Japan-Weekly Strategy Report “ The Listing Criteria Conformity Plan and Travel & Leisure Keeping an Eye on Recovery to Pre-COVID-19 ” April 20, 2022 63

Report type: Weekly Strategy

 The Listing Criteria Conformity Plan and Travel & Leisure Keeping an Eye on Recovery to Pre-COVID-19

Out of the corporations listed on the prime market through the Tokyo Stock Exchange market restructuring on 4/4, the number of corporations recognised as prime listed companies from the submission of the “plan towards conforming to the listing maintenance criteria for new market segments” despite not yet conforming to the listing maintenance criteria have increased to 296 companies as of 11/1 this year. Regarding the state of conformance to the listing maintenance criteria for the prime market, 4 items, which are the “number of tradable shares”, “tradable share market capitalisation”, “tradable share ratio” and “trading value”, have been disclosed by each company.

If the tradable share ratio does not reach 35.0%, there will be caution on factors leading to a fall in stock price, such as an offering from a large shareholder, whereas if the tradable share market capitalisation does not reach 10 billion yen, since there will be a need to increase market assessment in order to raise the tradable price-earnings ratio (PER), there will likely be expectations of encouraging a management strategy that easily leads to an increase in stock price. Regarding an offering from a large shareholder or a sale from the entity holding as cross-shareholdings, as a result of reducing the number of shares outstanding via proactive stock buyback cancellation, perhaps there is also room to increase the tradable share market capitalisation by raising the earnings per share (EPS) while raising the tradable share ratio.      

Out of the corporations selected to be listed on the prime market via the submission of the “plan towards conformance”, there are many instances where they do not meet half of the criteria of the tradable share market capitalisation, which is 5 billion yen. For a tradable share market capitalisation of 5 billion yen and a market forecasted PER of 10 times, if the other requirements remain the same, there will be a need for the PER to be increased to 20 times and above. The management will likely be required to draw up a specific growth strategy with no room for it to be regarded as “a pie in the sky” and to act towards goal achievement as “the last stand”. From the perspective of an investor, perhaps it is desirable to observe with faith through investment on corporations where a growth potential can be found. 

In the announcement by the American aviation giant Delta Air Lines of their FY2022 Jan-Mar period results on the 13th, in addition to indications of a forecast for their Apr-Jun period net sales to achieve 93-97% of the same period in 2019, the American cruise giant Carnival also announced that cruise reservations accepted between 26/3-4/3 had renewed their highest record by a long shot. The city-wide lockdown to prevent the spread of COVID-19 in China’s Shanghai City has also moved in a direction of easing from the 12th onwards. In Japan as well, ever since the semi-emergency coronavirus measures were lifted, the flow of people has returned, and F&B outlets, izakayas, hotels and other travel and leisure-related are also expected to recover to near pre-COVID-19 levels similar to the U.S. due to “revenge consumption”. Shionogi (4507) is currently applying for approval for the

COVID-19 oral medicine with the Japanese Ministry of Health, Labour and Welfare, and if its use becomes commonplace, it will likely support the reopening of the economy.

 

In the 18/4 issue, we will be covering Needs Well (3992), Komatsu (6301), Nippon Express Holdings (9147) and Yoshinoya Holdings (9861)

Needs Well Inc. (3992)                            683  yen (15/4 closing price)                An independent system integrator that established in 1986. Operates 4 businesses, which are solutions / product sales, connected development for IoT, infrastructure construction and task-type system development for finance, logistics, communications and distribution, etc. Their strength is in finance. 

・For 1Q (Oct-Dec) results of FY2022/9 announced on 10/2, net sales increased by 15.9% to 1.562 billion yen compared to the same period the previous year and operating income increased by 25.6% to 171 million yen. 3 businesses except connected development performed strongly with an increase in revenue rate of 2 digits. In particular, solutions / product sales, which is approx. 10% of the sales distribution ratio, has been successful at independent solutions provision and grew with a 55.5% increase in revenue.

・For its full year plan, net sales is expected to increase by 2.1 times to 6.33 billion yen compared to the previous year and operating income to increase by 2.1 times to 638 million yen. The company has selected the prime market in the TSE market restructuring and has released their “plan for conformance to the listing maintenance criteria”. To achieve the criteria of “a tradable share market capitalisation of 10 billion yen and above” by September 2023, in addition to a sale from a large shareholder following stock buyback, they are aiming to raise the current forecasted PER (approx. 15 times) to approx. 30 times.

Komatsu Ltd. (6301) 2,966  yen (15/4 closing price)                                                                                                                               

 ・      Established in 1921. In addition to having “construction machinery and vehicles” involving the hydraulic shovel and bulldozer, etc. as their mainstay, they manage “retail finance” such as retail finance involving construction and mining machinery, and “industrial machines” such as press machines, etc. 

・For 9M (Apr-Dec) results of FY2022/3 announced on 31/1, net sales increased by 33.1% to 2.146 trillion yen compared to the same period the previous year and operating income increased by 2.1 times to 223.7 billion yen. In the construction machinery and vehicles section, demand has performed strongly in regions other than China for both general machinery and mining machinery. There has also been an increase in component and service sales. The industrial machines and other sectors have also had an increase in revenue from the completion of mounting works overseas.

・For its full year plan, net sales is expected to increase by 22.5% to 2.683 trillion yen compared to the previous year and operating income to increase by 68.5% to 282 billion yen. Predicting that Russia will mostly be barred from the global market, since there will be a need to increase production capability for resources in other regions to compensate for it, the benefit to resource-related machinery manufacturer giants such as the company and the American Caterpillar will likely continue. They are also confronting the rise of Chinese companies in the ASEAN region by reinforcing component and service sales.

 

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