The Weekly Comment by Pelham Smithers
Pelham Smithers explains why he thinks the Jan / Feb results season may provide the conditions to turn Japan into a buy for the global investor.
Reports / Flash Notes Published This Week: Headlines at a Glance
1. US EV Tax Bill Unnerves Automakers
2. Semiconductors: Where in the cycle are we? Well, it’s complicated…
Company / Sector / Thematic Comments at a Glance
Technology: Consumer Electronics, Gaming
1. More Bad News for Memory: iPhone 14 Pro Likely to Have Just 128GB Storage
2. Might Sony (6758 JT) Launch its Own PC Game Platform?
3. Ghost of Tsushima Movie to be in Japanese, with an all-Japanese Cast?
4. Other Consumer Elec / Gaming News & Moves That Caught Our Eye
Technology: Industrial Electronics / Components / Semis & SPE / Precision
5. Where Are We in the Semiconductor Cycle? Well, It’s Complicated…
6. Q2 2022 DRAM Industry Revenues Rise YoY and QoQ
7. Torex Semiconductor (6616 JT): Where Next ?
8. Other Tech-Related News & Moves That Caught Our Eye
9. July China Auto Sales Surge – Japan’s Automakers Underperform
10. Hino (7205 JT) Hit Again as US Suits Emerge
Auto Parts / Machinery
11. Ferrotec (6890 JT) Up 10% on Strong Q1 But Possible Flattening in H2 FY22
12. Daikin (6367 JT) Edging Up Solidly
13. Daifuku (6383 JT) May See Lower Taiwan & S. Korea Sales in FY23
Internet / eCommerce
14. Net Protections (7383 JT) Sold Off Post Results
15. Giftee (4449 JT) Reaches a New High Post Earnings
16. Amazon to Become Istyle’s (3660 JT) Largest Shareholder
17. Other Internet / eCommerce News & Moves That Caught Our Eye
Enterprise Software / IT Services
18. Freee’s (4478 JT) FY22 Results Won’t Endear it to Short-Term Investors
19. Enechange (4169 JT): FY22 Q2 Sales Beat but No Change to FY Forecast
20. TIS Inc’s (3626 JT) Market Cap Tops ¥1tril
21. Other ERP Software / IT Services News & Moves That Caught Our Eye
22. Telecom News & Moves That Caught Our Eye
23. Pharma News & Moves That Caught Our Eye
24. China Export Container Rates Down for the Fifth Week in a Row
25. Other News & Moves That Caught Our Eye
Market / Strategy / Macro
26. Japan Q2 GDP +0.5% QoQ
27. China July Economic Data Disappoints
28. Japan’s Trade Balance Exceeds ¥2tril (US$16bil) for the First Time Ever
29. The Weak Side of the Weak Yen
PSA in the Press
1. Pelham Smithers was interviewed by China’s National Business Daily over SoftBank’s losses. The article is available in Chinese at https://bit.ly/3Pni7wy and the translation follows:
NBD: SoftBank has experienced the dot-com bubble in the late 1990s and the financial crisis in 2008. After several rounds of ups and downs in the market, Masayoshi Son’s aggressive style of bold bets is still distinct. How much of the change Son has promised this time round will happen?
PS: I think there has been a clear change in Son’s investment strategy. He no longer concentrates most of his capital in the same class of large sharing economy stocks. However, although Son’s investments are more diversified in terms of industries, it is difficult for him to change the business model of investment. It is expected that Pre-IPO investment will still be the main investment and most of the investment targets are still start-ups at the loss-making stage.
NBD: Start-ups are facing a situation where their valuations have shrunk significantly. For the Vision Fund, which mainly invests in unlisted companies, is the previous model of “capturing unicorns” unsustainable?
PS: Valuations had got unreasonable. Firms were being valued at US$10bil+ pre-IPO on very little revenue but also very high burn rates. I am a big fan of what Ginkgo Bioworks (DNA US) is doing but it came to the market with a US$13bil valuation on US$300mil in revenues. Also markets were beginning to appear in pre-listed stocks. Websites like Zanbato were enabling insiders to sell, and it started to become obvious that founders and investors had increasingly different views on the value of their company.
NBD: After SoftBank reported a huge loss in the latest quarter, there have been more and more rumours in the media that SoftBank will go private through a management buyout [MBO]. How likely is this, and how does it help SoftBank?
PS: The theory is that SoftBank is worth a lot more if broken up than its current market value. So, if it is taken private, SoftBank can monetize that discount. There are two problems with this, though. The first is that if you add up the parts of SoftBank that are properly priced then there’s value there. However, a lot of SoftBank investments are private, and valuing those is not possible. Add in other issues such as tax treatments and the use of derivatives, and you really can’t be sure what the true NAV of SoftBank is. Second, even if there is value there, SoftBank has massive debts (net debt US$126bil vs market cap of US$72bil). Usually, you use debt to fund a management buyout, but here you have to overcome the debt situation. That doesn’t mean it is impossible, but it is difficult.
2. The Financial Times discusses how soaring rental car costs make it cheaper to take a taxi. PSA’s auto analyst Julie Boote explains why. https://www.ft.com “Soaring rental car costs make taxis a better travel option” by Merryn Somerset Webb
PSA Company Visits, Tours and Interviews
Visited: Daikin (6367 JT), Daifuku (6383 JT)
Conference Calls with: NTT Data (9613 JT)
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