5 of the Biggest Market Cap Japanese Counters Investors Should Know About July 26, 2018

After 20 years of stagnation, Japan’s economy is slowly making a comeback. GDP has been increasing at a steady pace in recent years, and the core Consumer Price Index, or CPI (excluding fresh food and energy) – a measure of inflation – is rising. The unemployment rate, at 2.2%, is lower than that of other major economies. Japan appears to be close to breaking out of deflation – a key goal of Prime Minister Shinzō Abe’s “Abenomics”.

Japan’s stock market is the fourth-biggest in the world and is popular partly due to its high liquidity. With more than 3,500 listed companies, the Tokyo Stock Exchange (TSE) is home to large and well-known global giants.

We have selected 5 of the biggest market cap Japanese counters investors should know about.

TOYOTA MOTOR CORP. (7203.JP)

The largest listed company in Japan by market capitalisation, Toyota’s main business is motor vehicle production and sales. Popular car models include the Camry, Corolla, Prius and the luxury Lexus line. Toyota is also focused on producing electric vehicles and plans to start mass production of those by 2020. In addition, the company provides financial services by offering purchase or lease financing options to Toyota vehicle dealers and customers.

Toyota’s positive results last year was supported by expansion of sales in China and Europe, the yen’s depreciation and cost reductions. Corporate tax cuts in the US contributed to profit as well.

For its 2019 financial year, net sales is expected to decrease by 1.3% year-on-year, with operating income decreasing by 4.2% due to expectations that the yen might appreciate. However, Toyota’s forecast of operating income, excluding foreign exchange as a factor is projected to increase by 130 billion yen – 5.6% of forecasted operating income. The company also expects to generate 130 billion yen through cost-reduction efforts.

SOFTBANK GROUP CORP. (9984.JP)

A multinational conglomerate with more than 700 group companies which provides information technology and telecommunication services. It operates through a number of segments: Domestic Telecommunication, Sprint, Yahoo Japan, Distribution, Arm, and others. It is also known for its aggressive investment activities through Softbank Vision Fund, the world’s largest private equity fund. In 2016, it acquired UK chip designer Arm Holdings plc. The founder and current CEO, Masayoshi Son, is one of the most prominent business leaders in technology.

In its 2018 financial year, net sales rose 3% year-on-year. Net income was down 27%, but net income would have been up 226% if the sale of Supercell and Alibaba shares, derivative loss and US tax reform impact were excluded. Earnings Before Interest and Taxes was up 27%, largely driven by Softbank Vision Fund.

FAST RETAILING CO., LTD. (9983.JP)

Best known for the UNIQLO brand, Fast Retailing Co., Ltd. is a retail holding company. The company operates through UNIQLO Japan, UNIQLO International, and other global brands (e.g. GU, Theory, and PRINCESSE tam.tam). It is the largest company on Nikkei 225 by weight with more than 8%.

Fast Retailing Co., Ltd. plans to expand its store network to 3,455 worldwide by the end of August 2018; with 831 stores under UNIQLO Japan, 1,246 stores under UNIQLO International, and 1378 stores under GU and other global brands.

Fast Retailing revised estimates for its 2018 financial year upwards to reflect the significant upturn in first half performance. The company expects revenue to expand 13.3%, operating profit to increase 27.5%, and profit before taxes to increase 12.2%. International sales, generated largely in Greater China, South Korea, Southeast Asia and Oceania are expected to continue achieving considerable revenue and profit gains.

NINTENDO CO., LTD. (7974.JP)

Mario or Pokémon anyone? One of the world’s largest video game companies, Nintendo Co Ltd and its subsidiaries primarily engage in the development, manufacture and sale of entertainment products. Their main products include gaming machines like the Nintendo Switch, Nintendo 3DS, and Nintendo 2DS.

Sales of hardware like the Nintendo Switch and popular software titles like “Super Mario Odyssey” contributed to healthy performance in the 2018 financial year. For 2019, net sales is expected to increase by 13.7%, operating income by 26.7%, and net income by 18.2%.

New Pokémon games: “Pokémon: Let’s Go, Pikachu!” and “Pokémon: Let’s Go, Eevee!” are scheduled to be released in November 2018. These can be played on both the Nintendo Switch and smartphones.

SEVEN & I HOLDINGS CO., LTD. (3382.JP)

Best known for the 7-Eleven stores, Seven & I Holdings Co., Ltd is a holding company which engages in the planning, management and operation of its group companies. Business operations include convenience stores, hypermarkets, food supermarkets, department stores, specialty stores, food services, financial services and IT services, etc. About 87 million customers visit their 88,000 stores worldwide each day.

For the 2019 financial year’s 1st quarter, revenue from operation increased by 8.9% and net income increased by 27.5%, helped by positive results from overseas convenience stores and the financial services segments.

For the whole of the financial year, revenue from operations is expected to increase by 10.7%, operating income by 6.0%, and net income by 15.9%.

The company will be partnering with Zoshinkai Holdings; a firm which provides correspondence education courses “Z-Kai”. The aim is to create new services by combining stores, classroom networks, tapping on the membership base and product capabilities.

Name Market Cap (JPY) Price per Share (JPY) Best Consensus Target Price (JPY) Dividend Yield (%) P/E Market Consensus*
TOYOTA MOTOR 23.334T 7,151 8,345.56 3.22 8.47 3.82
SOFTBANK GROUP 9.639T 8,758 12,567.69 0.55 9.40 4.77
FAST RETAILING 5.150T 48,560 52,857.14 1.11 38.67 4.22
NINTENDO 5.030T 35,510 56,104.76 1.25 30.38 4.66
SEVEN & I HOLDINGS 3.992T 4,504 5,512.50 2.01 20.90 4.64

*Current average rating of all analysts who updated within the last 12 months. Scale 1 (Sell) to 5 (Buy).

Source: Bloomberg 11 July 2018

Nikkei 225 and TOPIX

Commonly called the “Nikkei”, it is the price-weighted index composed of Japan’s top 225 blue-chip companies traded on the TSE. TOPIX is short for Tokyo Price Index. TOPIX is a capitalization-weighted index that is calculated based on all the domestic common stocks listed on the TSE First Section.

There are many Exchange Traded Funds (ETFs) which track the movements of the Nikkei or TOPIX. You can gain exposure to the Japanese market through these ETFs without investing directly into individual counters.

Below are three most-traded ETFs that track the Nikkei or TOPIX.

Fund Name Nikkei 225 Exchange Traded Fund TOPIX Exchange Traded Fund NEXT FUNDS Nikkei 225 Leveraged Index Exchange Traded Fund
Code 1321 1306 1570
Leverage 1 x 1 x 2 x
Inception Date 13 July 2013 11 July 2001 12 April 2012
Underlying Index Nikkei225 TOPIX Nikkei225 Leveraged Index
Issuer Normura Asset Management Normura Asset Management Normura Asset Management
AUM (JPY) 5.696T 7.710T 440.06B
Expense Ratio 0.22% 0.11% 0.8%
Market Price 22,690 JPY 1,758 JPY 19,700 JPY
Dividend 1.57% 1.75% N/A

ETF information is accurate as of 10 July 2018

Conclusion

Japan’s economic recovery has been slow but hopeful, and the upcoming Tokyo 2020 Olympics is expected to boost Japan’s economy. With a wide variety of the best known individual counters and ETFs to choose from, the Japanese Market can be considered if you are looking for new markets to invest in for portfolio diversification.

Interested in trading Japanese counters? We have an offer for you! From now till 31st August 2018, trade in the Japanese market and receive S$38!* Visit our website for more information.

*T&Cs apply.

Sources: Japan Statistics, Japan Exchange Group, Fast Retailing, Nintendo, Seven & I Holdings, Softbank, Toyota Motor

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About the author

Ujihira Ayako
Equities Dealer
Global Market Department

Ayako is an Equities Dealer in Phillip Securities Global Markets Department. She specialises in the Japanese market and supports dealing activities for the Japan Desk. Her clientele includes institutions, high net worth and retail customers whom she advises on investments in Stocks, ETFs and Bonds in more than 23 Global Exchanges.

Prior to relocating to Singapore and joining Phillip Securities in 2015, Ayako worked in the banking sector in Japan and the United Kingdom.

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