Prospect Japan says its net asset value rose by 9.2% over the course of 2014 – well ahead of the -0.12% return on the MSCI Japan Small cap Index but these numbers are calculated on an IFRS basis where their investment in a convertible bond issued by the manager is valued at $51m vs. its $25m cost. When they publish their NAVs, the value the convertible at cost in which case their return for the year would be -10.8%.
The manager says the list of underperformers was led by Shaklee Global Group (8205), a seller of nutrition and personal care products, with a high percentage of overseas sales which fell sharply during November, following weaker than expected H1 results and a downward revision to full year forecasts. Shaklee was also the subject of social media speculation on potential regulatory investigations into its Chinese operations, though these concerns remain unsubstantiated. Accordingly, shares in the company surrendered most of the gains made earlier in the year. Tomoe Corp (1921), a steel frame construction company that derives 82% of its operating profit from real estate leasing, underperformed along with the real estate index, following strong outperformance during 2013. The company maintains Yen14.7 billion in unrealized gains on rental real estate assets (vs. a market cap of Yen18.5 billion), with an adjusted price to book ratio of 0.55x. While share performance during the year disappointed, Tomoe Corp announced strong H1 results, along with a large upward revision to full year 2015 guidance. H1 profits rose sharply thanks to contribution of a Yen2.5 billion government bridge construction order with an exceptional 20% profit margin.
The largest positive contributor to 2014 performance was Daiwa Motor Transportation (9082), a taxi and limousine service provider. The company rallied strongly towards year-end following its November announcement of H1 results. Daiwa Motor reported net income 28.7% above company guidance, aided by a resurgence in its real estate business. They think the steep drop in oil prices into year-end also likely played a part in turning sentiment.
PJF : Prospect Japan NAV performance does not reflect rise in value of largest holding