Japan-Weekly Strategy Report “A P/B Ratio Revolution, Footsteps of an Approaching Inflation Era and Delayed Inbound Tourism Stocks” February 22, 2023 279

Report type: Weekly Strategy

A P/B Ratio Revolution, Footsteps of an Approaching Inflation Era and Delayed Inbound Tourism Stocks

The appointment of the successors to the Bank of Japan’s governor and deputy governors were presented to the Diet on the 14th. It appears that the market has taken the stance of observing with bated breath on the remarks that will be made at the House of Representatives’ opinion hearing on the 24th by Ueda, an economist presented by the government as the next governor. The stock market is also growing increasingly at a standstill. Regarding the “Nikkei Average Volatility Index (Nikkei Average VI)”, which is also known as the Japanese version’s fear indicator reflecting investor sentiment on Japanese stocks, its closing price on the 16th fell to 14.71, the lowest level since Jan 2021. This indicates that the incorporation of short-term positive factors leads to a dissipating sense of caution regarding a stock market decline. In this situation, it can be said that there is a polarization in supply and demand where the range of increase regarding positive factors tend to become smaller while there tends to be extreme reaction to negative factors.

To that extent, there is increasing vividness of a diagram where relatively risk-adverse capital gathers in value stocks. Its driving force is the TSE (Tokyo Stock Exchange). In the “TSE’s measures for the future based on a summary of issues” announced on 30/1, it is said to be proceeding with measures by separating ① a clarification on the end of transitional measures (approving provisional listing of enterprises that have not met criteria to maintain listing) and ② motivation for initiatives towards improving mid-term corporate value. Out of which, ②’s purpose is “to promote initiatives for improvement by encouraging literacy improvement and a reform in awareness towards stock price / market capitalization as well as the capital cost of listed companies”. It also said that they are “strongly calling on disclosure for companies having a continuous P/B ratio of less than 10%” and that its period of implementation would be Spring ’23. For Dai Nippon Printing (7912), which declared on the 9th that they would be strengthening shareholder return towards improving capital efficiency, there is a possibility that their stock price surge on the 10th would be viewed retrospectively as an epoch-making event in the Japanese stock market this year.

According to the Monthly Labor Survey (flash report) for December last year announced on the 7th, although there were temporary factors for the high rate of increase in bonuses, nominal wages saw high growth since 25 years and 11 months ago at a 4.8% increase compared to the same period the previous year. Real wages excluding the impact of price fluctuation also secured a positive at a 0.1% increase compared to the same period the previous year. It signaled the possibility of the beginning of an inflation era where there is an increase in both wages and prices. In an inflation era, there is an increase in the importance of the value of real assets as opposed to cash. If the current market price is significantly cheaper than the book value per share value of an enterprise owning many real assets, it would likely tend to have significant room for a corresponding review.

The estimated number of foreign visitors to Japan in January announced on the 15th by the Japan National Tourism Organization was 1,497,300, which recovered to the level of a little over 50% compared to January 2019 before the COVID-19 pandemic. It seems that the recovery in demand related to foreign visitors to Japan (inbound) will continue. China also partially lifted its ban on group tours abroad from the 6th. Amongst railway stocks related to inbound tourism, occasionally there are those with their recent stock price under the low of Spring ’20 mainly due to margin trading supply and demand that is unrelated to business performance. Although it may require some time until a stable level is reached in improving the margin balance ratio, it could be a good investment opportunity.

In the 20/2 issue, we will be covering Oji Holdings (3861), Nippon Sheet Glass (5202), Toppan (7911), and Kyoritsu Maintenance (9616).


Oji Holdings Corporation (3861)          527 yen (17/2 closing price)

・Started as Tomakomai Paper in 1949 after its founding in 1873. Its main businesses are the lifestyle industrial materials (corrugated paper and packaging paper, etc.), functional materials (special paper, etc.), resource and environment business (pulp, etc.) and print information media (newspapers, etc.).

・For 9M (Apr-Dec) results of FY2023/3 announced on 3/2, net sales increased by 19.4% to 1.2967 trillion yen compared to the same period the previous year and operating income decreased by 37.5% to 59.5 billion yen. A recovery in paper demand, an increase in the pulp market condition and retail price hikes contributed to an increase in revenue. There was a decrease in operating income due to the impact of skyrocketing raw material and fuel prices. For 3Q (Oct-Dec), net sales increased by 22% and operating income decreased by 40%.

・For its full year plan, net sales is expected to increase by 22.4% to 1.8 trillion yen compared to the previous year, operating income to decrease by 12.6% to 105 billion yen and annual dividend to have a 2 yen dividend increase to 16 yen. The company is the top private enterprise to have a forest ownership area in Japan of 188,000 ha (hectares). 2nd is Nippon Paper Industries (3863) at 90,000 ha and 3rd is Sumitomo Forestry (1911) at 44,000 ha. The company’s P/B ratio (price-to-book ratio) at the closing price on the 16th was 0.54 times. We can likely expect a review in the value of assets able to contribute to decarbonization.

Nippon Sheet Glass Co., Ltd. (5202)        678 yen (17/2 closing price)

・A manufacturer specialising in glass under the Sumitomo Group that established in Osaka City in 1918. Converted the British Pilkington to a wholly-owned subsidiary in 2006 and expands globally. Mainly operates the construction glass business, automobile glass business and high-performance glass business.

・For 9M (Apr-Dec) results of FY2023/3 announced on 9/2, net sales increased by 27.8% to 566.2 billion yen compared to the same period the previous year and operating income increased by 66.3% to 24.1 billion yen. For the construction glass business which includes glass for solar cell panels, net sales increased by 33% to 275.6 billion yen and operating income increased by 28% to 26.1 billion yen, which grew. For overall 3Q (Oct-Dec), operating income increased by 5.3 times.

・Company revised its full year plan upwards. Net sales is expected to increase by 24.9% to 750 billion yen (original plan 740 billion yen), operating income to increase by 40.1% to 28 billion yen (original plan 18 billion yen) and net income to fall into a deficit from 41 billion yen the previous year to (37) billion yen (original plan (41) billion yen). In addition to the aspect of resolving longstanding issues in recording impairment loss of assets involving the automobile glass business in Europe, benefits can be anticipated from movements by the U.S. government in domestic production of solar panels.

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