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Japan Stock Writeups |
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The Tokyo-based Imperial Hotel is the "hotel of choice" for the rich and famous. The hotel is cash rich and has a book value of just Yen 2million (less than US$20k!) for 11 square kilometres of prime real estate. Utilisation rates have been steadily rising over the past year but at 79.3% in 1G FY05 they still have plenty of scope for growth, and the hotel is operationally highly geared to a recovery in the Tokyo economy - current forecasts, however, project virtually no recovery, leaving significant scope for positive earnings revisions in our view. Finally, the hotel's largest shareholder is looking to sell its 39% stake (in order to repay bank debts), and has already been approached by a US and a Swiss private investor.
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Isetan is Japan's leading department store chain, with their key Shinjuku store being the Tokyo equivalent of Harvey Nicks, with further subsidiaries in Singapore, Hong Kong, China and Malaysia. They are renovating 40,000 square metres of their current 62,000 square metres of floor space and early results have been encouraging, with sales growth up. The successful renovations, coupled with the exposure to growing Japanese consumption, make it a buy.
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Isuzu Motors. The entire Japanese trucking sector has hit our value radar screen. Not only that, but due to increasing emission controls you are seeing sector consolidation on a global scale. The Japanese truckers are leaders in emission control technology. We view Isuzu as the best amongst them. It is gaining market share on its peers with 35%. In recent years its huge free cash flow yield (averaging 14% over the next two years) has been used to pay down debt. Looking ahead, expect these to be increasingly pushed towards raising the dividend. First quarter results were strong and we expect upgrades to their full year forecasts. It trades at a price-to-sales of 0.2x with operating margins of 6%.
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