Industrials

Report by Astris Advisory Japan

Japan’s space sector remains in transition: technically ambitious, strategically important and increasingly commercial, but still fundamentally dependent on launch reliability and policy execution, with recent progress overshadowed by several high-profile setbacks. Looking ahead, Neil Newman highlights 3 developments which would signal meaningful acceleration in the sector and potentially justify thematic investment consideration: 1) improving the reliability and cadence of H3 launches; 2) continued deployment and monetisation of Earth-observation and SAR constellations; and 3) stronger government procurement as space capabilities become embedded in national infrastructure and security policy. Companies flagged in Neil’s report include Mitsubishi Heavy Industries, Mitsubishi Electric, NEC, IHI, iSpace, Astroscale, Synspective and Axelspace.

Industrials

Report by Asymmetric Advisors

Asymmetric Advisors highlights Seika as a compelling, under-the-radar nuclear energy play. The company has undergone a multi-year business rationalisation, laying the groundwork for improved profitability and operational focus. A key milestone was Seika’s recent appointment as the primary MHI distributor for West Japan - a transition expected to double profits. Valuation remains attractive at <9x PER, 1.1x PBR and a 4.9% dividend yield, backed by ¥33bn in net cash and no analyst coverage. Nuclear momentum continues, with KEPCO reportedly planning Japan’s first new build since Fukushima. Seika also holds a strategic 11.6% stake in Tokyo Sangyo, creating potential for synergistic consolidation. Hikari Tsushin’s growing stake (>15%) further underscores upside potential.

Financials

Report by Astris Advisory Japan

While BOJ policy normalisation has boosted bank earnings expectations, it has also destabilised the JGB market and raised fears of a sovereign credit downgrade (risks reminiscent of the recent US downgrade by Moody’s). Japanese financials have absorbed nearly 50% of ETF inflows over the past year, but recent outflows suggest sentiment is shifting. Unrealised bond losses and rising fiscal concerns are mounting and the “Japan Premium” for USD funding could return. Neil Newman sees the sector as home to some of the market’s most crowded trades. He highlights Nomura as a short and flags Japan’s three megabanks (MUFG, SMFG, Mizuho Financial Group) as increasingly exposed to reversal risks.

Technology

Report by Storm Research

Soracom generates nearly 70% of its sales from recurring revenue which is expected to grow through an expanding customer base and increased mobile connections as existing customers develop their IoT businesses. The business is scalable across various industries, with use cases including smart meters for Nippon Gas, remote management for Mitsubishi Electric Europe’s HVAC products, LUUP rental scooters, SumUp payment terminals, and Sollatek refrigeration systems. Global scalability, especially in the US and Europe, is anticipated with minimal additional investment. Overseas revenue made up 36.4% of FY 3/24 sales and is growing quickly. The stock is undervalued relative to its long-term potential and minimal coverage suggests the stock price will rise as investors become more familiar with the potential of the company.

Report by JapanConsuming

The latest edition of JapanConsuming includes commentary on 1) the proposal to bring Welcia and Tsuruha together to form a new FMCG mega-retailer. Although both are designated drugstores, their expansion into food and general FMCG means the creation of what will be Japan’s single largest retail chain by sales, sending shockwaves across the entire industry. 2) KDDI acquiring 50% of Lawson, making it a partner to Mitsubishi Shoji in running the third largest convenience store chain. It’s a big deal, but no one really knows what KDDI’s aims are. Some more imaginative analysts suggest this could be just the first step towards KDDI merging with Rakuten in order to beat Amazon.

Industrials

Report by Asymmetric Advisors

ML, the No. 3~4 global forklift player, has seen its share price nearly double since Asymmetric turned bullish last May. A combination of strong US orders and backlog, price hike effect and FX have boosted earnings whilst a large amortisation charge will disappear from FY3/26. Despite the impressive share performance, Asymmetric remains the only broker covering the stock and ML's PER remains low at <7x next year vs. >13x at global peers Kion and Jungheinrich.

Industrials

Report by Silk Road Research

Absolute level of demand inconsistent with China downturn scenario; OTIS share gains continued; prefer OTIS over KONE - 2Q21 Elevator orders were cited in the +20-40% range relative to 2019 (+10-20% y/y) and with most manufacturers only forecasting order growth of +0-10% y/y for 2021, bias to management guidance remains to the upside. OTIS’ strategic initiatives continue to bear fruit - more competitive and aggressive marketing is leading to increasingly sustainable share gains. Shanghai Mitsubishi has lagged significantly through 1H21 with KONE also underperforming.