Fidelity Japanese Values says the NAV of the company increased by 15.1% in sterling terms over the six months to 30 June 2016, outperforming the Russell Nomura Mid/Small Cap Index, which gained by 7.0% during the same period, and performing in line with the peer group, which achieved a 15% uplift. The excess return generated included the
dilutive effect of the subscription shares issue, which reduced the NAV per share by 3%. The discount to NAV widened over the same period and the share price returned 9.5%, compared with an average 9% achieved by the peer group. Core holdings in the chemicals, retail and pharmaceuticals sectors were the key drivers of the company’s outperformance.
Nissan Chemical Industries, which is the largest overweight position in the Company’s portfolio, was the standout contributor to performance over the review period. The company announced another share buyback plan along with its full-year results, which underscored the strength of its core products such as photoalignment films (used in small LCD panels) and veterinary pharmaceuticals. Alongside its results, Nissan Chemical announced medium and long-term business plans, and reaffirmed its commitment to increase shareholder returns by targeting a 70% total payout ratio.
Sporting goods maker Yonex was another noteworthy performer in the portfolio. It announced strong full-year results, supported by the growth of its badminton equipment business in Asia. Sales in China expanded rapidly, aided by the strength of its brand and its shift from the use of sales agents to direct sales by subsidiaries.
Kotobuki Spirits was also among the top contributors to performance. The confectionary company reported strong annual results that exceeded consensus forecasts. Price hikes, the growth of the souvenir market in Japan amid an
increasing number of foreign visitors, and the expansion of its sales network to include Tokyo station and international airports supported the company’s brisk earnings.
Elsewhere, pharmaceuticals company Nippon Shinyaku projected a sharp increase in operating profits for the year to March 2017. Overseas sales of a pulmonary arterial hypertension (PAH) treatment are expected to drive strong growth in royalty income.
Conversely, Orix was the single largest detractor from returns. The diversified financial services company reported solid full-year results and increased its payout to shareholders. However, its relatively high foreign ownership ratio
meant that it was susceptible to the sharp deterioration in risk sentiment among global investors. Nonetheless, Orix has a solid long-term track record in achieving excess returns and its valuations look increasingly attractive.
In the electric appliances sector, Rohm, a leading producer of custom integrated circuits and semiconductor devices, fell sharply. Signs of a slowdown in end-demand (particularly in the mobile and audio-visual areas) became more apparent, and higher fixed costs and a stronger yen appeared to limit the scope for a recovery in its earnings. The stock looks attractive from a valuation perspective, but potential upside appears limited amid further declines in consensus forecasts. As a result, the position was sold.
FJV : Fidelity Japanese Values has great first half