Dear Readers,
Hope you have been well and are staying safe. It has been
over a year since I last wrote on Japan investing as I took a one-year hiatus
into investor relations at a publicly traded hotel group called Red Planet.
That didn’t end well as you might have gathered! The hotel was already
suffering amidst oversupply of hotels in 2019 and the Korea/Japan trade dispute.
The abrupt halt in tourism in February after COVID-19 paranoia went viral was
the nail in the coffin. All hotels in Japan were closed in April for several
months as tourism fell off a cliff. In both April and May, inbound visitations
to Japan were down 99.9% YoY, which was a mere 1,700 visitors in May. Several
hotel chains have already filed for bankruptcy including big names like First
Cabin and WBF. There were 25 bankruptcies at hotels nationwide in April alone.
With all the distress out there in the tourism industry,
there may be opportunities for the stronger players in hospitality. I have in
depth memoirs of the hotel and real estate sectors. Please let me know if you
would like to discuss. When I joined the Red Planet last year, I wrote a
10-page report on the Japan hotel sector which highlights the main listed and
unlisted hotel chains. Resorttrust, Kyoritsu Maintenance, Amaze, and AB Hotels
are listed names in Japan discussed in the report.
How does the savvy investor navigate the wonderful world of
equities during a pandemic? On the LONG side, you have a tsunami of central
bank liquidity, as well as fiscal stimulus to corporates and individuals. On
the SHORT side, you have record setting unemployment in the US, bankruptcies in
tourism, retail, and other brick and mortar businesses, and downright fear to
leave the house. Markets are rallying on the stimulus from central banks, but
does this disconnect with the bearish sentiment on main street retrace itself
in the months ahead?
Here is some food for thought on sector ideas:
e-learning: Take a look at these two education companies, 2U
(TWOU, Nasdaq), and Edulab (4427). Both firms provide education services and
materials over the web, which is extremely attractive during a pandemic. Both
names have rallied since the March bottom, but continued news flow on a second
wave of virus infections should be a tailwind for their businesses. Even if the
CV tapers faster than expected in the coming months, these two names should
benefit from the “new normal” in terms of online interaction. Japanese public
schools are behind the curve when it comes to distance learning, and were
reluctant to implement an online curriculum when schools closed in early March.
Thus, the shift to online learning would be a drastic structural change and
could be huge upside for companies well placed in the education sector.
In businesses, we see companies such as Fujitsu, Hitachi,
Toshiba, and Sony have proliferated the work-from-home (WFH) lifestyle. In
February, Fujitsu was able to reduce the number of office workers commuting to
its offices by 80%. It will also save money by terminating some rent contracts
for office space. This new normal could translate into the education sector.
Corona virus masks: As mask makers, these three micro-caps below
have high sensitivity to news flow on the virus.
Shigematsu (7980), high industrial use mask market share.
Koken (7963), #2 mask maker.
Kawamoto (3604), masks and medical supplies.
That’s it for now.
Happy hunting and let me know if you have any comments or
questions.
All the best,
David
PS. For prior stock ideas, please reference the Facebook
page “Japan Investing” which includes ideas on Hitachi High Tech (8036), Asahi
(3333), and many more small caps.
