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Summary

A large number of Japanese companies in this month’s haul of write-ups. Japanese stocks have become popular again, after many years of neglect.
I’ve already discussed Fuji Corporation and the stock continues to trade at a low P/E. The newest write-up just reinforces my view that Fuji has competitive advantages compared to its peers.
Philippine gin producer Ginebra San Miguel also seems inexpensive at 7.1x P/E with no obvious negatives as far as I can tell.
Another stock that caught my eye is Sega Sammy. I always felt that Sega Sammy had too much pachinko exposure for my liking. And that it would waste money on its ambition to build a casino in Yokohama. But the reality with Sega Sammy is quite different: the vast majority of its profits come from its video game and entertainment business, and it’s doing well. Yet the P/E remains low at just 8.0x and its balance sheet remains robust.

Table of contents
1. HDFC Bank (HDB US)
2. Sysmex (6869 JP)
3. Sega Sammy (6460 JP)
4. Fuji Corporation (7605 JP)
5. Round One (4680 JP)
6. Ginebra San Miguel (GSMI PM)
7. Cromwell Property (CMW AU)
8. Tower Limited (TWR NZ)
9. Beenos (3328 JP)
10. Asagami Corporation (9311 JP)

1. HDFC Bank (HDB US)

In early January, Krish Mehta from Enam Holdings pitched HDFC Bank at the Manual of Ideas Best Ideas 2024 conference (HDB US - US$133 billion). I wrote briefly about HDFC last year here.

Krish’s view is straightforward: HDFC Bank is the largest private sector bank in India and arguably the best-managed banks in the entire industry. It’s cross-cycle cycle credit costs have been the lowest among its peers. It also has a high deposit/branch ratio. This has given it a 2%+ return on assets allowing it to compound capital at a decent pace.

The ListCo’s recent merger with parent HDFC Limited － which owns mortgages, and mutual fund and insurance businesses － could provide cross-selling opportunities as 70% of HDFC Limited’s customers do not yet bank with HDFC Bank. That’s the bull case, anyway.

This article from Value Punks provides some more nuance. HDFC Bank’s share price dropped in mid-January after its quarterly earnings failed to meet expectations. Value Punks believe that the following factors could create short-term headwinds:

They think other private banks such as ICICI and even public banks such as SBI have improved their risk culture over the past five years.
Due to a change in tax policy, HDFC’s current customers are moving away from bank deposits to mutual funds.
The exit of superstar CEO Aditya Puri is a question mark. Why did he resign just before the ListCo’s merger with its parent?

It seems obvious to me that parent HDFC Limited was the lower-quality institution among the two, given its lower net interest margin and its reliance on wholesale funding. Value Punks also point out that the mortgage market is getting competitive. So the merger might have been value destructive.

Is the stock cheap? Well, the forward P/E is currently 14.6x, which would imply a 17% return on equity. But underlying deposit growth has deteriorated, and NIM rose just 4% year-on-year in the latest quarter. I’m not sure if the current P/E is necessarily wrong.

2. Sysmex (6869 JP)

wrote about Japanese testing equipment maker Sysmex (6869 JP - US$11 billion).

It’s a fascinating business. The company dominates the market for hematology equpiment which are used to analyze blood samples for red and white blood cells, hemoglobin and other components of blood. It’s taken market share from previous market leader Beckman Coulter, now owned by Danaher. Growth has been in the 9% range over the past eight years. But growth could accelerate thanks to a novel blood-based test for Alzheimer’s and a new product refresh from 2022.

That said, Sysmex’s return on equity has dropped from about 20% to 11% over the past few year. There are some fears about competition from Mindray in emerging markets business. Sysmex’s 50-60% global market share seems to suggest a strong moat, but the key question is whether the technology can be replicated by their Chinese competitors. At 38x P/E, there’s not much room for error, in my view, and I’d rather stay on the sidelines.