“Bank of Japan Monetary Policy Meeting, high voltage DC transmission, TV stations.”

26th March, 2021

The BOJ decided at its Monetary Policy Meeting on 19/3 to raise the permissible range of fluctuation in the long-term interest rate for the yield on 10-year government bonds, which will continue to be pegged at around zero percent, to plus or minus 0.25 percent, instead of the previous 0.2 percent.  It dropped “an annual 6 trillion yen” target for purchases of ETFs, while keeping the upper limit of annual purchase of 12 trillion yen.  As for short-term interest rates, the application of a negative interest rate of -0.1% to the BOJ’s current account balance will remain unchanged, and earnings for financial institutions are expected to improve due to the widening gap between long- and short-term interest rates constituting the loan-deposit interest spread of financial institutions.  In addition, the BOJ decided to purchase only TOPIX-linked ETFs, and on 19/3, the Nikkei Average fell from the previous day while TOPIX held steady, with bank and insurance stocks among others rising across the board.  While the correction of low PBR (price-to-book value ratio) value stocks is likely to shift to the financial sector, high-priced stocks with high PBR which contribute more to the Nikkei Average are likely to be sold off.

It was reported that, in its effort to strengthen the power grid, which is a challenge for renewable energy power generation, the Ministry of Economy, Trade and Industry (METI) is considering installing offshore wind power transmission lines on the seabed using submarine cables, which are said to be less expensive than those used on land.  In this regard, high voltage direct current (HVDC) technology is coming into the spotlight, as high voltage “direct current” with less power loss is suitable for long distance power transmission.  In the HVDC market, in addition to Switzerland’s ABB, Germany’s Siemens, and the US’s GE, which have established DC power grids in Europe, we also have Toshiba (6502) and Mitsubishi Electric (6503).  Together, these are the five dominant players globally in this field.  Last year, Hitachi (6501) completed the acquisition of ABB’s power grid business and became the world’s top player in the HVDC sector.  Sumitomo Electric Industries (5802) also has technology for DC submarine transmission cables used in HVDC, and has a business alliance with Siemens.

 On 5/3, the Cabinet approved a decision to amend the Copyright Act to simplify the procedures for handling the rights of “simultaneous distribution,” whereby TV programs being broadcast are also streamed simultaneously on the Internet.  This law is scheduled to go into effect in January, 2022.  In addition to simultaneous distribution, “follow-up transmission” and “on-demand distribution” will also be covered.  With the easing of regulations that required separate rights adjustment and processing for broadcasting and distribution, conditions are ripe for TV stations, that have been under pressure from a decline in terrestrial advertising revenue due to online advertising, to depend on TV program content sales and licensing revenue as their main source of revenue.  Among Japanese stocks, IP (intellectual property) assets in the entertainment industry are highly valued overseas, which in some respect justifies the high PBRs of stocks of companies with IP.  If the vast accumulation of IP assets such as TV program content from the past can be utilized on the Internet, it is unlikely that the current low PBR situation of related company stocks will continue.

In the 22/3 issue, we will be covering Iwatsuka Confectionery (2221), AEON REIT (3292), Rengo (3941), and Hitachi (6501).



  • Iwatsuka Confectionery Co., Ltd (2221)           4,425 yen (19/3 closing price)

・Established in 1947 in present-day Nagaoka City, Niigata Prefecture.  Engaged in the rice cracker business, manufacturing senbei, arare, and okaki, all being various forms of rice crackers.  Ranked third in Japan in the rice crackers sector.  In terms of earnings, company is characterized by dividend income from Taiwan’s Want Want Group, in which it has invested and provided technical support.

・For 9M (Apr-Dec) results of FY2021/3 announced on 8/2, net sales increased by 1.8% to 16.995   billion yen compared to the same period the previous year, operating income increased by 60.7% to 384 million yen, and ordinary income increased by 18.5% to 3.099 billion yen.  Dividend income, including stock dividends from Want Want Group, a diversified food manufacturer in which the company holds a 5% stake, rose 15.2% YoY to 2.626 billion yen.

・For its full year plan, net sales is expected to increase by 1.6% to 23.2 billion yen compared to the previous year, operating income to increase 2.1 times to 360 million yen, and ordinary income to decrease by 21.4% to 2.14 billion yen.  Company’s shareholder special benefit program offers 1,000 yen worth of rice crackers for 100 shares or more, 2,000 yen worth for 200 shares or more, 3,000 yen worth for 500 shares or more, and 5,000 yen worth for 1,000 shares or more.  For the month of March only, company is offering an additional 1,000 yen worth of benefits to shareholders who had continuously held at least 200 shares and are listed in the March shareholder registry for at least three consecutive times. 


  • AEON REIT Investment Corp (3292)  147,470 yen (19/3 closing price)

・A J-REIT sponsored by the AEON Group, a major retailer.   Portfolio policy of at least 80% large-scale commercial facilities, up to 20% other commercial facilities, and up to 10% logistics facilities.  Owns two commercial facilities overseas in Malaysia.

・For its FY2021/1 (2020/8-2021/1) results announced on 17/3, operating revenue increased by 0.7% to 17.701 billion yen compared to the previous period (FY2020/7), operating income increased by 0.3% to 6.802 billion yen, and distribution per unit increased by 1.9% to 3,184 yen.   Acquired “AEON Ueda Shopping Center” in October last year with its own funds for 5.35 billion yen, increasing the asset size held to 395.5 billion yen.

・For FY2021/7 (Feb-Jul) plan, operating revenue is expected to decrease by 0.1% to 17.69 billion yen compared to the previous period (FY2021/1), operating income to decrease by 1.4% to 6.706  billion yen, and distribution per unit to increase by 0.5% to 3,200 yen.  Company’s forecasted annual distribution yield through FY2022/1 at the closing price on 18/3 is 4.25%, and NAV (Net Asset Value) is 1.06x.  Positioning as “lifestyle infrastructure assets” for local communities, company has secured  stable rents through master lease contracts based on fixed rents with AEON Group companies.


  • Rengo Co., Ltd (3941)               999 yen (19/3 closing price)

・Founded in 1909 by Teijiro Inoue, the first person to start a corrugated board business in Japan.   In addition to the paperboard and paper processing-related business, which handles paperboard and corrugated packaging, company also operates the flexible packaging-related business, heavy-duty packaging-related business, overseas-related business, and other businesses.

・For 9M (Apr-Dec) results of FY2021/3 announced on 9/2, net sales decreased by 0.8% to 509.285 billion yen compared to the same period the previous year, and operating income decreased by 10.6% to 31.192 billion yen.   Although demands for corrugated packaging for mail-order and home delivery services as well as for flexible packaging for foodstuffs from supermarkets had remained strong, sales and profits of paperboard and paper processing-related business had decreased due to the economic downturn. 

・For FY2021/3 plan, net sales is expected to increase by 1.9% to 697.0 billion yen compared to the previous year, and operating income to decrease by 3.0% to 40.0 billion yen.  Has taken a stake in a subsidiary of Siam Cement (SCC), Thailand’s largest materials company, in the Philippines that manufactures and sells container boards.  Furthermore, in December last year, company acquired approximately 94% of the shares of Bien Hoa Packaging, a Vietnamese packaging materials manufacturer, through a joint venture with Siam Cement, as part of its execution of an ASEAN-focused management strategy.


  • Hitachi Ltd (6501)       5,431 yen (19/3 closing price)

・Comprehensive electrical equipment manufacturer established in 1910.  Comprises five business segments, namely “IT”, “Energy”, “Industry”, “Mobility” and “Smart Life”.  Has a wide range of products including information/electronics, electric power/industrial machinery.

・For 9M (Apr-Dec) results of FY2021/3 announced on 3/2, revenues decreased by 5.8% to 5.979 trillion yen compared to the same period the previous year, and adjusted operating income decreased by 28.9% to 316.9 billion yen.  Sales increased in the power grid business acquired from ABB of Switzerland and in Lumada, the IoT services business, but the sale of Hitachi Chemical and deteriorating market conditions had a negative impact on overall sales. 

・For its full year plan, revenue is expected to decrease by 5.3% to 8.3 trillion yen compared to the previous year, and adjusted operating income to decrease by 36.5% to 420.0 billion yen.  Subsidiary Hitachi ABB Power Grid responsible for the power grid business has started a power transmission test of an HVDC (High Voltage Direct Current) linkage system between Germany and Norway as part of the effort to utilize renewable energy, realize a decarbonized society, and expand wide-area power business.  METI is also considering an undersea power grid for offshore wind power using direct current.


【Disclaimer and Notes relating to this report】

Issuer of this report:  Phillip Securities Japan, Ltd.    4-2 Nihonbashi Kabutocho, Chuo-ku, Tokyo 103-0026

TEL: 03-3666-2101 URL: http://www.phillip.co.jp/


Authors of this report:

Phillip Securities Research Department 

Kazuhiro Sasaki, Certified International Investment Analyst(CIIA®), Chartered Member of The Securities Analysts Association of Japan (CMA®)


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