”Beware of Nikkei Average weighted average PBR, high PBR for IP asset valuation”

26th February, 2021

The Nikkei Average broke through 30,000 points on 15/2 and closed at 30,467 points on 16/2.  This level is equivalent to 1.32 times the weighted average PBR (price-to-book-value ratio), which is weighted by market capitalization of the Nikkei Average’s constituent stocks, and is the highest level since 2nd February, 2018.  At that time, the “Trump tax cuts” were enacted in the US in December 2017, and in Japan, the ruling party won with huge margins in the House of Representatives election in October 2017, resulting in strong stock markets in both Japan and the US.  Optimism dominated the market as the VIX index, which is said to be a “fear index” representing investor sentiment in the S&P500 Index, fell below 10%, and the Nikkei Average soared from a low of 19,239 points on 8/9 of the same year before the dissolution of the House of Representatives to a high of 24,129 points on 23/1, 2018.  Closing price on 2/2 was 23,122 points. 

Under such an environment in the Japanese and US stock markets, the yield on 10-year US government bonds rose from around 2.05% in September 2017 to around 2.85% in early February 2018, and the VIX index soared from 6/2 onwards.  It can be recalled that the “risk parity” strategy of lowering the ratio of risky assets being held in response to increased volatility caused the global stock markets to plunge simultaneously, and the Nikkei Average fell to a low of 20,347 points on 26/3, 2018.  Since then, the weighted average PBR has exceeded 1.3 times for the first time in about three years, and, as was the case then, a rise in US long-term interest rates is expected.  Therefore, in some respects, the conditions for a downward adjustment are in place.

Turning to the PBRs of individual stocks, the share price of Fast Retailing (9983) has exceeded 100,000 yen and its PBR has reached about 11 times.  High PBR stocks should be viewed in terms of PBR adjusted for the addition of intangible assets to net asset, such as IP (Intellectual Property), which have economic value that does not appear on the balance sheet.  Comparing the company’s share price with the market capitalization of Spain’s Inditex, the world’s largest apparel maker in terms of sales (equivalent to 10.3 trillion yen as of the closing price on 18/2), there is room to see

growth potential in the value of UNIQLO and subsidiary brands.  On the other hand, since it is the largest contributor amongst the constituent stocks of the Nikkei Average, it should be noted that it is likely to be overbought in index-related trading as the number of shares in circulation decreases.

In terms of IP assets of Japanese companies, there is growing interest from overseas in the value of famous titles and characters in the entertainment industry, such as video games.  In terms of PBR at the close of 18/2, Toei Animation (4816), which produces “Dragon Ball” and other titles, reached about 6.2 times, while Nintendo (7974) was about 4.8 times.  These are higher than that of The Walt Disney Company (DIS) of the US which is about 3.9 times.  Netflix (NFLX) of the US has announced a program to support the training of animators in Japan, and has stated a policy of strengthening its own animation production.  All these indicate the growing value of entertainment-related IP assets.

In the 22/2 issue, we will be covering Z Holdings (4689), Yamaha Motor (7272), Fukuoka Financial Group (8354), and Kadokawa (9468).  


  • Z Holdings Corp (4689)       642.2 yen (19/2 closing price)

・Established in 1996 as a subsidiary of the current Softbank G (9984).  Involved with Ecommerce and media businesses.  Had a change in company name from Yahoo Japan on 2019/10.  Finalized an agreement for business integration with LINE (3938) on 2019/12. 

・For 9M (Apr-Dec) results of FY2021/3 announced on 3/2, revenue increased by 15.0% to 873.815 billion yen compared to the previous period, and operating income increased by 15.1% to 142.226 billion yen.  Against the backdrop of stay-at-home demand, ZOZO (3092) became a consolidated subsidiary in November 2019, and sales and earnings growth at subsidiary ASKUL (2678) and eBook Initiative Japan (3658) had contributed to results. 

・For its full year plan, revenue is expected to increase by 8.3% amounting to 1.14 trillion yen compared to the previous year, and operating income to increase by 5.1% to 160.0 billion yen.  Business integration with LINE is scheduled to be completed in March this year.  LINE launched its banking service “LINE BK” in Thailand in October last year as a joint venture with Kasikorn Bank.  With the number of accounts reaching one million in less than three months and the balance of loans to individuals reaching 10 billion yen, LINE is gaining recognition in Thailand as a “super app” that provides a full range of services.


  • Yamaha Motor Co., Ltd (7272)          2,393 yen (19/2 closing price)

・Established in 1963 by separating from Nippon Gakki Co., Ltd (current Yamaha Corp).  Operates the Land Mobility business (motorcycles, etc), the Marine Products business (outboard motors, etc), the Robotics business (surface mounters, etc), and the Financial Services business.

・For its FY2020/12 results announced on 12/2, net sales decreased by 11.6% to 1.4712 trillion yen compared to the previous year, and operating income decreased by 29.2% to 81.672 billion yen.  After bottoming out in the 2Q (Apr-Jun) period, company started to recover, with the Robotics and Financial Services businesses seeing increased sales.  However, the decline in sales volume of motorcycles in the Land Mobility business and the Marine Products business owing to the Covid-19 pandemic had impacted results. 

・For FY2021/12 plan, net sales is expected to increase by 15.5% to 1.7 trillion yen compared to the previous year, and operating income to increase by 34.7% to 110.0 billion yen.  Company sees rising transportation costs due to global container shortages and difficulty in procuring parts owing to semiconductor shortages as risks.  With Taiwan’s TSMC planning to invest 20 billion yen to establish a development base in Japan for back-end semiconductor manufacturing, company’s strength in back-end bonding and molding equipment is likely to attract attention.


  •  Fukuoka Financial Group, Inc (8354)    2,018 yen (19/2 closing price)

・Established in 2007 by merging The Bank of Fukuoka and Kumamoto Family Bank (now renamed The Kumamoto Bank).  In the same year, The Shinwa Bank (Nagasaki Prefecture) was also integrated.  Furthermore, in 2019, the management of The Eighteenth Bank (Nagasaki Prefecture) was also integrated.

・For 9M (Apr-Dec) results of FY2021/3 announced on 10/2, ordinary income increased by 1.0% to 211.855 billion yen compared to the same period the previous year, and ordinary profit increased by 15.4% to 51.478 billion yen.  Net income fell 75.5% YoY to 35.748 billion yen due to the absence of the “negative goodwill” gain related to the merger with The Eighteenth Bank in the same period of the previous year, but the non-consolidated net income of the three banks within the group rose 38.9% for the same period.

・For its full year plan, ordinary profit is expected to return to the black from minus 5.25 billion year in the previous year to 61.0 billion yen, and annual dividend is expected to be 85.00 yen, the same as the previous year.  As a constituent stock of the Nikkei High Dividend Yield 50 Index, it is attracting attention from a dividend perspective amid growing expectations of a rise in US long-term interest rates.  In addition, subsidiary “Minna Bank” is aiming to become the first digital bank in Japan and plans to launch its service in May.  It is aiming to expand nationwide and provide financial services that can be completed via smartphones.


  • Kadokawa Corp (9468)        4,265 yen (19/2 closing price)

・Established in 2014 through the merger of publishing giant Kadokawa and video site operator Dwango.  In addition to the publishing, video, game, and web service businesses, company also operates other businesses, including the planning and management of educational businesses.

・For 9M (Apr-Dec) results of FY2021/3 announced on 4/2, net sales increased by 1.7% to 152.777  billion yen compared to the same period the previous year, and operating income increased by 56.1% to 13.204 billion yen.  Affected by the Covid-19 pandemic, both sales and profits declined in the video business and in the web services business, where growth in Niconico was sluggish, but the publishing and game businesses benefited from the stay-at-home requirement.

・Company has adjusted its full-year results.  Net sales is expected to increase by 0.7% to 206.0 billion yen compared to the previous year (original plan 208.0 billion yen), and operating income to increase by 73.1% to 14.0 billion yen (original plan 10.5 billion yen).  Publishing and video businesses are expected to improve.  Announced a third-party allotment of new shares to Sony (6758) and CyberAgent (4751) based on the basic strategies of stable creation of IP (Intellectual Property) and global expansion.  Correspondence high schools, “N” and “S” high schools, are expected to expand.


【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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