TIDMAJOT
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 30 June
2023 2022
Net Asset Value* (GBP'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 (GBP 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 Six months
to 30 June to 30 June
2023 2022
Earnings and Dividends
Profit/(loss) before tax GBP8.06m -GBP15.61m
Investment income GBP2.67m GBP2.34m
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 GBP15.9 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 GBP675m, 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 (Yen991m vs. Yen900m),
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 Yen30bn-50bn market
cap, some 100% higher than the current Yen20bn 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 Yen400
per share to Yen800, 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 % of % of Cost Market
Exchange AJOT investee GBP'000 value NFV/Market
Company Identifier net assets company * GBP'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
.
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 in
accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
ENDS
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END
IR BUGDCBDBDGXS
(END) Dow Jones Newswires
September 15, 2023 02:00 ET (06:00 GMT)
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