RCS - Schroder Japan Trust - Results analysis from Kepler Trust Intelligence

Schroder Japan TrustAnnouncement

22/04/2024 07:00

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RNS Number : 3910L  Schroder Japan Trust PLC  22 April 2024

Schroder Japan Growth (SJG)

22/04/2024

Results analysis from Kepler Trust Intelligence

Schroder Japan Trust (SJG) has published its half year results covering six
months to the end of January 2024. Over the period, the trust delivered NAV
total returns of 10.3% and a share price total return of 5.8%, which compares
to a 9.1% total return from the TOPIX Index.

The board has committed to a tender offer over a four-year period starting
from 01/08/2020. These results mean the trust is well ahead of this mark on an
annualised basis.

A mid-cap automotive component manufacturer topped the performance table
driven by strong earnings growth, buoyed by the recovery in Japanese
automotive production. Hitachi also performed well, driven by management
shifting focus to improve shareholder returns.

Gearing averaged 9.5% over the period and helped returns, and has increased
slightly post-results.

SJG's discount widened to 11.1%, in line with its own five-year average and
the AIC Japan sector, prompting the board to buy-back shares. SJG's discount
has since come in slightly.

Chairman Philip Kay commented, "The Japanese equity market has enjoyed a
strong start to 2024." He also noted: "The board remains very positive on the
long-term equity market outlook because corporate Japan is in the middle of a
major transformation which is already resulting in improved shareholder
returns. This transformation has been a long time in the making".

Kepler View

As the chairman notes, there have been many false dawns with the Japanese
equity market. While some scepticism remains, we think this time is different,
with the index finally exceeded the bubble-era high, boosted by Japan's
corporate transformation and governance reform push.

The manager employs a differentiated strategy, targeting high-quality,
undervalued companies across the market-cap spectrum, which have attractive
growth characteristics. This focus brings a strong valuation sensitivity,
meaning the portfolio tends to tilt to value, very different from the most
peers.

He believes the current opportunity set is vast and there is a considerable
divergence between larger companies and smaller companies, which Masaki
currently finds more appealing. He has therefore added a number of stocks to
the portfolio from this part of the market, examples of which are
beneficiaries of long-term structural tailwinds, but their shares have
recently been sold down meaning there is significant upside potential.

Masaki also initiated a new position in Nippon Steel. He reports being
impressed with management's efforts to improve the stability and growth
profile of its earnings, particularly the increased focus on profitability.

Overall, these are good results for SJG with NAV total returns ahead of the
TOPIX Index, keeping it on track to outperform its tender performance target.
The continued outperformance of value stocks, as well as the manager's use of
gearing, have been strong contributors to returns.

We think SJG offers differentiated exposure to Japanese equities through a
portfolio of undervalued businesses with strong growth prospects. Masaki's
approach further down the market cap scale could make SJG an appealing
proposition for investors looking to play Japan in a differentiated way. The
current double-digit discount could still be an attractive entry point for
investors should strong performance lead to it narrowing.

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