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Director’s Cut
Japanese traders look too cheap
Peter Eadon-Clarke believes Japanese trading companies are an outstanding
opportunity for long term investors. He argues the trading companies are some
of Japan’s most globally competitive, ruthlessly capitalistic and profitable
companies. As they derive most of their profits from overseas, particularly in
resources, they are also not beholden to the negative macro dynamics impacting
many other domestically focused companies in Japan.
As with the major diversified miners, the share prices of Japan’s trading
companies are typically driven by China’s growth outlook and sentiment towards
commodities. On both counts our economics and strategy team has a bullish
outlook for the second half of this year, and also longer term. That said, the
sector trades at a discount to the valuations of the diversified miners.
Given the bullish outlook for commodities, however, the trading companies look
to be compelling value on forward PERs of around 5-6 times, dividend yields in
the order of 4-5% and returns on equity of 15-22%. According to Polina
Diyachkina’s estimates, the stocks also have very attractive forecast 12 month
shareholder returns of at least 50%. Her top pick is Mitsui (8031 JP), as it is the
most resource oriented of the group, with profits concentrated in favoured metals
and energy. Mitsui also has the largest growth potential in oil and LNG, which is
significant given the likely increase in Japan’s LNG demand as a result of the
Fukishima disaster and reduced reliance on nuclear power.
Highlights
Stephen Harris believes the decade-long resource boom is set to continue,
leading to a two tier economy in Canada.
Michael Sohn is still bullish on Hankook Tire (000240 KS) given its capacity
expansion, cheaper prices and high margins relative to peers.
In Australia’s tough retail environment Rob Blythe sees a pair trade in buying
JB Hi-Fi (JBH AU) and selling Harvey Norman (HVN AU).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Director’s Cut
Japanese traders look too cheap
Peter Eadon-Clarke believes Japanese trading companies are an outstanding
opportunity for long term investors. He argues the trading companies are some
of Japan’s most globally competitive, ruthlessly capitalistic and profitable
companies. As they derive most of their profits from overseas, particularly in
resources, they are also not beholden to the negative macro dynamics impacting
many other domestically focused companies in Japan.
As with the major diversified miners, the share prices of Japan’s trading
companies are typically driven by China’s growth outlook and sentiment towards
commodities. On both counts our economics and strategy team has a bullish
outlook for the second half of this year, and also longer term. That said, the
sector trades at a discount to the valuations of the diversified miners.
Given the bullish outlook for commodities, however, the trading companies look
to be compelling value on forward PERs of around 5-6 times, dividend yields in
the order of 4-5% and returns on equity of 15-22%. According to Polina
Diyachkina’s estimates, the stocks also have very attractive forecast 12 month
shareholder returns of at least 50%. Her top pick is Mitsui (8031 JP), as it is the
most resource oriented of the group, with profits concentrated in favoured metals
and energy. Mitsui also has the largest growth potential in oil and LNG, which is
significant given the likely increase in Japan’s LNG demand as a result of the
Fukishima disaster and reduced reliance on nuclear power.
Highlights
Stephen Harris believes the decade-long resource boom is set to continue,
leading to a two tier economy in Canada.
Michael Sohn is still bullish on Hankook Tire (000240 KS) given its capacity
expansion, cheaper prices and high margins relative to peers.
In Australia’s tough retail environment Rob Blythe sees a pair trade in buying
JB Hi-Fi (JBH AU) and selling Harvey Norman (HVN AU).
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