AVI Japan Opport.Tst - Half-year Report
15/09/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230915:nRSO5073Ma&default-theme=true
RNS Number : 5073M AVI Japan Opportunity Trust PLC 15 September 2023
AVI JAPAN OPPORTUNITY TRUST PLC
INTERIM REPORT 2023
LEI: 894500IJ5QQD7FPT3J73
Interim Report for the six months ended 30 June 2023
The Directors present the unaudited Interim Report for the six months ended 30
June 2023.
Copies of the Interim Report can be obtained from the Company's website
("AJOT" or the "Company") www.ajot.co.uk or by contacting the Company
Secretary by telephone on +44 (0) 333 300 1950.
AVI Japan Opportunity Trust plc ("AJOT" or "the Company") invests in a
focussed portfolio of quality small and mid-cap listed companies in Japan that
have a large portion of their market capitalisation in cash or realisable
assets.
Dividend
An interim dividend of 0.85 pence per Ordinary Share for the period ended 30
June 2023 has been declared and will be paid on 3 November 2023 to Ordinary
Shareholders on the register at the close of business on 6 October 2023
(ex-dividend date is 5 October 2023).
Performance Summary
30 June 2023 30 June 2022
Net Asset Value* (£'000) 167,613 148,996
Net Asset Value per share (total return) for the period 4.95% - 9.74%
Net Asset Value per share (p) 119.01 108.39
Comparator Benchmark
MSCI Japan Small Cap Index (£ adjusted total return) -0.36% -8.22%
Portfolio Valuation
Net Cash as % of Market Cap 35.2% 40.6%
Net Financial Value as % of Market Cap 55.5% 58.8%
EV/EBIT 7.8x 5.7x
FCF Yield 4.4% 5.7%
Six months to 30 June 2023 Six months to 30 June 2022
Earnings and Dividends
Profit/(loss) before tax £8.06m -£15.61m
Investment income £2.67m £2.34m
Revenue earnings per share 1.37p 1.17p
Capital earnings per share 4.20p -12.78p
Total earnings per share 5.57p -11.61p
Ordinary dividends per share 0.85p 0.75p
Ongoing Charge
Management, marketing and other expenses
(as a percentage of average Shareholders' funds) 1.4% 1.5%
2023 Period's Highs/Lows High Low
Net Asset Value per share 126.06p 110.79p
Net Asset Value per share at 30 June 2023 119.01p
Share price at 30 June 2023 118.00p
Discount as at 30 June 2023 -0.85%
(difference between share price and Net Asset Value) -1.01p
( )
*For all Alternative Performance Measures, please refer to the definitions in
the Glossary in the full Half Year Report.
( )
Chairman's Statement
"Japan has demonstrated it can produce strong returns on investments in 2023,
and with the continued macroeconomic tailwinds, and potential for increased
foreign allocation, it is an exciting time to be finding new opportunities in
the region."
Norman Crighton, Chairman
Performance and Introductory Comments
Welcome to the fourth Interim Report for AVI Japan Opportunity Trust plc ("the
Company", or "AJOT"), covering the period from 1 January 2023 to 30 June 2023.
When I last wrote to you, the environment for global markets was hostile -
with seemingly persistent inflation, fears of stagnant growth, and war in
Europe. These factors have not yet subsided, but the market's attention has
turned to Japan, growing increasingly bullish in recent months. The
combination of a strong economy, low inflation, corporate governance
improvements and a late re-opening from COVID has generated optimism for
Japanese equities. So far, the lion's share of this market rally has been
focused on large-cap names, with the MSCI Japan Index disjointedly returning
+23.8% vs. the MSCI Japan Small Cap Index which returned only +15.4% (in JPY).
Turning to AJOT more specifically, absolute returns were significantly
hampered by an outsized 13.5% weakening in the Japanese Yen against the pound,
but in spite of this, the portfolio performed strongly returning +4.9% in the
period. This represents an outperformance of the benchmark, the MSCI Japan
Small Cap Index, which returned -0.4% and of the Company's peers of UK-listed
Japan smaller companies investment trusts, which fell an average of -0.6%*.
The Board believes AJOT's strategy is proving resilient and successful.
The opportunity set among small-cap names remains rich. Foreign investors have
predominantly allocated their capital into larger equities with greater
liquidity rather than taking time to investigate small-cap opportunities. The
Tokyo Stock Exchange has been promoting measures to encourage better capital
efficiency among Japanese corporates, including the soft requirement of
maintaining a price-to-book ratio above 1.0x. Given nearly half of all names
on the index currently trade below book value, this provides a strong backdrop
for active engagement with your portfolio's companies.
In this period, your manager, AVI, embarked on two public campaigns and sent
letters or presentations, in private, to a further six portfolio companies.
AVI's Japan team, including Tokyo-based Jason Bellamy, spends considerable
amounts of time engaging intensely with the portfolio. To improve the
reception of our suggestions, the team is building deep relationships with
management, having conducted meetings in Japan with several Chairmen/CEOs of
our portfolio companies.
Predicting economic trends is difficult, but from an investment perspective
one can reduce risk by exercising discipline and investing into companies
based on underlying quality and valuations. Your Company's focus remains on
investing into companies with solid fundamentals where there is also an
opportunity for active engagement. The portfolio's weighted average EV/EBIT
multiple is an attractive 7.8x, and on average net cash and investment
securities account for 56% of portfolio companies' market caps.
No country or company is immune to the contagion risk of high inflation
elsewhere in the world, but with Japan having recently bucked its deflationary
slump, and inflation running only slightly north of 4%, the outlook for the
Japanese economy is encouraging. Tourism has returned, GDP has been lifted by
increased capex, and foreign investors have been progressively allocating more
funds to the Japanese markets. This might finally be the stimulus Japan's
economy needed.
Japan has demonstrated it can produce strong returns on investments in 2023,
and with the continued macroeconomic tailwinds, and potential for increased
foreign allocation, it is an exciting time to be finding new opportunities in
the region.
Dividend
The Board has elected to propose an interim dividend of 0.85 pence per share.
As stated in the Prospectus at the Initial Public Offering ("IPO"), the
Company intends to distribute substantially all the net revenue arising from
the portfolio and is expected to pay an annual dividend, but this may vary
substantially from year to year.
Investment Strategy
AJOT listed in October 2018 to take advantage of the highly attractive
opportunity to invest in under-valued, over-looked Japanese small-cap equities
with strong underlying business fundamentals. We believed - and very much
still do - that active engagement and corporate dialogue will allow for the
unlocking of valuation anomalies unavailable in other global developed
markets, with the potential for attractive absolute and relative returns.
As the five-year anniversary of AJOT's launch approaches, your Company has
performed well despite the uncertain environment and poor relative performance
of small-cap Japanese stocks (MSCI Small Cap Japan has underperformed its
larger MSCI Japan counterpart by almost 10%). The Board remains confident that
AVI is well placed to continue executing on the strategy and that there are
still plenty of mispriced investment opportunities.
Share Premium and Issuances
As at 30 June 2023, your Company's shares traded at a discount of -0.8% to Net
Asset Value per share. Over the period under review, this ranged from a -6.0%
discount to a +3.5% premium. The Board monitors the discount/premium situation
carefully, ensuring investors are protected on the downside from a widening
discount while also taking advantage of the premium to grow the Company.
During the period the Board issued 4.4m new shares, including 0.6m shares from
treasury after they were purchased earlier in the year. The total outstanding
shares in issue was 140,836,702 at the end of the period - a healthy 76%
increase compared to the 80,000,000 shares at your Company's launch in October
2018. Also, during the period, AVI purchased 150,000 shares as part of its
ongoing commitment to invest one quarter of its management fee in AJOT shares.
Debt Structure and Gearing
At the end of the period, AJOT had £15.9 million worth of Yen debt, with
gross gearing standing at 9.5% of NAV. Owing to recent sales and the time
taken to build new positions, net debt stood at 3.0% of NAV.
Annual General Meeting
The Company's Annual General Meeting was held on 2 May 2023. All resolutions
were passed with at least a 99% approval.
Closing Remarks
The Board would like to thank Shareholders for their continued trust and
support. If you have any queries, please do not hesitate to contact me
personally (norman.crighton@ajot.co.uk) or alternatively speak to our broker
Singer Capital Markets to arrange a meeting.
Norman Crighton
Chairman
14 September 2023
* The peer group includes the members of the Association of Investment
Companies (AIC) Japanese Smaller Companies sector, namely Atlantis Japan
Growth Fund, Baillie Gifford Shin Nippon, JP Morgan Japan Small Cap Growth
& Income, and Nippon Active Value Fund. Performance calculated using data
sourced from Morningstar.
Investment Manager's Report
"It feels that the stars are starting to align in Japan. Our approach to
engaging with undervalued, high-quality companies is bearing fruit and,
particularly if we see a reversal in Yen weakness and increased flows into
small caps, we could be in for a period of strong NAV growth."
Joe Bauernfreund
Portfolio Manager
During the period from 1 January to 30 June 2023, your Company returned +4.9%
in GBP. This compares with a return for the benchmark index, the MSCI Japan
Small Cap Index, of -0.4%. Over the course of the past six months, the Yen
depreciated by -13.5% against the Pound, which has been a headwind to
Sterling-based returns.
In local currency terms, it was a buoyant period for the Japanese stock market
as the MSCI Japan Index gained +23.8% (in JPY), far exceeding the S&P 500
(+8.6%, in USD), the MSCI Europe Index (+2.7%, in EUR) and the FTSE All Share
(-0.5%, in GBP). Were it not for Yen weakness, AJOT's NAV would have returned
+21.5% over the period and +61.0% since launch.
The Japanese Yen weakness was driven by a cautious tone from Kazuo Ueda, the
newly appointed Bank of Japan ("BoJ") governor, which disappointed those
anticipating an imminent end to the BoJ's Yield Curve Control ("YCC") policy.
Latest data for June showed a 4.2% increase in core inflation (excluding food
and energy) which is starting to flow through to higher wages. We think it
isn't a matter of if we will see material adjustments to YCC, but when - which
would be a boon for the Yen.
Over the period however, small-caps lagged, with the MSCI Japan Small Cap
Index returning only +15.4%. With the rally led by large-cap value, the MSCI
Japan Value Index appreciated +22.8% (both in JPY). During a period of strong
foreign flows into Japan, it is typical to see early capital allocated towards
large cap names. As the rally is sustained, however, we would expect there to
be a trickle-down effect as capital seeks out smaller and better valued
opportunities. Given AJOT's portfolio has an average market cap of £675m, we
are well placed to benefit.
The Tokyo Stock Exchange ("TSE") followed through on its announcement at the
end of last year calling on companies to address low valuations. This is
mostly aimed at the 1,800 companies in Japan that trade on a price to- book
ratio of less than 1x. Companies will need to determine why the market
evaluates their shares so lowly and disclose plans to improve the valuation.
It is an encouraging step, highlighting regulators' intentions to continue
using their powers to promote governance reforms.
We continued to actively increase our portfolio concentration, with the top
ten holdings accounting for 73% of NAV, up from 67% at the end of 2022. Such
concentration allows us to dedicate more time to research and engagement with
each company. We continue to generate new ideas, with two new positions
entering the portfolio over the period and one shortly after period end.
It feels that the stars are starting to align in Japan. Our approach to
engaging with undervalued, high-quality companies is bearing fruit and,
particularly if we see a reversal in Yen weakness and increased flows into
small caps, we could be in for a period of strong NAV growth.
AVI Shareholder Engagement
Shareholder engagement in Japan continues its rise unabated, with one broker
saying that Japan is facing its third activist investor boom. The number of
shareholder proposals from engagement funds grew from just under 60 last year
to a record-high 82 this year and more shareholders expressed their
disappointment with poor management, with support for incumbent Presidents
falling.
We contributed to the 82 shareholder proposals this year by filing shareholder
proposals at SK Kaken and NC Holdings. In the case of SK Kaken, this is the
third year in a row where we have submitted proposals to the AGM. While we
have had some success - with the company disclosing Scope 1 and 2 greenhouse
gas emissions, increasing the number of outside directors and conducting a
5-for-1 stock split - the company has refused to improve shareholder returns.
Despite gaining 35% support, which considering the founding family's near 50%
control, represents a majority of minorities, SK Kaken continues to pay-out a
measly 12% dividend pay-out ratio, with cash accumulating every year. So long
as we are shareholders, we will continue to pressure the family to improve the
situation.
At NC Holdings ("NCHD"), in what was a first for AVI and a very rare event at
Japanese AGMs generally, we had three shareholder proposals successfully
passed with a further three receiving majority shareholder support. Two
dividend-related resolutions were approved including an increase in the
dividend pay-out ratio to 70% and the formation of a stock compensation plan
tied to achieving a three-year total share price return of over 50% and an
average three-year ROIC of over 10%.
While we are pleased with this success, we are disappointed that our
shareholder proposals to appoint two highly qualified outside directors did
not pass. In addition to largely ignoring shareholder views for the past two
years, the Board opposed six resolutions that achieved majority shareholder
support, engaged in intimidation and baseless threats related to purported
concert party issues, targeted our investment team members by name in both
their public and private rebuttals, and even tried, unsuccessfully, to claim
that NCHD's business was of national interest to avoid scrutiny at the AGM. We
will continue to engage with management and seek solutions to improve NCHD's
corporate value over the coming year.
Our private engagement accounts for most of our work, and over the period,
inclusive of the two companies where we engaged both privately and publicly,
we sent six presentations and five letters to eight companies. We cover more
topics in our private engagement than we can through our shareholder
proposals, and we place a lot of emphasis on operational improvement,
including margin enhancement and growth strategies. Of course, we still engage
on balance sheet enhancement, and over the period had success with our
long-term investment in Konishi. Management released a mid-term plan, which
for the first time included a capital allocation plan with a commitment to
share buybacks. A few weeks after the mid-term plan, Konishi announced an 8.5%
share buyback which sent the shares +10% higher the following day.
We take a long-term approach to shareholder engagement, and while improvements
might not be reflected straight away, we believe that through our suggestions
we are helping management create better businesses, and that this will
ultimately lead to high returns for all shareholders. In all cases, a track
record that shows a willingness to take our concerns public adds significant
credibility in our interactions with boards and management.
Portfolio Trading Activity
Annualised turnover for the first half of the year was a healthy 39%, with a
buoyant market providing plenty of opportunities to recycle capital from
winners into laggards and new ideas. We exited six positions entirely and two
new companies entered the portfolio.
Sales
The largest sale was Fujitec, a longstanding investment where we generated a
+111% ROI and a +32% IRR over our almost five-year holding period. This
tremendous success was driven by shareholder engagement, starting from the
release of our public presentation in May 2020, all the way through to the
recent upheaval of the Board of Directors and ousting of the founding family
President. When we first invested in Fujitec, it was trading on a 4.7x EV/EBIT
multiple, a significant discount compared to its peers trading on 16.8x. Over
the life of the investment, that radically changed, and at the time of
selling, Fujitec was trading on a 23.3x EV/EBIT multiple, a premium to peers'
20.4x. We took the difficult decision to sell the position based on valuation
grounds, believing that the exciting prospects of value creation from the new
board are reflected in the higher valuation.
We exited a longstanding position in C Uyemura, which we had been reducing for
some time, generating an 87% ROI and 21% IRR over the life of our investment.
Similarly, we sold the last of our stake in Teikoku Electric following a
strong appreciation in the share price. Although it was only in the portfolio
for a year, we generated a 52% ROI amounting to a 92% IRR.
As has been the case for a few years, our tolerance for companies with
intransigent and entrenched management who refuse to listen to shareholder
voices has diminished. That explains our exits from Papyless, Tokyo Radiator
and NS Solutions, as well as the reduction of our stakes in two other small
positions. There are too many well run and undervalued companies in Japan,
with management teams who want to create value for shareholders, to waste our
time with uncooperative companies with no interest in shareholders.
Purchases
The largest purchase over the period was Takuma, the waste treatment plant
builder and operator, which entered the portfolio for the first time. We have
been watching Takuma from the sidelines for several years, seeing the share
price boom +150% higher on an ESG-fuelled bubble in 2021, only to fall -46% at
which point we started buying. For a business with an open shareholder
register (32% foreign ownership), a structural tailwind, and a shifting
business model to more recurring maintenance work (already 50%) we think
Takuma's lowly 3.5x EV/EBIT valuation multiple is wholly unjustified. Almost
half of Takuma's balance sheet assets are held in cash and listed securities,
accounting for just over 60% of the market cap. We plan to start engaging with
management on solutions to the undervaluation ahead of next year's mid-term
plan.
Fuji Soft was another new addition to the portfolio, as we continue to invest
in companies that stand to benefit from increased digitalisation in Japan. We
join another activist, 3D Investment Partners, who have led a public campaign
to successfully appoint new outside directors. We believe in a privatisation
event there is over 50% upside, and that management can do a better job of
realising their real estate portfolio. Cash, investment securities and real
estate account for 47% of the market cap.
We continued building our relatively new positions in TSI Holdings and Nihon
Kohden, which ended the period as the two largest positions.
Contributors/Detractors
TSI Holdings
TSI Holdings, a diversified apparel holding company, was the largest
contributor to returns with a +77% share price increase for the period adding
332bps to performance. Since our first investment in July 2022, the share
price has gained +137% and is up +67% on our average purchase price.
Share price performance at the start of the period was spurred by the
announcement of a 5.8% share buyback (following a 6.6% buyback last year) and
the resignation of the founding-family Chairman. Following this the company
announced results in June which showed good progress towards achieving their
4.3% operating margin goal by 2025. Management forecast +5% sales growth next
year and a 2.9% operating margin, which would mark the highest operating
profit in TSI's history. Unsurprisingly, the market took this well.
While it is hard to justify the +77% increase based solely on those
announcements, TSI was trading on a remarkably low valuation at the start of
the year. 182% of its market cap was covered by net cash, investment
securities and real estate, implying a negative value for its apparel
business. We couldn't find a justification for the discount at the time, and
sometimes if a stock doesn't have a reason for trading on a discount, it
doesn't need one to correct.
Despite the strong share price return, TSI still has net cash, investment
securities and realisable real estate covering 96% of its market cap, and we
see a further +113% upside. We own just over 6% of the voting shares and plan
to engage with management on measures to further rectify the undervaluation
although, given the spate of buyback announcements and improved attitudes
towards shareholders, we think we are pushing on an open door.
JADE GROUP
JADE GROUP (formerly LOCONDO) ("JADE"), an apparel ecommerce company, achieved
a share price return of +65% over H1 2023, adding 179bps to performance as the
second largest contributor.
Full-year profits came in above forecasts (¥991m vs. ¥900m), but it was the
company's +33% sales and +76% profit growth forecast for next year that
propelled the share price. JADE had been heavily investing in logistics
infrastructure, with ballooning fixed costs weighing on profits and unutilised
warehouse capacity. Last year it won the right to manage the Reebok brand in
Japan through a joint venture with Itochu. Having already made the warehouse
capacity investments, the company benefited from the wonders of operating
leverage, with Reebok's incremental sales flowing straight to the bottom line.
Next year's whopping profit guidance is in line with the mid-term plan, and
management estimate that with further accretive acquisitions, they can grow
profits by another 34% the year after next.
Alongside these results, JADE announced a 3.6% share buyback, which was well
received. CEO Yusuke Tanaka's insightful 14-page shareholder letter detailed
the company's history, what management have learned, and management's growth
strategy. He made a compelling argument for why JADE justifies a ¥30bn-50bn
market cap, some 100% higher than the current ¥20bn market cap.
While it will take flawless execution of the plan to meet the higher end of
that range, we do not think it is entirely unrealistic. Across AVI funds, we
are JADE's largest shareholder, owning 11% of the shares, and have been
regularly engaging with the company. We are optimistic about the company's
growth prospects, which we don't think are being fully appreciated by
investors in its 11x EV/EBIT multiple.
Konishi
Konishi, a company engaged in manufacturing of adhesives and civil
engineering, achieved a share price return of +36% over the period, adding
123bps to performance.
After intense private engagement with Konishi's senior management, during the
period, the company released a mid-term plan committing to investing or
returning all of its cash over the next three years and outlined a three-year
EBITDA growth target of +35% (of which +19% growth is forecast to be achieved
in the first year). This was the first time Konishi disclosed a capital
allocation plan and its first commitment to buying back shares.
A few weeks after the mid-term plan, Konishi announced an 8.5% share buyback
which sent the shares +10% higher. Despite the buoyant share price Konishi
still only trades on an EV/EBIT of 5.1x which on next year's guidance falls to
4.1x. While Konishi have shown discipline in their capital allocation for the
next three years, they have not addressed the current large cash pile which,
including listed securities, accounts for 59% of Konishi's market cap. We will
continue to address this issue along with encouraging Konishi to expand into
industrial applications and overseas.
Digital Garage
Digital Garage was the largest detractor over the period, with its share price
falling -16%, reducing returns by 173bps. Digital Garage is a holding company
whose key assets are its stake in Kakaku.com and its payment settlement
businesses.
The stake in Kakaku.com is non-core, and despite management's assertations, it
has failed to generate meaningful synergies with the payments business.
Kakaku.com's share price has been remarkably weak after failing to capture
COVID rebound demand in its restaurant reservation business, and with
sell-side analysts questioning the validity of its price comparison website
business model. Kakaku.com is trading on a price-to-earnings ratio of just
under 18x, the bottom end of its range and at a similar level to the COVID
lows.
Digital Garage's share price decline over the period is a stark reversal of
the strong +32% share price return in Q4 of last year. This reversal is
attributable almost entirely to Digital Garage's announcement of a hugely
disappointing mid-term plan. We have been engaging with Digital Garage
extensively, and ahead of the mid-term plan, sent a letter to the Board
calling for all strategic options to be considered to address the inefficient
holding structure.
Instead of listening to our concerns and those raised publicly by another
shareholder, management released an entirely underwhelming set of proposals.
This plan failed to address the holding structure or justify why Digital
Garage needs to retain its 20% stake in Kakaku.com. Additionally, it failed to
make a convincing case as to how, without change, the performance of the
payment business will improve. The negative share price reaction demonstrates
that we are not alone in our disappointment with the mid-term plan, and we are
exploring next steps. We added modestly to the position on weakness taking us
through to a 3% shareholding.
Pasona Group
Pasona was the second largest detractor over the period as its share price
fell -11%, reducing returns by 70bps. Pasona is a staffing company providing
dispatch workers and outsourced processing services throughout Japan.
The company has a 50% stake in listed company Benefit One, a corporate
benefits platform, worth 178% of its market cap. Benefit One is a market
leader and has achieved consistent growth, compounding EBIT over the past five
years at +7%. It has 11.6m captive members on its platform, about 17% of the
67m employed workers in Japan, providing stable cash flows and an opportunity
to sell additional services. However, over the period its share price fell
-23%.
With 178% of Pasona's market cap accounted for by its stake in Benefit One,
the market attributes a negative valuation to Pasona's operating business.
While Pasona's operating businesses are not the most efficient and the Founder
has a penchant for overspending, the -61.3% discount seems overly harsh.
However, given that Pasona is majority controlled by the Founder and there is
no room for engagement, we have been slowly reducing the position, with it
accounting for 2.6% of NAV at the end of the period vs 3.8% at the start.
SK Kaken
SK Kaken, a manufacturer of construction paints, suffered a share price
decline of -4% over the period, reducing performance by 62bps.
For the third year in a row, we submitted shareholder proposals to SK Kaken's
AGM addressing two issues contributing to the company's poor share price
performance, low valuation, and potential delisting from the Tokyo Stock
Exchange. Specifically, the proposals called for the cancellation of 90% of
the 438,400 shares held in treasury, and to increase the dividend from ¥400
per share to ¥800, representing a 30% pay-out ratio.
Despite a high-quality business model and having a dominant share of the
domestic construction paint market, SK Kaken trades on a negative enterprise
value, a price-to-book ratio of just 0.7x with net cash covering 104% of its
market cap. Over the last five years, SK Kaken's share price has fallen -27%
while its domestic peers' share prices have fallen an average -6%, and the
TOPIX has gained +19%. With 420 shareholders, SK Kaken only narrowly meets the
400-shareholder minimum requirement for listing on the TSE Standard market.
Unfortunately, despite receiving strong support from non-founding family
shareholders, SK Kaken has not cancelled its excess treasury shares nor raised
its low dividend pay-out ratio. While the company has made some improvements
in line with our suggestions, including emissions disclosure, a 5-for-1 stock
split and increased outside directors, it hasn't been enough to address the
discounted valuation.
Moving forward, we will look to continue our engagement with management to
narrow the valuation discount and ensure SK Kaken is acting in the best
interests of all shareholders. Although we will continue to be outvoted by the
Founding family, our persistence sends a strong message to other companies
that we will not give up so easily.
Outlook
The portfolio performed positively over the period, achieving a +5.0% return,
compared to the benchmark, the MSCI Japan Small Cap Index, which returned
-0.4%. In local currency terms, the performance of the portfolio was even more
positive, with a gross total return in 2023 of 22% to date. Overall, the
portfolio trades at an attractive average EV/EBIT of 7.8x, with net cash and
listed securities covering 56% of the market cap.
The strong performance of Japanese equities shows the power of foreign capital
flows and their effect on stock prices. With global funds still underweight
Japanese equities, a positive macroeconomic backdrop, low valuations, and an
environment ripe for activism, Japan makes for a compelling investment
opportunity.
Joe Bauernfreund
Asset Value Investors
14 September 2023
Investment Portfolio
At 30 June 2023
Stock Exchange Identifier % of Market value £'000
AJOT % of investee company Cost NFV/Market
Company net assets £'000* capitalisation(1) EV/EBIT(1)
TSI Holdings TSE: 3608 10.9% 6.3% 11,995 18,213 74.6% 7.7
Nihon Kohden TSE: 6849 8.9% 3.1% 14,230 14,948 18.9% 13.0
DTS TSE: 9682 8.1% 8.7% 12,251 13,529 43.4% 10.1
Konishi TSE: 4956 7.7% 6.3% 11,157 12,986 59.2% 5.1
Shin Etsu Polymer TSE: 7970 7.2% 2.8% 10,298 12,013 40.8% 5.8
Takuma TSE: 6013 7.1% 2.0% 12,438 11,902 60.8% 3.5
T Hasegawa TSE: 4958 6.2% 2.0% 8,275 10,430 25.2% 12.4
NC Holdings TSE: 6236 5.9% 21.8% 8,310 9,979 39.0% 10.0
Jade Group TSE: 3558 5.9% 10.3% 8,399 9,832 17.2% 10.9
Wacom TSE: 6727 5.4% 10.3% 13,911 9,001 15.0% 18.1
Top ten investments 73.3% 111,264 122,833
Digital Garage TSE: 4819 5.0% 2.9% 9,987 8,311 72.4% 7.9
SK Kaken TSE: 4628 3.5% 1.5% 9,444 5,862 103.6% <0
A-One Seimitsu TSE: 6156 3.0% 11.2% 4,571 5,046 76.0% 8.5
Toagosei TSE: 4045 2.8% 1.3% 5,754 4,737 48.5% 6.3
Alps Logistics TSE: 9055 2.7% 1.5% 2,989 4,463 39.5% 4.3
Pasona TSE: 2168 2.6% 3.5% 4,902 4,354 226.2% <0
Soft99 TSE: 4464 1.9% 2.3% 2,811 3,132 79.2% 1.9
Fuji Soft TSE: 9749 1.7% 0.8% 2,926 2,889 51.0% 8.0
Aichi TSE: 6345 1.6% 0.8% 2,789 2,731 66.3% 3.0
Bank of Kyoto TSE: 8369 1.1% 0.4% 1,807 1,780 127.0% <0
Top twenty investments 99.2% 159,244 166,138
Hachijuna Bank TSE: 8359 1.0% 0.7% 1,860 1,673 100.9% <0
ITFOR TSE: 4743 0.9% 2.7% 1,438 1,582 52.0% 4.7
Shiga Bank TSE: 8366 0.9% 1.5% 1,909 1,548 139.6% <0
Teikoku Sen-I TSE: 3302 0.9% 1.4% 2,723 1,521 90.4% 1.2
Tokyo Radiator MFG TSE: 7235 0.1% 0.7% 426 206 147.7% <0
Total investments 103.0% 167,600 172,668
Other net assets and liabilities
(3.0%) (5,055)
Net assets 100.0% 167,613
* Please refer to Glossary in the full Half Year Report.
(1) Estimates provided by AVI. For all Alternative Performance Measures,
please refer to the definitions in the Glossary in the full Half Year Report.
LEI: 894500IJ5QQD7FPT3J73
FURTHER INFORMATION
AVI Japan Opportunity Trust Plc's Half Year Report for the period ended 30
June 2023 will be available today on www.ajot.co.uk (http://www.ajot.co.uk) .
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR BUGDCBDBDGXS