 90-2212-8853 Mobility and its replacement with a business partnership agreement nakanishi@astrisadvisory.com regarding the X-in-1 eAxles development was a surprise. Nevertheless, it is unlikely to make a substantial difference to the outcome and should lead to faster results, in our opinion. Valuation and Target Price
2Q Results Flash: In-line
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Denso (6902 JP)
We believe that the risk of a downward revision was already factored 31 Oct 2024 into the share price. The bold cut in the forecast should work as a catalyst to re-rate the stock. While Denso continues to make Japan / Auto OEM strategic investments, the announcement of a large-scale, long-term NEUTRAL share buyback facilitates its continued improvement of capital efficiency, which demonstrates the strength of the company's Takaki Nakanishi financial discipline. This supports our BUY investment thesis. +81 90-2212-8853 nakanishi@astrisadvisory.com
2Q Results Flash: In-line
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Mitsubishi Motors (7211 JP)
Although there were no surprises, 2Q results showed steady 30 Oct 2024 improvement from the weak 1Q. We rate the overall results as in-line, but there may be a positive stock price reaction in the short term. Over Japan / Auto OEM the next six months or so we expect to see some progress in important NEUTRAL management issues such as the development of alliances and shareholder return measures. From the long-term perspective, there Takaki Nakanishi are still many fundamental issues to be addressed, but we believe that +81 90-2212-8853 trading opportunities exist for which we are in a phase of identifying the nakanishi@astrisadvisory.com appropriate timing.
2Q Results Flash: In-line
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NTT (9432), Buy
Potential AI auto venture with Toyota highlights tech credentials
The Nikkei has reported that NTT and Toyota will soon announce a ¥500b joint venture to develop AI-based driver support software. The JV will take Toyota’s Software Defined Vehicle (SDV) concept and combine it with NTT’s AI and communications infrastructure to create a competitive alternative to the self-driving software options already being tested.
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Softbank Group (9984), Buy
AI news including ARM and Apollo
It has been a surprisingly busy day for Softbank Group as reports of potential AI investment continue to filter through even as ARM escalates its feud with Qualcomm over licensing agreements. On balance, markets were slightly negative on the news as shares fell 0.5%. Despite the announcement of a share buyback at the Q1 results, the discount to NAV remains stubbornly above 50% as markets give less credit to the impact of a stronger dollar (+2% over one week and +6% over one month) on asset valuations. We remain at Buy.
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NTT Law update
NTT Law update: Regulator working groups happy with status quo
Results from the Ministry of Internal Affairs and Communications (MIC, the regulator) working groups (WG) are coming out now, and unsurprisingly, there is very little that the regulator believes should change although in most cases the WGs have signaled flexibility should conditions evolve. We expect WG suggestions will be factored into the telecom business law and, possibly, other regulations as needed, opening the door for the LDP to propose the abolition of the NTT Law when the legislature meets next year.
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Honda Motor (7267 JP)
Honda revealed the next-gen technologies that it plans to deploy in the 9 Oct 2024 Honda 0 Series, which will be introduced from CY2026, at its R&D Center in Tochigi at the beginning of October. This note analyzes the details of Japan / Auto OEM this announcement and discusses the company's BEV strategy and the BUY key points for its fundamentals. We were impressed by the company's approach to controlling risk and making a profit from the BEV business, Takaki Nakanishi as well as its management policy of taking a multilayered approach to +81 90-2212-8853 PHEVs and HEVs. nakanishi@astrisadvisory.com
Review of the Honda 0 Tech Meeting 2024 - A Multilayered Approach
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Softbank Group (9984), Buy
As the AI pivot approaches, Vision Fund is soaring
Masa Son believes artificial general intelligence (AGI) is now as little as 2-3 years away, which seems to imply that an acceleration in Softbank Group’s AI direct investment is at hand. It may also be why SBG is now putting $500mn in OpenAI, although that may be related more to returns than strategy. It is relatively small in the context of an investment plan that could amount to tens of billions of dollars. Meanwhile, Vision Fund’s public portfolio has posted its best quarter since Q4 FY20, which should set the stage for a third profitable quarter out of the last four when it reports in November. We have updated our forecasts for the end of the quarter. We remain at Buy.
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Japan Auto OEM/OE Supplier Sectors
2Q preview: further split between light and dark In the OEM sector, we maintain our Buy ratings on 4 Oct 2024 Toyota, Honda, and Suzuki, with Suzuki as our sector top pick and our preference of (1) Suzuki > (2) Honda Japan / Auto OEM/OES > (3) Toyota. As for the OE supplier sector, we reiterate our Buy on Denso and Aisin, with our preference order Takaki Nakanishi of (1) Aisin > (2) Denso. We have lowered our rating +81 90-2212-8853 on Nissan from NEUTRAL to SELL. nakanishi@astrisadvisory.com
Japan Auto OEM/OE Supplier Sectors
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NTT (9432), Buy
IR Day: back to basics
Shares of NTT have slumped this year as concerns on mobile performance and local exchange profitability weigh on sentiment even as regulatory and political uncertainty lingers. Management was able to address the former, focusing attention on improvements in mobile and its regional businesses although we will have to wait for the politicians and regulators to address the latter. We have tweaked our forecasts for Q1 results and IR Day comments albeit with no change to our valuation. With 40% potential upside and an increasingly positive message we remain at Buy.
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Japan Equity Strategy – Mass Immigration
There could be a flood of foreigners moving to live in Japan
Foreigners are being lured to live in Japan, from the megawealthy, professionals, influencers, and entrepreneurs to skilled and semi-skilled workers from Asia. In 2022 and 2023, the number of resident foreigners grew 11% per year, the same rate as the United Kingdom, to total 3.2 million, or just over 2.5% of the population. Migrant workers are arriving in increasing numbers as the labour force is bolstered, and like in the UK, this flow could easily turn into an uncontrolled flood.
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Softbank Group (9984), Buy
Fukuoka Softbank Hawks company visit
Recently, we went down to Fukuoka to meet the management of the Softbank Hawks baseball team and also watch a game. We highly recommend you give it a try. I have been in Japan since 2000 and am an avid fan of a Tokyo team but the experience in Kyushu is on a higher level. Today's report is about Softbank, but sports are common within our coverage as Rakuten and DeNA also own baseball teams and we hope to expand on this subject over time. The direct financial contribution is de minimis but the indirect benefits from promotional opportunities and corporate branding are material.
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Japan fintech tracker Q1 24
Valuations for online payment assets
Valuations for payment assets have become increasingly important as LY Corp (PayPay IPO) and Rakuten (fintech restructuring) look to public markets for eventual validation. We think both are worth more than ¥1,000bn, although we give a slight edge to PayPay on better visibility. Whilst there has been talk of a PayPay IPO for years, Rakuten will probably be the first to move as it has set a January deadline for its fintech restructuring. Meanwhile, online banks have been market darlings with SBI up 87% YTD and Rakuten Bank +45% even with the uncertainty over a deal with the parent company.
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Askul Corp. (2678), Not rated
Q1 25 results flash: mixed
The quarter came in mixed with revenue as expected but operating profit below consensus. Sales to large corporates provided support for the top line whilst there was a very modest boost as B2C sales lapped a weak quarter last year but spending from SMEs remains weak. Taking some of the sting out of the OP miss, full-year guidance remains unchanged, implying better growth to come whilst a new ¥2bn buyback was unveiled.
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KDDI (9433), Buy
New reporting scheme highlights IoT and corporate sales growth
KDDI shares have moved back into the range they traded at before the Lawson announcement in February, helped by a return to mobile service growth, a healthy share buyback, and corporate DX tailwinds. Q1 VAS sales to corporates jumped 39%, helped in part by acquired revenue (Relia) but also by robust growth in IoT sales (+27%), which have been unveiled for the first time with a change in segment reporting. We’ve updated our forecasts driving a corresponding increase in our target price from ¥5,350 to ¥5,500. With 15% potential upside, we remain at Buy.
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Denso (6902 JP)
CY2025 will be the year in which Toyota's SDV strategy takes shape. 10 Sep 2024 We expect to see a re-rating of Denso's technologies and businesses that support the strategy. In this note, we analyze Toyota's SDV Japan / Auto OEM strategy and the long-term prospects for Denso's electrification/ADAS, BUY semiconductor, and software businesses. In our view, the stock price driver of Denso will shift from electrification to software. Takaki Nakanishi +81 90-2212-8853
Initiating coverage at BUY - Stock price driver is moving to software
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Aisin (7259 JP)
We have analyzed Toyota's electrification strategy in detail and 10 Sep 2024 incorporated its impact on Aisin's powertrain business into our estimates. The thesis is (1) anticipated volume growth of PHEV/HEV Japan / Auto OEM will boost earnings growth, ROE, and ROIC, (2) Toyota's BUY electrification strategy will lead to an increase in Aisin's content per vehicle (CPV), and (3) valuations appear undervalued relative to Takaki Nakanishi estimated ROE, and we expect a re-rating catalyzed by the news of +81 90-2212-8853 PHEV sales expansion. Our price target is ¥6,100 (note: ¥2,033 after nakanishi@astrisadvisory.com the 1-for-3 stock split on September 30). We set our TP at P/E ratio of 8.0x, a 5% discount to the average of 8.5x for Toyota captive Summary of Rating and Target Price suppliers. Our preference order for the coverage OE suppliers is “(1) Aisin > (2) Denso.”
Initiating coverage at BUY - Expectations for PHEV/HEV expansion
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Softbank Group (9984), Buy
Buyback program gets off to a quick start
Softbank Group announced it has already bought back ¥126bn of its ¥500bn mandate in August, a pace that is largely in line with that of previous buybacks.
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LY Corp (4689), Buy
Accretive buyback preserves listing status and boosts TP
The company has confirmed the completion of the ¥150bn share buyback program it announced at Q1 results last month. The acquisition of shares from A Holdings, the company jointly owned by parents Softbank Corp and Naver, reduces the share count enough to ensure the existing free float is compliant with Prime market listing rules. This has been widely anticipated but it is always nice to get confirmation and today’s closing price is the highest the shares have traded since the end of February. After updating our forecasts for the Q1 print and the accretive buyback our target price moves from ¥560 to ¥570 and with 38% potential upside. We remain at Buy.
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The Final Bell – Aug 2024 Japanese Market Review
Market crash, the largest M&A deal and a new leader wanted
The Tokyo stock market crashed, creating echoes of 1987's Black Monday, but investors remained cool and looked for bargains. Potentially the biggest foreign M&A deal targeting Japanese retail formally arrived, along with strong headwinds in the form of nasty typhoons that could hit tourism. The Liberal Democratic Party needs a new leader - the race begins. Could Japan get a new prime minister that's less than half a century old?
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Japan Equity Strategy – Fiery Rings
Nuclear fusion in Japan, and why we should now start to pay attention
Recreating the sun’s energy on Earth has been tougher than anyone imagined, but as the need for clean energy grows, investors’ pockets get deeper. A cascade of scientific breakthroughs and records, with public and private funding expanding, suggests useful reactors may not be far off. Within six years, there could be a profound change in Japan’s energy planning with “new nuclear”, decarbonization plans and perhaps even a future for electric cars.
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Japan Auto OEM Sector
The impact of the ACC-II regulations in the US will become 27 Aug 2024 apparent from 2H FY3/26. ACC-II states contribute 40% of new vehicle sales in the US and account for over 50% Japan / Auto OEM of Japanese vehicle sales in the US. In this review we have examined the impact of the ACC-II regulations and Takaki Nakanishi factored in a sector total of ¥110bn for FY3/26 and ¥200bn +81 90-2212-8853 for FY3/27 into our Japan OEM estimates. nakanishi@astrisadvisory.com
Impact of ACC-II in the US and Toyota's PHEV strategy
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Japan Equity Strategy – Ring of Fire
Mega-quakes, mega-eruptions and mega-storms are all part of living in Japan
Japan’s annual summer holiday has turned into something of a nightmare, as many who braved an earthquake warning and went away had to fight a typhoon to get home. Just about everyone who has heard of the Nankai Trough, or experienced Typhoon No. 7, has either bought or is likely looking to buy disaster survival gear. It's good and bad for business: good for some retail like disaster prevention and homebuilding, but bad for insurance and tourism.
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Toyota Motor (7203 JP)
Toyota has continued to struggle with recalls, fraud, and the 20 Aug 2024 unwinding of cross shareholdings. We believe that the stock price correction has now concluded and entered a rebound phase. We Japan / Auto OEM have lowered our estimates based on conservative assumptions, BUY but we believe the stock price is currently attractive. In this review we have carefully examined the impact of the ACC-II Takaki Nakanishi regulations in the US and factored in the estimated costs. +81 90-2212-8853 nakanishi@astrisadvisory.com
Examining the ACC-II Impact: Critical but surmountable
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SUBARU (7270 JP)
We do not expect a re-rating of the shares unless Subaru quickly 20 Aug 2024 delivers to the market a specific investment plan for BEVs, clear shareholder returns, and improved capital efficiency. With Japan / Auto OEM volumes plateauing and the absence of factors to boost profits, NEUTRAL the cost of transitioning to BEVs (product mix deterioration, higher incentives) and credit costs for both GHG and ACC-II are Takaki Nakanishi likely to balloon, in our opinion. +81 90-2212-8853 nakanishi@astrisadvisory.com
Shaken by UPI short term, struggling with ACC-II long term
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Suzuki (7269 JP)
Suzuki's share price continues to consolidate against a backdrop 19 Aug 2024 of short-term production cuts at MSIL and a one-off increase in its tax burden. We do not think that Suzuki's strong Japan / Auto OEM fundamentals are being factored in. We believe it is important BUY to consider the company's intrinsic value that is being revealed from the shift to IFRS accounting. We have revised our OP Takaki Nakanishi forecast upward by 5%. +81 90-2212-8853 nakanishi@astrisadvisory.com
After short-term adjustment, India to return to growth phase
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Rakuten Group (4755), Neutral
Q2 24 results flash: in-line
An encouraging announcement on liquidity last night provided an exciting opening to what turned out to be a very predictable print. Q2 results were in-line with consensus and Astris expectations across the board as mobile losses improved even as a weak eCommerce result was offset by fintech strength. Management had little to add on the fintech reorganization although this is still slated for January despite the lack of disclosure so far. The sales/leaseback scheme marks a turning point in the balance sheet conversation as management is looking beyond the FY25 public debt refi. Still, with financial results in-line with expectations, our outlook does not change and we remain at Neutral.
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Internet Initiative Japan (3774), Buy
Q1 24 results flash: positive
IIJ posted Q1 results in-line with consensus forecasts and tightened its FY guidance range at a point ahead of market expectations. The latter is particularly important as it draws a line under uncertainty raised last quarter after sudden pricing changes from VMWare. The company now expects FY24 operating income of ¥32bn versus a ¥30-33bn range and consensus of ¥31bn. With uncertainty on pricing adjustments largely passed, markets can focus again on the positive investment thesis as IIJ has the highest exposure to corporate DX growth in our universe. We remain at Buy.
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NTT (9432), Buy
Q1 24 results flash: positive
Q1 24 results largely met our expectations although they came in below optimistic consensus forecasts. We don’t attribute any special factors to that – there is often a wide range within consensus on quarterly expectations and a commitment to full-year targets usually offsets that. We were happy to see the company confirm a ¥200bn share buyback plan even if it is a bit shy of the ¥250bn we had penciled in. Operationally, results for the local exchange businesses were predictably weak but a modest improvement QoQ in mobile service revenue erosion bodes well for the rest of the year. We remain at Buy.
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Softbank Group (9984), Buy
Q1 24 results flash: positive
Softbank Group posted Q1 results that were largely in line financially whilst also announcing a ¥500bn buyback for the next twelve months. Headlines for the latter should generate some excitement even if it seems somewhat light at $3.4bn versus previous programs and what activist investors would like to see. With cash on hand of ¥4,600bn and LTV of 8- 10%, it seems manageable alongside even an accelerated AI investment program. A 37% share price decline from July highs and 46% potential upside to our target indicates it will be meaningfully accretive to the overall valuation. We remain at Buy.
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Mazda Motor (7261 JP)
The market sets the actual transaction price. The higher-than- 7 Aug 2024 expected increase in incentives came as a surprise to the market. Mazda's new fiscal year plan factors in a sharp rise in incentives, to Japan / Auto OEM incorporate a suitable level of risk. At the same time, Mazda revised NEUTRAL its forex assumptions to current market levels. FY3/25 was a year for the market to gauge the success of Mazda's brand, sales Takaki Nakanishi capabilities, and new-gen products. Unfortunately, the company +81 90-2212-8853 almost seems to come up against unexpected macro risks at critical nakanishi@astrisadvisory.com junctures. Rather than look for intrinsic business achievements, the current market is more concerned by the immediate macro risks, in our view. Valuation and Target Price
1Q Results Flash: In-line
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Honda Motor (7267 JP)
Strong results were anticipated, but the outcome was even better 7 Aug 2024 than expected and exceeded our bullish estimates. The company cited lower product quality costs and high profitability of the Japan / Auto OEM motorcycle business as key drivers. Honda's 2H profit plan was BUY originally based on a conservative assumption of ¥135/US$, and resilience to the recent forex appreciation looks quite considerable. Takaki Nakanishi The speed of the BEV strategy execution, progression of the Nissan +81 90-2212-8853 Alliance, and response to the unwinding of cross-shareholdings by nakanishi@astrisadvisory.com financial institutions have been remarkable, in our view.
1Q Results Flash: Positive
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Softbank Corp (9434), Neutral
Q1 24 results flash: mixed
Softbank Corp posted results ahead of expectations but an OP beat was largely driven by LY Corp, which reported last week. Meanwhile, results for the core consumer mobile business were mixed with solid top-line growth of 2% a positive but offset by signs that competitive intensity is ramping up. This was a decent print but the operational upside is already reflected in the share price as Softbank Corp has well outperformed peers over the last year (+13% v 6% for KDDI and -9% at NTT Group). We remain at Neutral.
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Suzuki (7269 JP)
1Q results were substantially better than expected. The transition to 6 Aug 2024 IFRS has revealed strengths in both the P/L and the balance sheet, which were not apparent under J-GAAP. Despite looming macro risks, Japan / Auto OEM the results once again highlighted the resilience and relative quality of BUY Suzuki’s fundamentals in the sector, in our view. Takaki Nakanishi
1Q Results Flash: Positive
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Yamaha Motor (7272 JP)
Amid forex and economic uncertainties, the company did not 6 Aug 2024 upwardly revise its profit plan, which we had been expecting. We consider this a neutral development for the stock price in the short Japan / Auto OEM term. Strong businesses remain strong, sluggish ones are even more NEUTRAL sluggish, and the earnings plan is supported by the currency effect. The company is not necessarily pessimistic about the outboard motor Takaki Nakanishi market from next fiscal year and beyond. However, the risk of +81 90-2212-8853 fluctuations from the economic outlook is high, and the situation nakanishi@astrisadvisory.com remains uncertain.
2Q Results Flash: In-Line
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Softbank Group (9984), Buy
The second highest discount to fair value ever
Softbank Group shares are down 25% over two days on tech weakness, a stronger yen, and geopolitical worries. With TOPIX down 12% today and US futures signaling further downside ahead, it may be too early to call a bottom, but we do think it is worth highlighting that the discount is approaching record levels at 57% versus the 70% it reached when markets sold off on Covid fears.
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Subaru (7270 JP)
This was a tough 1Q results due to a combination of lower production 5 Aug 2024 in Japan and higher incentives in the U.S. associated with the model changeover. Profit was below expectations as a result of slower Japan / Auto OEM shipments but is expected to be realized from 2Q. The current NEUTRAL dividend yield of 4.2% suggests that the stock is near a bottom, in our view. Nevertheless, we do not change our rating in light of the Takaki Nakanishi increasing environmental costs in N. America from the next fiscal +81 90-2212-8853 year. We will conduct a review of our Target Price as necessary after nakanishi@astrisadvisory.com updating our earnings forecasts.
1Q Results Flash: Negative
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LY Corp (4689), Buy
Q1 24 results flash: beat
LY Corp has delivered a fourth consecutive quarter of solid numbers with core advertising and eCommerce sales ahead of expectations and strategic fintech in-line with our robust forecasts. A ¥150bn buyback to improve its liquidity metrics is also compelling whilst optimism on its filing with the MIC on administrative guidance extends support even further. Shares have had a tough time rebounding from weakness last year but there are enough elements here, even in a difficult market, to drive shares higher. LY Corp has been our top Internet pick and these results are encouraging. We remain at Buy.
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KDDI (9433), Buy
Q1 24 results flash: mixed
KDDI posted mixed Q1 results as operating income missed consensus expectations but revenue growth in key areas like retail mobile (+0.8%) and enterprise sales (+39%) indicate the core businesses remain solid. Normally, we would expect a modest profitability miss to be unremarkable as quarterly results for large cap telcos, particularly in terms of margins, can be lumpy but nervous markets could drive outsized moves as portfolios churn more than usual. KDDI was a relative winner coming into the print with shares down a mere 0.3% versus a 6% rout for the TOPIX. We remain at Buy.
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Softbank Group (9984), Buy
Markets less enthusiastic on ARM print
We thought the ARM report was fine although clearly markets were hoping for a guidance raise. Q1 results were ahead of our expectations with 39% revenue growth although the upside was driven more by licensing growth (+72%) than royalty sales (+17%). Guidance for Q2 was less impressive with the range for expected revenue implying a rather dramatic slowdown in growth rates (0% growth at mid-point of range albeit off a very strong quarter last year). Management also kept the full-year outlook unchanged. Shares of ARM traded down as much as 12% in the aftermarket.
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Japan Auto OEM Sector
Progress in the Honda-Nissan Alliance should provide substantial 01 Aug 2024 support for both companies in their BEV development and business structure transformation. We believe the agreement Japan / Auto OEM signed for SDV platform development is noteworthy. Nissan will gain development time and access to Honda's resources, while Takaki Nakanishi Honda will benefit from development cost efficiencies. Other parts +81 90-2212-8853 of the agreement remain within the level of a basic agreement, nakanishi@astrisadvisory.com and we understand hurdles remain to make these areas a reality. Confirmation on the progress of the Honda-Nissan Alliance is a positive development for the future competitiveness of both Nissan and Honda agreed to carry out joint companies. research
Update on Progress of Honda-Nissan Alliance
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Toyota Motor (7203 JP)
Toyota's tone at the analyst meeting was subdued, given the briefing 01 Aug 2024 took place in the immediate aftermath of the revelation of additional certification fraud and a corrective action order. We are upbeat on Japan / Auto OEM the confidence Toyota showed in achieving its production target of BUY 10mn units in FY3/25. On the other hand, company comments that guidance offered little to play with other than forex could trigger a Takaki Nakanishi de-rating to the bullish consensus. We believe issues related to +81 90-2212-8853 certification misconduct are nearing an end. nakanishi@astrisadvisory.com
1Q Results Flash: In-Line
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Toyota Motor (7203 JP)
While the corrective order against Toyota comes as a shock, we 31 July 2024 believe it is a development that should settle the company's domestic certification misconduct issue for now, following turmoil since June. Japan / Auto OEM We expect all production to return to normal in September. Toyota's BUY sluggish domestic production should recover in the second half of the fiscal year, in our view. Takaki Nakanishi +81 90-2212-8853
Correction Order Issued to Toyota’s Model Certification Applications
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Japan Equity Strategy – What Next For The Yen
Is it a revival, a temporary reversal, or is the yen forever rotten?
Who says intervention doesn’t work? Japan’s Ministry of Finance appears to have engineered the start of a currency reversal. The owners of the ballooning carry trade have had weeks of warning, and are now unwinding at an accelerating rate. Does the Bank of Japan take the baton now to defend the economy given that practically everything is at stake as we head for winter?
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Nissan Motor (7201 JP)
1Q OP and free cash of the automotive business fell into the red to 25 July 2024 the tune of ¥74bn and ¥300bn, respectively, owing to deteriorating U.S. sales performance and rising inventories. The deterioration was Japan / Auto OEM far worse than anticipated. Nissan is still optimistic about a recovery NEUTRAL in 2H, but we think it is too early to have conviction. We expect consensus forecasts to come down. Progress in the alliance with Takaki Nakanishi Honda could be a catalyst for the stock to recover, in our view. CEO +81 90-2212-8853 Uchida said he would provide an update on the alliance this summer. nakanishi@astrisadvisory.com
1Q Results Flash: Negative
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Deep Dive: The Final Front Ear – Japan in Space
Episode I: The Space Bug
Japan has been active in space for decades. However, plans to go to the moon in 2028 and a USD6.5b R&D amp; fund now focus the attention of companies, startups, and their investors. Japan’s revolutionary heavy-lifting H3 rocket successfully puts satellites into orbit. To cut costs, it repurposes a lot of car parts and 3D-printed components. Japanese companies are developing their commercial space business strategy, from lifting satellites and removing space junk to selling toothpaste and apparel.
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Astris Japan Equity Strategy
The launch of Astris Advisory Equity Strategy Reports
We are pleased to announce the launch of Astris Advisory Equity Strategy Reports at a time when Japan offers some of the most interesting and diverse investment opportunities in Asia through a highly liquid, transparent market.
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Japan Equity Strategy – The 2024 Scandal Spread
When a scandal is not a scandal
A “scandal” surfaced recently over Toyota’s safety tests, the press had a feeding frenzy on bureaucrats’ complaints, shares dived, but in the end it may have more to do with bureaucracy than safety. Meanwhile, though Fujitsu is centred in the biggest miscarriage of justice in UK history, shares remain firm and the Japanese government bureaucrats are saying nothing. Fujitsu’s shares may be topping out as a real scandal is revealed whilst Toyota’s shares may have bottomed after the scandal is parked in the garage.
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We highlight three important points in the upcoming results
A sharp contrast between favorable and unfavorable Japan / Auto OEM results among OEMs; and 3) A focus on medium-term key issues rather than short-term fundamentals, which is Takaki Nakanishi unlikely to drive any strong stock price re-ratings, in our +81 90-2212-8853 view. nakanishi@astrisadvisory.com
Results: 1) Sector earnings will remain at high levels…
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The Final Bell – June 2024 Japanese Market Review
Short sellers, share buybacks and M&A
The Nikkei 225 returned +2.8 pct in June, Topix returned +1.3 pct and the JPX-Nikkei Index 400 rose +1.5 pct in June. A steady decline from Yen 154-mid/USD mid-month to Yen 161/USD by the end of the month June. Japanese government bond yields continued to rise towards the end of June after a brief dip to 0.93 pct.
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Normalization of the gap in relative performance seen in the past two years.
Meanwhile, Yamaha Motor and Mazda offer short-term trading opportunities. Summary of Ratings and Target Prices
Toyota's strategy, business, and management are all solid.
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Honda Motor (7267 JP)
At the CEO Business Update released on 16 May, 2024: (1) a detailed 16 May 2024 walkthrough was provided for the electrification business plan through FY26 and (2) the company presented a capital allocation Japan / Auto OEM plan through FY30. Honda's strategy is to promote vertical BUY integration of batteries, AI, and software to promote BEV/SDV, which will be cost-efficient and profitable as well as offering flexibility. As a Takaki Nakanishi result, investment (Capex, R&D, and equity) for FY2021-FY2030 will +81 90-2212-8853 reach ¥2tn in software, ¥2tn in batteries, and ¥6tn in nakanishi@astrisadvisory.com plants/products.
Raises BEV/SW investment from ¥5tn to ¥10tn by FY30
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Suzuki (7269 JP)
Guidance announced seems reasonable and positive, but out of kilt 13 May 2024 with Suzuki's trademark conservative ways. The ¥10bn gain from the transition to IFRS accounting appears conservative in our view and Japan / Auto OEM may be a factor in raising profit forecasts going forwards. The new BUY medium-term business plan is now taking shape, and seems to support our Buy thesis. Takaki Nakanishi +81 90-2212-8853
4Q Results Flash: Positive
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Subaru (7270 JP)
The stock fell 5% after the earnings announcement. Even though 13 May 2024 forex assumptions were conservative, the market did not like the company's guidance for lower operating profit and dividend cut. The Japan / Auto OEM shareholder return ratio of over 30% remains unchanged, and there NEUTRAL is scope for additional dividends and buybacks. Although the company's profit plan is conservative, we believe that FY3/25 OP will Takaki Nakanishi reach to our estimate. The pullback in the share price will be short +81 90-2212-8853 term, in our view. With earnings set to plateau and structural nakanishi@astrisadvisory.com transformation costs set to expand, there is no catalyst for a re- rating, in our view. Valuation and Target Price
4Q Results Flash: In-line
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Yamaha Motor (7272 JP)
Motorcycles (MC) are performing impressively well. 1Q outboard 13 May 2024 motor (OM) inventory reductions are off to a slightly slower start, but concerns are low at this point. Despite the extended slump in Japan / Auto OEM Robotics, SPV, and RoV, MC's premium strategy is producing notable NEUTRAL results. Should this performance continue, it will compensate for the underperforming businesses. A short-term modest rebound in the Takaki Nakanishi stock price is likely due to the elimination of uncertainty. However, +81 90-2212-8853 there is not yet enough to warrant a re-rating, in our view. nakanishi@astrisadvisory.com
1Q Results Flash: In-Line
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Mazda (7261 JP)
We have a mixed evaluation of guidance. We are not wholly confident 10 May 2024 in the 1.4mn retail sales volume assumption at this point. The FY3/25 EPS estimate calls for a large decline due to the inclusion of a forex Japan / Auto OEM valuation loss based on the assumption of yen appreciation at the NEUTRAL term-end. We have some concerns about a negative reaction in the short term. We see some downside risk for the top line, while there Takaki Nakanishi is a great opportunity from foreign exchange rates. +81 90-2212-8853 nakanishi@astrisadvisory.com
4Q Results Flash: In-line
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Honda Motor (7267 JP)
Honda issued ambitious guidance that looks to achieve the FY3/26 10 May 2024 target of 7% OP margin, one year ahead of the original plan. Improved efficiency in the automobile business and growth in HEV Japan / Auto OEM volume and profitability are driving a turnaround in automobile BUY profitability. Management appears to have regained confidence in the progress of structural reforms. Honda announced that it would Takaki Nakanishi discuss future profitability and also capital allocation to protect long- +81 90-2212-8853 term shareholder returns in the Business Update on May 16. nakanishi@astrisadvisory.com
4Q Results Flash: Positive
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Nissan Motor (7201 JP)
The medium-term business plan Arc aims to turnaround the global 9 May 2024 retail volume by 1mn units by FY3/27. As a first step, the plan targets an increase of 260k units in FY3/25. In particular, the company Japan / Auto OEM expects strong growth in N. America. However, we think it will be NEUTRAL hard to dispel concerns about sales performance for now. Astris reiterates its Neutral rating. Takaki Nakanishi +81 90-2212-8853
4Q Results Flash: In-line
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Japan OEM Sector Flash
Impact of widening of cases of improper certification testing The new findings have revealed legacy issues, but we believe they 04 June 2024 are not likely to lead the sector toward new production disruption or represent a development that will result in increased response Japan / Auto OEM costs. In our view, the impact of the problems on sector fundamentals will be minimal. Rather, it could present an opportunity to reform a certification testing system which is out of Takaki Nakanishi kilter with actual conditions. +81 90-2212-8853 nakanishi@astrisadvisory.com
Impact of widening of cases of improper certification testing
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Sky Perfect JSAT (9412), Buy
The years in the wilderness are over – initiate coverage at Buy
Even with a 47% run YTD, Sky Perfect JSAT shares trade at similar levels to where they did at the end of FY15 (Mar-16) when it last posted. That is no accident as media weakness has steered the narrative even as the space segment has ridden improved economics and capacity expansion to record results. Management believes enough in the future that it will leverage the balance sheet to invest for growth and increase returns. This is a textbook example of what undervalued Japanese companies can do to boost value. We think shares are worth ¥900/share by year-end and are initiating coverage at Buy.
Herd On the Street – Japanese Equity Short Report
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Neil Newman
Neil is an expert commentator and seasoned strategist on Japanese and pan-Asia equities markets drawing on his 40-years experience in Japan and Hong Kong. His publications include: Equity macro thematic and macroeconomic strategy notes equity market outlook multimedia articles a quarterly deeper dive into emerging or existing themes video interviews with interesting guests round table participation in discussions with industry experts videos of interesting events and trade shows. Office visits - Europe, the US, and Asia regularly to discuss the latest on Japan with presentations to small internal groups, managers, and external clients.
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Kirk Boodry
Kirk has 25 years experience researching Japanese telecom companies for both traditional investment banks and independent research houses. In 2011, he added Japan’s Internet companies to his coverage and more recently has dived into the fintech and generative AI themes.
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Takaki Nakanishi
Takaki Nakanishi has over 30 years of unique and broad experience in the auto industry, uninterrupted since 1994. Nakanishi ranked 1st in the Institutional Investor “All-Japan Research Team Rankings” for the auto sector for six years running from 2004 to 2009. He also ranked No.2 in 2012 and No. 1 in 2013 after spending time in asset management.
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Michael Brodie Brown
Michael has 15 years of experience in sell-side quantitative and fundamental research roles, he focuses on building value-added quantitative models.
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Ian Roper
Ian Roper is a highly regarded commodity strategist, with over 22 years of experience in metals based in London, Shanghai, Singapore, and now Tokyo. He brings his leading-edge thoughts on the markets as an unbiased independent analyst.
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Adrian Gornall
Adrian Gornall has over 35 years of pan-Asia sell-side and buy-side equities market experience. He is constantly seeking thematic investment opportunities in Japan that are being overlooked by the market. He meets daily with large and small capitalization companies and is an invaluable resource for lesser-known businesses.
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