AVI Japan Opport.Tst - Half-year Report
17/09/2024 07:00
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RNS Number : 4027E AVI Japan Opportunity Trust PLC 17 September 2024
AVI JAPAN OPPORTUNITY TRUST PLC
INTERIM REPORT 2024
LEI: 894500IJ5QQD7FPT3J73
Interim Report for the six months ended 30 June 2024
The Directors present the unaudited Interim Report for the six months ended 30
June 2024.
Copies of the Interim Report can be obtained from AVI Japan Opportunity Trust
plc's website 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 focused
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 1.00 pence per Ordinary Share for the period ended 30
June 2024 has been declared and will be paid on 8 November 2024 to Ordinary
Shareholders on the register at the close of business on 11 October 2024
(ex-dividend date is 10 October 2024).
PERFORMANCE SUMMARY
30 June 2024 30 June 2023
Net Asset Value* (£'000) 195,593 167,613
Net Asset Value per share (total return) for the period 7.7% 5.0%
Net Asset Value per share (p) 139.4 119.0
Comparator Benchmark
MSCI Japan Small Cap Index (£ adjusted total return) -0.2% -0.4%
Portfolio Valuation*
Net Cash as % of Market Cap 30.6% 35.2%
Net Financial Value as % of Market Cap 49.0% 55.5%
EV/EBIT 7.7x 7.8x
FCF Yield 4.9% 4.4%
Six months to 30 June 2024 Six months to 30 June 2023
Earnings and Dividends
Profit/(loss) before tax £14.3m £8.1m
Investment income £2.8m £2.7m
Revenue earnings per share 1.3p 1.4p
Capital earnings per share 8.7p 4.2p
Total earnings per share 10.0p 5.6p
Ordinary dividends per share 1.0p 0.9p
Ongoing Charge
Management, marketing and other expenses
(as a percentage of average Shareholders' funds) 1.5% 1.4%
2024 Period's Highs/Lows High Low
Net Asset Value per share 139.8p 123.1p
Net Asset Value per share at 30 June 2024 139.4p
Share price at 30 June 2024 133.5p
Discount as at 30 June 2024 4.3%
(difference between share price and Net Asset Value) (5.9)p
( )
NAV TR (GBP) Since inception H1 2024 2023 2022 2021 2020 2019 2018 1
AJOT 51.4% 7.7% 15.8% -4.3% 12.3% -1.4% 19.0% -4.0%
MSCI Japan Small Cap 16.0% -0.2% 6.9% -1.0% -1.4% 3.2% 14.7% 16.0%
Relative Performance 35.4% 7.9% 8.8% -3.4% 13.7% -4.6% 4.3% 2.0%
1 Since inception on 23 October 2018.
*For all Alternative Performance Measures, please refer to the definitions in
the Glossary in the full Half Year Report.
( )
CHAIRMAN'S STATEMENT
"AVI's unique brand of constructive engagement and high-quality research will
allow for the unlocking of valuation anomalies that are unavailable in other
global developed markets, with the potential for attractive absolute and
relative returns."
Norman Crighton, Chairman
Performance and Introduction
Welcome to the fifth interim report for AVI Japan Opportunity Trust plc ("the
Company" or "AJOT"), covering the period from 1 January 2024 to 30 June 2024.
Since I last wrote to you, the Japanese equities market has continued to
attract global attention, as regulators make further progress on the path to
corporate reform. In early 2024, the Tokyo Stock Exchange intensified pressure
on listed companies to improve capital efficiency and valuations by publishing
a list of 1,115 companies that had made the required disclosures towards
improvement, shining a light on those that hadn't. To 30 June 2024 this year,
the MSCI Japan Small Cap Index has returned +12.9% (in JPY) and -0.2% (in
GBP), compared to the MSCI Japan's return of +21.3% (in JPY) and +7.2% (in
GBP).
Although small-cap Japanese equities have not fared as well as their large-cap
counterparts during the first half of 2024, AJOT returned a positive +21.9%
(in JPY) and a +7.7% (in GBP) well ahead of the Benchmark Index. Over the same
period, AJOT's peer group of UK-listed Japan smaller companies investment
trusts fell an average of -2.7% (in GBP but gained +10.1% in JPY). The Board
believes AJOT's strategy is proving to be accretive and resilient.
The lack of research coverage of small-cap companies relative to large-caps
continues to present us with abundant opportunities. Foreign investors have
predominantly allocated their capital into larger companies with greater
liquidity rather than taking time to uncover small-cap opportunities. This is
likely to change going forward as investors seek out cheaper and more
attractive hidden gems amongst small caps.
In this period, your manager, AVI, published a presentation to Aichi, a
subsidiary of Toyota Industries, and sent private letters or presentations to
a further eight portfolio companies. AVI's Japan team spends considerable
amounts of time engaging closely with portfolio companies on matters including
operational improvements, capital structure efficiency and corporate
governance reform. The team routinely travels to Japan and has already
conducted three trips in the first half of the year. It is apparent that, in
many cases, Japanese management is becoming more appreciative of the team's
constructive suggestions, particularly due to our engagement focus on
operational improvements, a key point of differentiation from AJOT's peers.
In addition, and perhaps uniquely amongst our peers, I as Chair and Yoshi
Nishio, one of the Company's Directors, travelled to Japan to attend the AGM
of investee company SK Kaken, where we were invited to address the board and
other shareholders directly. We asked questions of the board about the
direction of the family-controlled company, its commitment to all
shareholders, and, more broadly, its obligations as a publicly listed company.
This was an important escalation of AJOT's interaction with SK Kaken, which we
expect to lead to more dialogue and continued improvement in the share price.
The portfolio is more resilient than ever, with a greater focus on companies
with high-quality earnings. This is reflected in net cash and securities
accounting for 49% of the portfolio companies' market caps, which is
marginally lower than in previous periods. Meanwhile, the portfolio maintains
an attractive valuation, with an EV/EBIT multiple of 7.7x1. This underscores
the significant discounts at which AJOT's portfolio companies trade relative
to peers, largely due to their over-capitalised balance sheets and limited
sell-side coverage.
On the macro front, earlier in the year the Bank of Japan finally put an end
to its yield curve control policy, increasing interest rates to a modest
+0.1%. Although this was only a marginal increase and was reasonably well
flagged, it was a step in the right direction.
We are delighted that, despite the twin impacts of the general strength of the
mainstream Japanese market in 2023, which has continued into the start of
2024, and the continuing weakness of the currency, your Company has generated
strong outperformance.
Dividend
The Board has elected to propose an interim dividend of 1.00 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, overlooked Japanese small-cap equities
with strong underlying business fundamentals. We believed, and very much still
do, that AVI's unique brand of constructive engagement and high-quality
research will allow for the unlocking of valuation anomalies that are
unavailable in other global developed markets, with the potential for
attractive absolute and relative returns.
Discount and Buybacks
As of 30 June 2024, your Company's shares traded at a discount of -4.3% to net
asset value per share. Over the period under review, this ranged from a -5.8%
discount to a +1.2% premium. The Board monitors the discount/premium situation
closely, ensuring investors are protected from the downside of a widening
discount, while also taking advantage of the premium to grow the Company. Over
the period, the Company bought back 135,000 of its shares at an average
discount of -5.1%. All shares repurchased are held in treasury rather than
cancelled so that they may be reissued if sufficient demand arises.
The total outstanding shares in issue was 140,301,702 at the end of the
period, compared to 140,436,702 at the end of 2023.
Also during the period, AVI purchased 140,000 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 £14.4 million worth of Yen debt, with
gross notional gearing standing at 7.4% of NAV. Taking into account the
utilisation of total return swaps, net debt with the swaps marked to market
was 2.1% (based on % of net assets).
Annual General Meeting
The Company's Annual General Meeting was held on 1 May 2024. All resolutions
were passed with at least a 99% approval. The Board thanks Shareholders for
their continuing support.
Closing Remarks
Your Board continues to have full confidence in the investment thesis and in
the ability of the Investment Manager to execute it. However, wanting to lead
by example, your Company stands by its commitment in our original Prospectus
to offer Shareholders the opportunity to exit at close to NAV on a regular
basis. The rationale behind including this clause was to ensure that if the
original investment thesis did not generate the expected returns, or if
circumstances had changed to make Japan unattractive, then Shareholders would
not be penalised for wishing to exit.
I am very pleased to note that since the IPO neither of the scenarios
mentioned above have materialised, and the Board and the Investment Manager
firmly believe that the opportunities are now more attractive than they were
when the Company was launched in 2018. Nevertheless, our broker, Singer
Capital Markets, is canvassing opinion from Shareholders on the appetite for a
redemption opportunity.
The Board would like to thank Shareholders for their continued trust and
support. As always, if you have any queries, please do not hesitate to contact
me personally (norman.crighton@ajot.co.uk (mailto:norman.crighton@ajot.co.uk)
) or alternatively speak to our broker Singer Capital Markets to arrange a
meeting.
Norman Crighton
Chairman
16 September 2024
1 EV/EBIT figures are based on Last Twelve Months ("LTM") EBIT
INVESTMENT MANAGER'S REPORT
"The Japanese equity market continues to gain traction, amidst rising foreign
capital allocation, corporate reform and a greater focus on shareholder
returns. With these tailwinds, we maintain high conviction in our unique
strategy built on constructive engagement, with more opportunities than ever
for us to unlock substantial value across the small to mid-cap universe."
Joe Bauernfreund, Portfolio Manager
During the period from 1 January to 30 June 2023, your Company returned +21.9%
(in JPY) and +7.7% (in GBP). This compares with a return for the benchmark
index, the MSCI Japan Small Cap Index, of +12.9% (in JPY) and -0.2% (in GBP).
Over the past six months, the Yen depreciated by -11.7% against the Pound, a
significant headwind for sterling-based returns.
The Japanese equity market continued its strong performance from 2023, with
large caps outperforming small caps. The MSCI Japan Index rose by +21.3% (in
JPY) and +7.2% (in GBP). AJOT outperformed relative to its peer group of
UK-listed Japan smaller companies investment trusts, which rose +10.1% (in
JPY) and declined by an average of -2.7% (in GBP).
While we were pleased to see the Bank of Japan cease its longstanding yield
curve control, the increased rate of 0.1% was too modest to curb the falling
Yen. Nevertheless, this is widely seen as a positive sign of things to come,
and after period-end, the Bank of Japan subsequently increased its benchmark
rate to 0.25%, sending the Yen higher. This caused widespread volatility in
global equity markets, particularly in Japan, however, the fundamentals of our
portfolio did not change. During this period of volatility, we strategically
added to existing holdings in our portfolio.
Additionally, corporate reform amidst pressure from the Tokyo Stock Exchange
("TSE") has made Japanese equities even more attractive to foreign investors.
The small-cap companies within AJOT's investment universe remain
under-researched, presenting us with abundant opportunities. We anticipate
foreign investors will allocate more capital to the attractively valued
small-cap sector of the Japanese market. Tender offer bids ("TOBs") are
becoming increasingly common in Japan, with four AJOT portfolio companies
benefiting from TOBs during the period at premiums ranging from 19% to 194%.
Since inception, a total of eight portfolio companies have been privatised.
Over the period, we added nine new names to the portfolio, causing the
concentration of the top 10 holdings to fall to 65.5%, down from a near
all-time high of 73.3% at the end of 2023. Maintaining a concentrated
portfolio of 15-25 stocks allows us to complete in-depth research and dedicate
the necessary time to constructively engage with portfolio companies on
matters such as operational improvements, capital structure efficiency and
corporate governance reform.
With greater attention from foreign investors, continued pressure from
regulators, and increased focus on shareholder returns at the company level,
all signs are pointing towards an extended period of positive performance for
the Japanese market.
AVI shareholder engagement
Shareholder engagement remains a core component of AJOT's strategy. It is
clear to us that management teams of our portfolio companies are particularly
receptive and appreciative of our engagement efforts focusing on enhancing
operational efficiency. While we prefer to keep our engagement private,
shareholder proposals remain an important part of our engagement repertoire to
drive corporate reform in companies that are lacking adequate management or
strategic direction.
We filed shareholder proposals to two portfolio companies during the period,
one of which we withdrew. In the case of SK Kaken, where we have now filed
shareholder proposals for four consecutive years, AJOT Directors attended the
AGM. This marked the first time a foreign investor attended as a speaker and
the first time any shareholder had asked a question. Encouragingly, it was the
most attended AGM and we were not the only shareholder asking probing
questions about SK Kaken's woeful employee satisfaction track record and lack
of strategic direction. Our presence and the questioning seem to have alerted
the family who control the company. Yet again, our shareholder proposals
achieved support from the majority of minority shareholders, and we will
continue engaging until the company addresses the plethora of issues.
Alongside our public campaign with SK Kaken, we also prepared an in-depth,
60-page public presentation on Aichi, focusing on several constructive
suggestions to enhance operational efficiency and corporate value, while
addressing the parent/subsidiary relationship with Toyota Industries.
As mentioned, private engagement remains our preferred method for unlocking
corporate value, and over the period we sent letters or presentations to eight
portfolio companies. By maintaining private engagement, we can build mutually
beneficial long-term relationships with management. Our significant focus on
operational improvements is also far more effectively addressed through
in-depth private engagement in collaboration with management, than simply via
shareholder proposals. Over the period, we engaged on operational improvement
64 times in aggregate, across 18 portfolio companies. Capital efficiency also
remains a core area of focus for our engagement and share buybacks are
becoming more frequent in Japan as companies demonstrate greater focus on
shareholder returns, in line with the TSE's request.
We believe that the long-term focus of our constructive engagement assists
management in building better businesses while enhancing shareholder value. A
track record demonstrating our willingness to take engagement public enhances
our credibility and adds another layer to our engagement.
Portfolio Trading Activity
With the team identifying plenty of new opportunities, annualised turnover was
an elevated 74%. We exited six positions entirely and nine new companies
entered the portfolio.
Sales
The largest sale over the period was Alps Logistics, which received a tender
offer bid at a +194% premium to the undisturbed share price. We generated an
ROI of +307% and IRR of +38% over the holding period.
Digital Garage was the second largest sale during the period, as we exited the
longstanding position we had held since AJOT's inception. After publishing a
press release in November 2023, at the end of the year, defiant to the trend
of reducing cross-shareholdings, Digital Garage issued 5.3% of its treasury
shares to Resona HD, with Resona HD committed to purchasing an additional 4.8%
in the market. With a consistently underperforming and mismanaged business,
along with the senseless issuance of undervalued shares, we have more
promising opportunities to allocate our capital toward.
Turnover was boosted by two short-term holding periods in Yaizu Suisankagaku
and Sun Corporation. We generated an ROI of +16% and IRR of +129% in our
two-month special situation trade in Yaizu Suisankagaku, which was the
beneficiary of a competitor buyout at a premium of +71% to the undisturbed
share price. During the period we entered and nearly fully exited a position
in Sun Corporation, during which time we benefitted from a +37% share price
increase, delivering a +25% ROI and +406% IRR.
With an abundance of attractive opportunities in the small-cap market, we are
focused on investing in high-quality businesses with management teams that are
receptive to dialogue with shareholders. Whilst we have several tools to enact
change and unlock value, we are willing to move on to more promising
opportunities if management are unwilling to consider our constructive
suggestions.
Purchases
The largest purchase during the period was Beenos, now the joint fourth
largest position in the portfolio, which was added in late January. In the day
following the announcement of our 5% ownership (which we have subsequently
increased to 8.8%), the share price rose +17%. Following our declaration,
another well-known engaged shareholder increased their holding to 9.8%. In
less than six months, we have made a return on investment of +46%, for an IRR
of +219%, and still foresee significant upside potential in the order of +70%.
In March, we initiated a position Raito Kogyo, which was the second largest
purchase during the period, building it to 4.5% of AJOT's NAV. Raito Kogyo is
a specialist construction company, with its 5.7x EV/EBIT1 multiple, compared
to the peers' average of 7.9x, suggesting that the market views it as a
cyclical low-quality construction company, which it is not. Raito Kogyo's core
business is slope construction and ground improvement works, accounting for
over 70% of the company's total sales order. Raito Kogyo is the market leader
for both slope construction and ground improvement. With an inferior EV/EBIT
multiple relative to peers, and net cash that accounts for 41% of the market
cap, we foresee further +50% upside to the current share price.
We also added to new positions in Kurabo Industries and Aoyama Zaisan
Networks, building both to be top 10 holdings in the portfolio by the end of
the period.
Contributors and detractors
Alps Logistics (9055)
Alps Logistics, a provider of logistics services for warehousing and
transportation, was the largest contributor, with a +247% share price increase
during the period adding +392bps to performance.
In a takeover bid that reflects the true underlying value of the company and
showcases the stark valuation differential between listed and private
companies in Japan, KKR-controlled Logisteed paid a 194% premium to the
undisturbed, pre-rumour price in February 2024 to privatise Alps Logistics. We
were shareholders in Alps Logistics since AJOT's inception in late 2018,
engaging with management on ways to enhance corporate value and addressing the
parent/child subsidiary relationship with Alps Alpine.
It was a pleasing end to our investment, which generated a +38% IRR and +306%
ROI. A total of eight AJOT portfolio companies have now been privatised since
we launched the trust almost six years ago. They are a helpful way of
realising the under-valuations in our portfolio companies, and there is no
shortage of further privatisation targets in our portfolio. We are in regular
dialogue with various private equity firms in Japan, which are quite familiar
with our portfolio companies.
Beenos (3328)
Beenos achieved a share price return of +66% over H1 2024, adding +205bps to
performance as the second largest contributor. We initiated a position in
Beenos in January 2024, building our stake to 6.4% of AJOT's NAV, making it
the fourth largest position in the portfolio.
Beenos operates in the e-commerce sector, deriving a significant portion of
its profits from its Global Commerce platform. Beenos' business is primarily
centred around a service called 'Buyee', which enables non-Japanese living
abroad to purchase items from e-commerce sites popular in Japan, such as
Yahoo! Japan, Mercari and Rakuten. Buyee's gross merchandise value has
experienced robust growth at an annual rate of 31.3%.
Beenos trades at a 9.9x EV/EBIT1 constituting 55% of its market cap, including
cash amounting to 32% of the market cap. We foresee a further +70% upside
potential to the share price, and given an open shareholder register, we
believe there is ample opportunity for successful engagement. Under the open
shareholder register, investors' frustration is growing, evidenced by a rising
number of shareholders opposing the CEO's reappointment. Additionally, the
structure of the board of directors is favourable from a governance
perspective, with a majority of independent directors, including a partner
from Bain Capital and a former NRI Vice CEO.
Eiken Chemical (4549)
Eiken Chemical, a manufacturer of medical diagnostics equipment, was the third
largest contributor, adding +142bps to performance as its share price rose
+33%. Eiken Chemical holds a dominant market position in Colon Cancer
Screening, with an overwhelming global market share in excess of 70%.
Eiken Chemical's share price benefited from a 7.3% buyback announced in
January 2024, of which 2.7% was repurchased through an off-market transaction
the following day. Our engagement with Eiken Chemical is in its early stages,
but we are pleased to see that management have already taken steps to address
its poor capital efficiency by buying back shares and improving disclosure to
investors. However, we are disappointed with Eiken Chemical's profitability
and believe that there is significant room for improvement on product
optimisation and overseas distribution strategy.
Although the EV/EBIT(1) has increased to 10.5x from the 4.8x when we initiated
our position, due to the increased share price and temporarily depressed
earnings, we still foresee a substantial growth runway for the company, which
if successfully executed by management, could unlock upside in the order of
+120%. We're excited about Eiken Chemical's future and building our
relationship with management.
(1) EV/EBIT figures are based on Last Twelve Months ("LTM") EBIT
JADE GROUP (3558)
Over the period, JADE GROUP ("JADE") (previously Locondo), an apparel
e-commerce distributor, was the largest detractor, reducing performance by
-157bps as its share price declined by -23%.
The share price increased +30% in the first quarter, propelled by the
announcement of the acquisition of Magaseek, a leading fashion e-commerce
platform owned 75% by DOCOMO and 25% by Itochu. The purchase is expected to
double Gross Merchandise Value ("GMV") and profits by 2026. The shares then
plummeted -41% in the second quarter, ending the period down -23% overall.
We invested in JADE in November 2021, after its share price had fallen -70%
from a COVID-intoxicated high in August 2020. While JADE was viewed as a
"growth stock", and not an obvious candidate for a value-driven engagement
fund, it had become undervalued with a substantial net cash backing. We
understood JADE's business model having had an indirect investment in Zalando,
JADE's European equivalent, through our global fund. We watched in marvel as
Zalando rolled out its partners programme across Europe and recognised a
similar potential for JADE in the Japanese market.
Over the subsequent three years, led by President Tanaka and the newly
appointed de facto CFO, Mr Shigetoshi, JADE continued its ambitious expansion.
As the largest shareholder, we have actively supported management in pursuing
its growth strategy. We agreed that the dividend should be scrapped to focus
on M&A and share buybacks, and we sent letters highlighting JADE's
undervaluation. Needless to say, it has been a busy period for management.
They have made strides in improving IR communications, reduced the reliance on
sales promoted by YouTube influencers, and successfully executed six
acquisitions the most notable of which, prior to Magaseek, being Reebok Japan.
Having proven the model with numerous acquisitions, we believe the market is
yet to fully comprehend how pivotal the Magaseek acquisition could be, and
that the share price weakness was driven by myopic retail investors on
non-fundamental factors. The share price weakness offered an irresistible
opportunity to increase our holding by +44%.
We anticipate that as management better communicates the upside from the
Magaseek acquisition in the coming months, the market will gain a better
understanding of its significance and re-evaluate accordingly. When asked
whether JADE is seeking to complete more acquisitions, management's response
was unequivocal: "we absolutely want to do more." With JADE cementing itself
as the #2 player in Japan's ¥2.4 trillion fashion e-commerce market, its
¥60 billion GMV still has a long way to go to catch up with Zozo's ¥574
billion, not to mention its valuation at 20x EV/ EBIT.
Shin-Etsu Polymer (7970)
Shin-Etsu Polymer, a producer of moulded plastics, was the second largest
detractor over the period, reducing performance by -143bps as its share price
fell -9%.
Shin-Etsu Polymer is a subsidiary of the chemical giant Shin-Etsu Chemical,
where we have been engaging on ways to rectify their poor corporate governance
and woefully low valuation (6.6x EV/EBIT). During the quarter, we met with
Shin-Etsu Polymer's President in Tokyo, and while it was a pleasant and
cordial meeting, we found it to be somewhat underwhelming. We did not get the
impression that management had an ambition to grow corporate value nor that
the company is taking adequate steps to address the conflicts and corporate
governance shortcomings of its parent-subsidiary relationship.
We continue to believe that the parent-subsidiary relationship is harming
Shin-Etsu Polymer's corporate value and that, as many listed subsidiaries in
Japan have done already, it should be eliminated.
Takuma (6013)
Takuma, a waste treatment plant maintenance company, was the third largest
detractor over the period, with its -6% share price decline reducing
performance by -128bps.
The market was left disappointed by Takuma's underwhelming mid-term plan
("MTP") announced in May 2024, with the share price declining by -12.0% in the
subsequent day of trading. Positively, the MTP demonstrated improved
transparency around quantitative targets (such as orders intake and ROE
targets), and, for the first time, disclosed a shareholder returns policy.
This included a 50% payout policy, 4.0% Dividend on Equity target and the
intention to buy back 3.8% of shares outstanding this year, with a similar
amount during the following two years. However, the profit guidance for the
next three years left much to be desired, with next year's operating profit
conservative guidance (¥11.2billion) falling well short of consensus
(¥13.4billion).
While we acknowledge that Takuma implemented some of our suggestions,
management chose to ignore several of our most important points, such as
unwinding cross-shareholdings and the divestment of non-core business
segments. Having so far achieved an ROI of +17% in our just over one-year
holding period, we will continue engaging with management on methods to
enhance capital policy and improve operating efficiency. We see a further +70%
upside, with Takuma's 6.4% weight in AJOT reflective of our conviction.
Outlook
The portfolio performed positively over the period, achieving a +7.7% return,
compared to the benchmark, the MSCI Japan Small Cap Index, which returned
-0.2%. In local currency terms, the performance was stronger, with a toral
return in 2024 of +21.9% during the period. Overall, the portfolio trades at
an attractive EV/EBIT multiple of 7.7x, with net cash and listed securities
covering 49% of the market cap.
After period-end, July and August saw a period of heightened volatility in
global equity markets, particularly in Japan. Some of this extreme volatility
was attributable to the change in monetary policy by the Bank of Japan, which
increased its benchmark rate by 15bps to 0.25% and caused strengthening of the
Yen. The fundamentals of our portfolio did not change, and we used the period
as an opportunity to add to existing portfolio names at attractive valuations.
The Japanese equity market continues to gain traction, amidst rising foreign
capital allocation, corporate reform and a greater focus on shareholder
returns. The seeds planted in recent years are beginning to come through,
presenting us with abundant opportunities. We remain committed to selectively
adding the most promising companies to our concentrated portfolio.
Joe Bauernfreund
Asset Value Investors
16 September 2024
Stock Exchange Identifier % of net assets Equity Exposure(2)
Cost £'000 % of investee company NFV/Market
Company £'000* capitalisation(1) EV/EBIT(1)
TSI Holdings TSE: 3608 10.1% 12,110 19,773 5.2% 78% 7.6
Eiken Chemical TSE: 4549 8.8% 14,104 17,147 4.1% 35% 10.5
Nihon Kohden TSE: 6849 8.2% 14,090 16,113 1.6% 18% 14.2
Beenos TSE: 3328 6.4% 9,064 12,604 8.2% 55% 9.9
Takuma TSE: 6013 6.4% 12,959 12,562 1.9% 55% 6.1
Konishi TSE: 4956 5.8% 9,414 11,236 2.5% 44% 5.0
Kurabo Industries TSE: 3106 5.1% 8,059 9,987 2.2% 79% 2.1
NC Holdings TSE: 6236 5.0% 8,977 9,817 19.3% 56% 5.1
Aoyama Zaisan Networks TSE: 8929 4.9% 8,803 9,528 5.1% 21% 8.2
Jade Group TSE: 3558 4.8% 9,425 9,401 10.2% 12% 5.5
Top ten investments 65.5% 107,005 128,168
Shin Etsu Polymer TSE: 7970 4.6% 8,520 8,924 1.5% 41% 6.6
Raito Kogyo TSE: 1926 4.5% 8,930 8,746 1.8% 44% 5.7
Wacom TSE: 6727 4.3% 11,246 8,459 1.6% 18% 12.9
DTS TSE: 9682 4.1% 6,468 8,055 0.9% 37% 12.9
Aichi TSE: 6345 3.6% 6,115 7,145 1.6% 50% 7.3
Araya Industrial TSE: 7305 3.2% 4,858 6,178 3.9% 73% 4.3
SK Kaken TSE: 4628 3.1% 9,444 5,995 0.9% 104% 0.0
T Hasegawa TSE: 4958 3.0% 5,272 5,874 0.8% 28% 11.7
Broadmedia TSE: 4347 2.4% 4,091 4,728 7.1% 36% 9.9
Shiga Bank TSE: 8366 1.5% 2,410 2,868 0.3% 94% 0.5
Top twenty investments 99.8% 174,359 195,140
Tecnos Japan TSE: 3666 1.4% 2,472 2,701 3.9% 42% 5.6
Kyoto Financial Group TSE: 5844 0.5% 958 995 0.0% 140% 0.0
A-One Seimitsu TSE: 6156 0.3% 591 568 1.2% 68% 18.6
Sun Corporation TSE: 6736 0.0% 83 109 0.0% 122% 0.0
Equity investments at fair value 102.0% 178,463 199,513
Equity Exposure
% of net assets £'000 Fair Value
£'000
Total Return Swaps Long positions
Kyoto Financial Group TSE: 5844 0.1% 3,043 101
Hachijuni Bank TSE: 8359 0.0% 3,006 32
0.1% 6,049 133
Investments and Total Return Swaps 102.1% 184,512 199,646
Other net current assets less current liabilities 5.3% 10,356
Non-current liabilities (7.4%) (14,409)
Net assets 100.0% 195,593
* Please refer to the definitions in the 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.
2 Notional current equity value of investments and swaps.
LEI: 894500IJ5QQD7FPT3J73
FURTHER INFORMATION
AVI Japan Opportunity Trust Plc's Half Year Report for the period ended 30
June 2024 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
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