Tag: Japan Market

as expected with the company reporting strong performance from the Vision Fund in line with stock market rises and generally strong recent IPOs.

Softbank fair value estimate of JPY 9200 is mainly due to a 4% downgrade in our valuation for Alibaba following its June quarter result, offset by increased valuation for Vision Fund 2 in line with valuation improvement over the quarter. The stock price is now below our fair value estimate with the main difference likely to be due to our valuation of Alibaba which is around 55% above the current stock price.

The Vision Funds and Latin America Fund held 221 investments at the end of June 2021. SFV1 reported a net realized gain of JPY 310 billion due mainly to selling some shares in Door Dash, Uber, and Guardant Health. The net unrealized gain of JPY 3.5 billion was much lower with strong share price performances of DiDi and Door Dash partially offset by weaker share price performance of some listed portfolio companies, particularly Coupang. In terms of sectors, the investments are also well diversified with 28% in consumer, 20% in transportation, 17% in logistics, and 10% in frontier tech 10%, 7% in proptech, 7% in fintech, and 3% in health tech.

Company’s Future Outlook

Softbank’s 40.2%-owned domestic telecom business, Softbank Corp, reported a fourth-quarter result in line with our estimates with revenue increasing by 0.7%, operating income increasing by 4.1% and net profit down 0.8%. Management estimated the first-quarter mobile price cuts negatively impacted the first quarter by around JPY 10 billion with a JPY 70 billion impact factored into unchanged full-year fiscal 2021 guidance for revenue of JPY 5.5 trillion (5.7% growth), operating income of JPY 975 billion (0.4% growth), and net income of JPY 500 billion (1.8% growth). A further price cut has been introduced for low end customers in July which looks likely to continue to put pressure on mobile pricing. The fair value estimated of JPY 1450 per share which is slightly below where the stock is trading.

Company Profile

Softbank Group Corporation’s (JPY: 9984)  is a Japan-based telecom and e-commerce conglomerate that has expanded mainly through acquisitions, and its key assets include a 28% stake in Chinese e-commerce giant Alibaba and a 40% owned mobile and fixed broadband telecom operator business in Japan. It also owns 75% of semiconductor chip designer ARM Holdings although has agreed to sell this and is waiting on regulatory approvals, and has a vast portfolio of mainly Internet- and e-commerce-focused early stage investments. It is also general partner of the $100 billion Softbank Vision Fund 1 and sole investor in Softbank Vision Fund 2, both of which primarily invest in pre-IPO Internet companies.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

and JPY 5,000 for Sompo Holdings (7% upside) after the three Japanese general insurers reported strong results for April-June, the first quarter in the fiscal year ending March 2022. The shares have risen 4%, 7%, and 13%, respectively, since we published a 51-page report “Pandemic Impact on Japanese Insurers Has Passed” on June 30. 

Economic profit for April-June reached 39% of full-year guidance for Tokio Marine, 48% for MS&AD, and 43% for Sompo, while net profit on a financial accounting basis was 51% of full-year guidance for Tokio Marine, 52% for MS&AD, and 46% for Sompo.  The insurers have thus earned more than 40% of their full-year guidance in the first three months of the year; however, any upward revisions to guidance would likely come later in the year given that insurers’ quarterly earnings are subject to short-term fluctuations from seasonality and technical factors.

The main driver of the stronger-than-expected results was the core domestic nonlife business, which benefited from a continued lower frequency of auto accidents, adjustments to pricing in the voluntary auto line (though we expect price cuts ahead), and robust rate hikes in fire insurance to address rising costs from water leakage and damage. 

Rate hikes in overseas insurance as the global market hardens were a secondary driver. The safe completion of the Tokyo Olympics confirms that potential large losses that might have occurred had the event been canceled are no longer a concern.

Company Profile

Dating back to 1879, Tokio Marine is Japan’s oldest insurance company and was its top property and casualty insurer in terms of market share for many decades. After mergers of its smaller rivals in the past few years, the company is now roughly the same size in the domestic nonlife market as MS&AD and Sompo Holdings, but it remains the most valuable listed Japanese insurer in terms of market capitalization due to its larger overseas business portfolio. The majority of its overseas business is in the U.S., where it has purchased four specialty insurers since 2008: Philadelphia Consolidated, Delphi Financial, HCC, and PURE. It is a member of the Mitsubishi keiretsu group and holds minority stakes in a number of group companies that also rank among its shareholders.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

• Market leading position and room for further consolidation. TSMC’s significant expenditure on R&D should help it maintain this leadership position.
• TSMC is leading the race in developing the new age of semiconductor chips such as Logic Technology, with thinner wafers being developed every year.
• High barriers to entry – significant level of capital and know-how required to start a semiconductor business.
• Independent and pure-play focus on manufacturing without marketing or branding of product eliminates conflict of interest with customers.

Key Risks

We identify the following key risks to investment thesis:

• Moderating global economic growth, especially in the U.S. and China.
• Trade tensions between the U.S. and China.
• Operational risks such as suboptimal manufacturing quality of products e.g. Fab14B photo incident.
• Softening smartphone sales and production. There may be a time-lag before the layout of 5G and AI materialize into sales for TSMC, e.g. regulatory restrictions.
• Increasing commodity prices and difficulty for TSMC to improve margins. 
• Unfavorable exchange rate movements between NT$ and currencies used in transactions (however, TSMC utilizes hedging strategies to manage this risk).

Management Outlook:

Forecasting strong demand for industry-leading 5nm and 7nm technologies, driven by all four growth platforms (smartphone, HPC, IoT and Automotive-related applications), anticipating 3Q21 revenue of US$14.6-14.9bn, and gross profit margin of 49.5-51.5% and operating profit margin of 38.5-40.5% (based on the exchange rate assumption of 1 US dollar to 27.9 NT dollars). Mr. C. C. Wei (CEO) noted, “For FY21, we now forecast the overall semiconductor market excluding memory to grow about 17%, while foundry industry growth is forecast to be about 20%, and remain confident we can outperform the foundry revenue growth and grow above 20% in 2021 in US$…we now expect our long-term revenue CAGR from 2020 to 2025 to be near the high end of our 10-15% CAGR range in US$…however, in the near term, we continue to observe both short-term imbalances in the supply chain driven by the need to ensure supply security as well as a structural increase in long-term demand, and while the short-term imbalance may or may not persist, we expect our capacity to remain tied throughout the year and into 2022, fuelled by strong demand for our industry-leading advanced and special technologies.”

Company Description  

Taiwan Semiconductor Manufacturing Company Limited (TSMC), together with its subsidiaries, engages in manufacturing, selling, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices. Based in Taiwan, the company manufactures masks and electronic spare parts; researches, develops, designs, manufactures, sells, packages, and tests colour filters; and offers customer and engineering support services. TSMC is the largest semiconductor manufacturing foundry in the world.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.