Investment Rating - The report downgrades Bezeq to Neutral with a new price target of NIS4.4, down from Buy and NIS6.1 [2][5][13] Core Viewpoints - Bezeq has a strong balance sheet with a net debt to EBITDA ratio of approximately 1.6x, compared to the sector average of 2.7x, and offers defensive returns with a projected 70% net profit payout in 2024, translating to a dividend yield of around 7% [2][4][10] - The mid-term outlook remains attractive with catalysts such as a decline in FTTH capex and cost reductions in satellite operations, although the risk premium has increased recently, leading to caution regarding the 2024 outlook [2][3][10] - Regulatory pressures are expected to continue impacting profitability, particularly concerning FTTH campaigns and fixed broadband rates, which may hinder revenue growth [3][10][11] Summary by Sections Financial Performance - Bezeq's revenue for 2024 is projected at NIS8.823 billion, reflecting a slight decline from previous estimates, with EBITDA expected to be around NIS3.719 billion [7][15] - The company anticipates a flat year-over-year adjusted EBITDA for 2024, with a forecasted slight miss at NIS3.7 billion [3][15] Dividend Policy - Bezeq plans to increase its net profit payout ratio by 10 percentage points annually from 70% in 2024 until it reaches 100% in 2027 [4][8][18] Valuation and Estimates - The report incorporates a higher WACC of 9.2% due to an increased risk premium, which has contributed to the reduction in price target [6][13] - The valuation reflects a DCF-derived price target of NIS4.4, with a dividend yield of approximately 7% for 2024, supported by a free cash flow yield of around 9% [6][10] Market Position and Outlook - Bezeq is positioned as Israel's largest telecommunications provider, with significant market share in mobile and pay-TV, but faces ongoing regulatory challenges that may limit growth [10][12] - The company is expected to achieve a compound annual growth rate (CAGR) of 8% in free cash flow from 2024 to 2027, despite a projected dip in 2024 [9][10]

Investment Rating - The report maintains a Buy rating for MatsukiyoCocokara & Co. with a revised 12-month price target of ¥2,730, down from ¥2,960 [2][5][6]. Core Insights - The merger of Matsumoto Kiyoshi Holdings and Cocokara Fine in October 2021 has led to improved gross margins and is expected to enhance profitability through better personnel allocation, store openings, and logistics optimization [3][4]. - The company is anticipated to benefit from a recovery in foreign visitors to Japan, which will contribute to growth in same-store sales driven by differentiated products and industry consolidation initiatives [3][4]. Earnings Forecasts - For FY3/25, sales are expected to reach ¥1,054.6 billion with an operating profit (OP) of ¥77.4 billion, reflecting a 2% year-over-year increase. The OP margin is projected at 7.3% [4][7]. - In FY3/26, sales are forecasted to grow to ¥1,087.3 billion with an OP of ¥85.0 billion, marking a 10% increase from the previous year [4][7]. - Same-store sales growth is estimated at 1.0% year-over-year for FY3/25 [4]. Valuation Metrics - The revised price target of ¥2,730 corresponds to a price-to-earnings ratio (PER) of 21.5 times the FY3/25 earnings per share (EPS) estimate of ¥126.9 [5][6]. - The report indicates a market capitalization of ¥946 billion (approximately US$6.40 billion) and an average daily trading volume of 1,579,000 shares [6][8]. Financial Highlights - The company reported revenues of ¥951.2 billion and an operating profit of ¥62.3 billion for FY3/23, with a significant increase in sales projected for FY3/24 at ¥1,022.5 billion [7][9]. - The net profit for FY3/25 is expected to be around ¥52.1 billion, with a slight decrease from the previous estimate of ¥53.7 billion [4][9]. Profitability and Valuation Ratios - The operating profit margin is projected to be 7.3% for FY3/25, with an increase to 7.8% in FY3/26 [4][7]. - The report highlights a return on invested capital (ROIC) of 18.8% for FY3/25, indicating strong profitability [7][9]. Cash Flow and Balance Sheet - The cash flow from operating activities is expected to be ¥73.6 billion for FY3/25, with a free cash flow (FCF) of ¥43.8 billion [11]. - Total assets are projected to be ¥717.2 billion for FY3/25, with total liabilities at ¥196.8 billion, indicating a healthy balance sheet [10].

Investment Rating - The report indicates a positive outlook for small businesses, with the NFIB small business optimism index rising 2.2 points to 93.7 in July, surpassing estimates and consensus expectations [2][3]. Core Insights - Small business optimism has improved for five consecutive months, although it remains below the long-term average of 98 for the 31st month in a row [2]. - The share of firms considering it a good time to expand is historically low at 5%, but expectations for economic improvement surged by 18 points [2][4]. - Employment expectations remain stable, with net plans to increase employment at 15% for three consecutive months [3]. - Inflation continues to be a significant concern, with 25% of businesses citing it as their biggest problem, up from 21% last month [4]. Summary by Sections Small Business Sentiment - The NFIB small business optimism index increased to 93.7, indicating a positive shift in sentiment [2]. - Expectations for higher real sales rose by 4 points to a net -9% [2]. Employment and Compensation - Net plans to increase employment remained steady at 15%, while the share of businesses unable to fill positions rose to 38% [3]. - The share of firms raising compensation dropped to 33%, with plans to increase compensation in the next three months declining to 18% [3]. Credit Conditions - Small businesses report that credit is harder to obtain, with a net reporting of 6% indicating tougher conditions [4]. - The share of households experiencing tighter credit conditions increased to 52%, although expectations for future credit conditions improved slightly [7]. Inflation Expectations - Medium-term inflation expectations fell to 2.3%, marking a series low, while one-year and five-year expectations remained unchanged at 3.0% and 2.8%, respectively [6]. - The perception of inflation uncertainty remained stable across all time horizons [6].

Global Research and Evidence Lab 13 August 2024 Equities Japan Retail Sector July 2024 sales (announced 9 and 13 August): SEJ's same-store sales continue to seesaw Japan Retail Welcia HD (3141): Sales missed the company's plan again in July Monthly sales (end of month, FY2/25): Group same-store sales rose 0.3% yoy, with customer numbers down 1.0% yoy and sales per customer up 1.3% yoy. By category, product sales fell 2.4% yoy (pharmaceuticals -0.5%, hygiene and nursing care -8.8%, counselling cosmetics -4.2 ...

Global Research and Evidence Lab 13 August 2024 US Economic Data Core PPI perks up a little Headline producer prices edge up 0.1% in July, core rises 0.3% The headline Producer Price Index (PPI for final demand) increased 0.1% in July, in line with our expectations (0.1%) and a touch below consensus (0.2%). Prices for final demand goods climbed 0.6%, on the back of the 1.9% increase in energy prices. The volatile trade services weighed on the monthly gain, holding down the increase in headline PPI by 0.3 pp ...

Global Research and Evidence Lab 13 August 2024 First Read Japan Retail Sector Jiji Press report: Government to alter the consumption tax-exemption system – as has been expected; no surprises Summary On 13 August, Jiji Press reported that the government and current ruling party will proceed with a fundamental review of the consumption tax-exemption system for visitors to Japan. Specifically, the report said the system will change so that consumers get their tax refund after it is confirmed that tax-free pur ...

Global Research and Evidence Lab 13 August 2024 Tsuruha Holdings Revising forecasts: Showing merger effects will be important Action: Earnings update We are updating our earnings estimates. In addition to lowering our OP forecast slightly, we are reflecting growth in the number of stores for the overall sector and continued upward pressure on labour costs over the medium term, and we are changing our OP margin forecast from FY5/30 onward from 4.5% to 4.0%. Measures to maintain or increase profitability in t ...

Investment Rating - The report assigns a 12-month investment rating of Neutral for the industry [1]. Core Insights - The company reported a core operating profit of ¥25.6 billion for Q1, reflecting a year-on-year increase of 7% and surpassing forecasts by 4% [1]. - The quarterly operating profit rose to ¥27.2 billion, exceeding consensus estimates of ¥23.6 billion, driven by higher stock profits and a business divestment gain of ¥1.3 billion [1]. - The company announced a share buy-back program worth up to ¥10 billion, representing 1.13% of shares in issue, and increased its quarterly dividend from ¥612 to ¥624 per share [1]. - The firm’s investment securities had a book value of ¥636.4 billion and a market value of ¥1.1 trillion at the end of June, indicating an 8% increase in book value compared to the end of March [1]. - The company has improved its financial visibility by increasing segmental disclosures and providing data on its securities holdings [1]. Financial Performance Summary - Revenue for FY3/23 was ¥643.98 billion, showing an 11.4% year-on-year increase, while FY3/24 revenue is projected to decline by 6.5% to ¥601.95 billion [2]. - Operating profit for FY3/23 was ¥86.62 billion, a 4.3% increase, with FY3/24 expected to rise by 9.2% to ¥94.55 billion [2]. - The net profit for FY3/23 was reported at ¥91.35 billion, with a projected increase to ¥122.23 billion for FY3/24 [2]. - The basic EPS for FY3/23 was ¥2,037.6, with an expected increase to ¥2,753.5 for FY3/24 [2]. Quarterly Performance - In Q1 FY24, the company reported revenue of ¥146.15 billion, a 4.3% increase year-on-year, and an operating profit of ¥27.22 billion, reflecting a 13.6% increase [3]. - The operating profit margin for Q1 FY24 was 18.6%, indicating a positive trend in profitability [3]. - The net profit for Q1 FY24 was ¥45.90 billion, showing a significant year-on-year increase [3].

Industry Investment Rating - The report provides a stock ranking for the Japan Food Sector, with Buy and Neutral ratings for various companies in the Beer & Beverage, Processed Food, and Tobacco/Others categories [5] Core Investment Thesis - The report highlights that share prices reacted sharply to concrete earnings figures during the April-June period, with stocks that reported stronger Q1 results than guidance and had high visibility of profit growth for the next fiscal year being favored [2] - Stocks with high medium- and long-term growth prospects but short-term earnings falling short of consensus were overly penalized by the market, presenting potential investment opportunities [2] Stock Recommendations - Nissin Foods is recommended as a Buy due to: 1) Q1 profit stagnation being attributed to a time lag in recording costs, 2) overseas instant noodle sales growing at a high single-digit rate, and 3) outperforming the market in terms of volumes in the US despite price mix issues [3] - Coca-Cola Bottlers Japan is recommended as a Buy due to: 1) strong monthly sales indicating continued positive news flow, and 2) high visibility for the next fiscal year with full contribution from price increase effects [3] Stock Ranking Details - Buy-rated stocks include Coca-Cola Bottlers Japan, Nissin Foods, Asahi GHD, Japan Tobacco, Kikkoman, and Toyo Suisan Kaisha among others [5] - Neutral-rated stocks include Suntory Beverage & Food, Dydo GHD, Itoen, Morinaga Milk, and Yakult among others [5]

Global Research and Evidence Lab 13 August 2024 Japan Equity Strategy & Thematic Research Event Watch: Focus on micro factors while also monitoring macro conditions Equity Strategy Japan Nozomi Moriya Strategist nozomi.moriya@ubs.com +81-3-5208 6260 Miranda Zhang Associate Analyst miranda.zhang@ubs.com +81-3-5208 6283 Focus on Japan-specific corporate change while monitoring macro conditions Having edged down 0.5% in July, Japan's TOPIX index fell by 20% in just three days in August in reaction to the BoJ's ...