Japan Stock Writeups

KDDI Corp. Japan's second-ranked mobile phone operator is winning fresh customers following the introduction of number portability. We believe the worst is over in terms of the price war within the mobile industry, coupled with the fact that the share price has more than fully factored in the hit to earnings. Meanwhile the deficit in the fixed line business is being reduced on lower equipment costs.

Sedol	Type	Price	Date
6248990	Buy	JPY 709,103	23/01/2008

Keihin, an affiliate of Honda, is a leading supplier of fuel injectors for both cars and motorcycles. It had a fairly awful time in 2006, with higher energy and input costs putting a dampener on profits - however the company made great strides in terms of cutting other costs and managed to stay profitable. Demand is driven more by environmental legislation than consumer desires. The adoption of tougher new standards by Asian nations (Thailand in 2008 and China, India and Indonesia before 2010) is a major factor. The real growth should come from motorcycle fuel injectors - the highest margin business.

Sedol	Type	Price	Date
6487328	Buy	JPY 2342.575	28/05/2007

Post a discussion with management, we sold our holding. Inventories have ballooned while a hue amount of short-term debt is set to be rolled-over during the next year. Excluding one-off gains, the company is barely break-even.

Kenedix (formerly Kennedy Wilson Japan) is a real estate investment advisor that specialises in commercial property. The company was forecasting Yen 1.2bn net profit in the current fiscal year but in the 9 months to end September they have already exceeded that target, benefiting from the growth in the Japanese REIT sector. They are anticipating a strong final quarter and we expect net profit to have almost doubled yoy in 2004. Given this growth profile, we believe that current forecasts for 2005 are too conservative, implying just 23% earnings growth. Nevertheless, even on current 2005 forecasts the stock is attractively valued, and with further upside likely from the continued recovery in the Japanese property sector, this stock is a buy.

Sedol	Type	Price	Date
6411758	Sell	JPY 70,339.56	26/09/2008
6411758	Buy	JPY 584,274	20/03/2006
6411758	Buy	JPY 509,113	14/11/2005
6411758	Buy	JPY 350,867	16/08/2005
6411758	Buy	JPY 234,167	02/03/2005
6411758	Buy	JPY 218,967	22/02/2005
6411758	Buy	JPY 200,350	24/01/2005
6411758	Buy	JPY 466,333	14/12/2004

Recent results would indicate that Konaka is having a tough time digesting its recent acquisition. Margins have been adversely affected and we have little confidence in an imminent rebound in operations, given continued sector competition. On our revised numbers, the stock looks fairly valued, hence our motivation to exit the position.

Konaka is Japan's fourth largest menswear retail chain. As hiring and wages increase they should see improving volume growth and pricing power. Since November they've been recording a strong rebound in sales growth after many months of negative growth. During a recent conversation with management it was revealed that like-for-like sales growth in November and December was 4% and 3% respectively with January continuing this improving trend. Trading at a price-to-sales of 0.8x, the stock looks cheap in absolute terms. Konaka trades at a 40% discount to Aoyama Trading (the big liquid proxy) despite generating the same operating margins.

Sedol	Type	Price	Date
6503569	Sell	JPY 1272.659	02 April 2007
6503569	Buy	JPY 2249.70	10/03/2006
6503569	Buy	JPY 1979.059	23/01/2006
6503569	Buy	JPY 2000.00	20/01/2006

Kyushu was sold after reporting weaker than expected results and a negative outlook. The company proved unable to meet increased volume demand from its nuclear plants and was thus forced to increase output from its thermal facilities. This in turn led to a significant increase in the average cost of power generation, which the company was unable to pass on to its customers.

Kyushu Electric provides electricity generation, transmission, distribution and retail in the Kyushu region of Japan. This is a fairly industrialised region with concentrations of electronics, auto and semi-conductor manufacturers. The company is one of the lowest-cost Japanese power companies due to a significant proportion of its generation being non-thermal power (mainly nuclear and hydro). This will put it in a good competitive position as deregulation of the Japanese electricity market continues. Management have shown a consistent, sensible strategy over the past few years, with limited one-off costs, and maintained focus on the core electricity business.  The price has been weighed down by the recent impact of higher than expected fuel costs, which will either subside in future or be passed on to end-users over time. 

Sedol	Type	Price	Date
6499806	Sell	JPY 2319.318	01 May 2008
6499806	Buy	JPY 2858.547	15 February 2008