Japan Stock Writeups

The best is now over for factory automation company Daifuku. Although capital expenditure in Japan looks set to rise, the company is very exposed to the auto and LCD sectors (both of which are uncomfortably dependent upon exports to the US). As the company is now fully valued, it has been exited.

Daifuku is Japan's largest manufacturer of logistics systems & conveyor belt equipment, selling into the automotive and electronics industries in particular, and increasingly into the supermarkets, drugstores, home centres and convenience stores industries, all of whom are expanding their warehousing, shipment & storage facilities. The company is thus highly exposed to the pickup in capital spending by corporate Japan (over 60% of sales are domestic). This strength in demand has an amplified effect on profitability due to the company's high fixed cost base - at the last set of results operating margins rose from 2.0% to 8.0% (1H FY04 vs.1H FY03) on 25% top line growth. Assuming corporate Japan continues to grow and invest in such equipment this stock is cheap with an FCF yield of almost 7% and a return on equity of 10% compared to a P/Book of 1.5x.

Sedol	Type	Price	Date
6250025	Sell	JPY 1601.369	13/06/2007
6250025	Buy	JPY 1760.20	18/11/2005
6250025	Buy	JPY 807.167	14/02/2005
6250025	Buy	JPY 781.233	04/02/2005

Daiichi Sankyo ranks as the second largest pharmaceutical company, having been formed through the merger of Sankyo and Daiichi Pharmaceutical in April 2007. The worst of a double-hit from the expiration of the US patent for their anti-hyperlipidemic drug, Mevalotin, and one-offs from the consolidation, have now peaked out. The good news is that their anti-hypertensive drug, Olmetech, is growing faster than expected, having started selling in the US back in October. The company is also strong in the cardiovascular area, which provides good potential with drugs at various trial stages. 

Sedol	Type	Price	Date
B0J7D91	Buy	JPY 3149.909	23/01/2008

Daiseki is a 'green' company; a leading player in the industrial waste treatment market, it specialises in processing waste oil and polluted sludge, thereby reducing the amount of waste buried in landfill sites. With environmentalism on the rise, demand should continue to improve. Its sites are located near the largest cities and it is more cost-competitive than its peers, allowing it to improve market share. The company is also currently branching out so as to be able to remove lead from waste water, giving an additional string to its bow.

Sedol	Type	Price	Date
6263164	Buy	JPY 2671.984	23/07/2007

As one of the largest independent Japanese securities houses we expect Daiwa Securities to benefit not only from the increased demand for Japanese equities but also likely financial sector consolidation. A loosening of regulation from the end of this year is set to allow banks, for the first time, to offer securities business to their customers. We expect the major Japanese banks to snap up the large independent brokerage houses with strong corporate finance departments such as Daiwa Securities. Given historical links Sumitomo Trust, the 6th biggest bank, is a likely suitor. The stock remains cheap on a price-to-book of 1.3x end 2004.

Sedol	Type	Price	Date
6251448	Sell	JPY 1347.654	15/05/2007
6251448	Buy	JPY 1398.767	28/02/2006
6251448	Buy	JPY 1200.127	28/11/2005
6251448	Buy	JPY 732.667	09/09/2005
6251448	Buy	JPY 737.364	07/09/2005
6251448	Buy	JPY 741.85	25/08/2005
6251448	Buy	JPY 742.022	14/02/2005
6251448	Buy	JPY 707.80	18/11/2004
6251448	Buy	JPY 702.833	15/11/2004
6251448	Buy	JPY 672.60	10/11/2004
6251448	Buy	JPY 678.60	05/11/2004
6251448	Buy	JPY 682.933	04/11/2004
6251448	Buy	JPY 644.00	01/11/2004

Dentsu is Japan's largest ad agency and the fifth largest in the world. It not only dominates TV advertising but also acts as the largest broker of online advertising, and is especially strong in sports-related advertising. As Japanese consumption rises, there should be a strong rebound in advertising spending - a trend Dentsu is well situated to benefit from. The Beijing Olympics in 2008 are an added bonus.

Sedol	Type	Price	Date
6416281	Buy	JPY 345,500	25/06/2007