Japan Stock Writeups

We sold out of Hamakyorex almost 12 months ago at a higher price. Back then the oil price was rising and they had recently acquired a trucking company, resulting in approximately 50% of sales and profits being derived from trucking. Previously it was only 10%. They have recently announced full year results which were poor, as expected, due to the rising energy prices and the cost of restructuring. Looking ahead, we expect a recovery in both margins and top-line growth. The company is forecasting oil prices of JPY100 per litre versus the current spot price of JPY90. Even so the company is not overly geared to rising oil prices, with less than 10% of costs being energy. Management have indicated that recent price hikes are already benefiting the operating performance. We expect the benefits of the restructured, acquired business to start feeding through to operating margins over the next 12 months. At a price to sales of just over 0.4x for the FY03/08, coupled with anticipated operating margins of 5.5% the stock has more than fully discounted the backward-looking bad news while ignoring improving prospects.

Sedol	Type	Price	Date
6051444	Buy	JPY 3819.556	05/02/2007
6051444	Buy	JPY 4464.083	10/05/2006

Haseko builds, sells and manages condominiums, and in our view it is therefore well placed to benefit from the retirement of "baby boomers" and improvement in consumer disposable income in Japan. Historically the company has generated profits and returns in excess of its peer group, but had suffered from high debt levels. This latter point has been rectified, with gearing now in line with peers and interest cover projected at almost 8x for 2005. The stock is extremely cheap, even after allowing for heavy dilution from preferred shares and convertible bonds. We expect the company to generate a FCF yield of 10%, even allowing for dilution, and is trading on a diluted forward PE ratio of just 7.5x. With an attractive valuation and strong market fundamentals, the stock is a buy.

Sedol	Type	Price	Date
6414401	Sell	JPY 387.818	15/05/2007
6414401	Buy	JPY 449.98	11/04/2006
6414401	Buy	JPY 408.692	28/02/2006
6414401	Buy	JPY 439.333	27/01/2006
6414401	Buy	JPY 431.40	28/11/2005
6414401	Buy	JPY 410.296	14/11/2005
6414401	Buy	JPY 361.60	12/10/2005
6414401	Buy	JPY 303.338	09/09/2005
6414401	Buy	JPY 273.925	16/08/2005
6414401	Buy	JPY 231.821	21/06/2005
6414401	Buy	JPY 246.54	22/02/2005
6414401	Buy	JPY 267.14	01/02/2005
6414401	Buy	JPY 223.70	15/11/2004
6414401	Buy	JPY 229.793	05/11/2004
6414401	Buy	JPY 230.90	04/11/2004
6414401	Buy	JPY 219.133	01/11/2004

H.I.S. is getting hammered by the environmental fuel charge levy on aeroplane flights. As long as oil keeps going higher, customers are being forced to pay ever steeper prices for their flights. In this situation the outlook for the travel operator is much weaker.

H.I.S. is the leading and top-ranked airline discount ticket business operator in Japan. It is also the third largest domestic travel agency after Kinki Nippon and JTB. Its handling volume has been on the uptrend backed by brisk demand in overseas tours. Although the industry overall is on a recovery track HIS has been growing at a faster rate than its peers through measures such as increasing charter flight seating availability in order to avoid peak season shortages. Over the last 12 months HIS's year-on-year growth has averaged around 5% higher than the industry. Although historically its branch openings has been a factor driving growth it has been increasingly focussing on internet sales and the group/corporate traveller segment over the last two years. It has achieved 35-39% growth in both areas.

Sedol	Type	Price	Date
6400433	Sell	JPY 2202.312	17/10/2007
6400433	Buy	JPY 2980.40	28/02/2006
6400433	Buy	JPY 3028.25	20/01/2006
6400433	Buy	JPY 3418.263	17/01/2006

Hitachi Systems & Services. This company is a systems integrator spun off from Hitachi in early 2004 (Hitachi retains a 63% stake). Almost 70% of sales are currently to the Hitachi group but the company is gradually trying to transition to a larger proportion of external customers. This process should help margins as the company receives only 10% gross margins on Hitachi work versus 20% gross margins for external work. We believe the company is being overly conservative with forecasts and has just raised its dividend by 50% - a nice combination. As well as benefiting from the shift to higher margin non-Hitachi work, this is also a play on the domestic private capex upswing as companies upgrade & expand IT systems capabilities. The valuation is attractive using price to book, free cashflow and earnings yield analysis (FCF yield and earnings yield of 8%).

Sedol	Type	Price	Date
6738004	Buy	JPY 3112.933	07/04/2006
6738004	Buy	JPY 2909.286	23/03/2006
6738004	Buy	JPY 2315.125	02/11/2005
6738004	Buy	JPY 1896.898	14/07/2005
6738004	Buy	JPY 1893.391	13/07/2005

Hitachi Zosen is an environmental services company providing recycling and incineration to public and private sector clients. It has had an awful ten years, with demand fairly low and much of the business tied up in long-term, loss-making, private sector contracts. The tide now appears to have turned. Two years of internal restructuring and cost-cutting, coupled with the end of the worst public sector contracts, mean that operating margins are on the up. The 'green' nature of the business, giving some insulation from the wider economic climate, is an additional feature.

Sedol	Type	Price	Date
6429308	Buy	JPY 234.862	25/07/2007