Researching Japanese stocks

A few tips for the investors that are looking into the TSE (and a short guide for myself)

Interest in Japanese stocks is soaring in the last few months, but accessing information there is still difficult. Partly because it is not in English, partly because of different conventions, and partly because the financial services industry is not as adapted to Japanese services as to US ones (although I think that will change!). So I am putting together a small collection of things for everyone (myself included). Now, I am not specialized in Japanese stocks, so I might miss something. If you know better resources, I would love to know them!

Miscelanea

There are a few things that confounded me a few times and that are a bit general to include anywhere else:

Market cap discrepancies

Most of the time, the market cap you find in Google will be incorrect, and the same will happen in some brokers (Interactive Brokers in my experience is one of them). And then you will find a lower one in other (Yahoo Finance, TIKR.com). That is the correct one, the other one does not subtract treasury shares, which can be a relatively large amount in many Japanese companies (they usually don't cancel the shares right away)¹.

IR?

Being used to the US standard (or even the UK/European one, depending on the country you are talking about) of disclosure and information, diving into this world is strange. Plans for capital allocation are typically not disclosed, or difficult to understand or frame.

Sega Sammy's shareholder return policy is targeting a minimum of 3% dividend vs book value (?) or 50% of net profit with maybe buybacks based on no known criteria? My guess is that if that 3% dividend doesn't reach 50% they will do buybacks. But not sure. At least they have one!

There is progress being made on this, thanks in part to the efforts of regulators. With any luck, the Japanese massive pile of cash will stop being a meme in the future. And in all honesty, this is partly why I am bullish Japan, as I see cross-shareholdings decreasing (as it recently happened for Bandai Namco's Toei Animation holding) and cash being used for M&A, investing and shareholder returns, and repurchases soaring.

For a nice and detailed piece on the TSE's efforts to improve capital allocation, you can read Asian Century Stocks's Naming and Shaming in Japan. It seems to be working. Some of us are also following AltayCap's lead messaging smaller Japanese companies about this measures. I fully encourage you to join!

Naming and shaming in Japan

But I don't speak Japanese…? 🇯🇵

Well, me neither, to be frank. And while that can be a problem, you can get around it, although I only do it if I have enough confidence on the product and its direction first, and feel I have enough visibility over it.

Let me use an example… in the case of IG Port, I think I have visibility over its overall and global reception through Twitter, MyAnimeList, Reddit… It doesn't hurt that I like anime in general, so I am going to be somewhat plugged-in to what is relatively hot right now (although beware of the dangers of that by demo and the like). Otherwise, I wouldn't invest (and I might still be very wrong about this!). I might even extend that to companies that also publish in English, as they usually publish only a selection of things in that language.

If you decide to go this path, there are some tools you can use, but I would never use this for things were precision and nuance are really important (say debt covenants, investing taking into account the potential result of legal cases…).

Translating

Google Translate & DeepL usually do a decent enough job so you can get the gist of things by copy-pasting something in there if it is a short text. Now, we can run into two problems before doing even that. PDFs without a selectable text layer and those were the text layer is simply nonsense, and you get only weird symbols² when you copy it.

Will talk about how to solve that in a minute, but first let's talk about translating documents. Copy-pasting excerpts is just to much work, and a bit too much for a script to do formatting right, but luckily there are some services already for that. The best I have found so far is DeepL, but even paid accounts have a heavily restricted number of files that can be translated, which can be a huge problem when researching several stocks. OnlineDocTranslator uses the Google Translate API for it and the results, frankly, have been less good for me, plus the user experience of the site is not as good (full-on ad bonanza), and translations some times just don't go through. I have found OnlineDocTranslator to be slightly better at formatting (usually text is not on top of other text, but there are other weird formatting quirks) and DeepL to be better at actually translating the text.

In both cases, expect formatting errors and text on top of other text at times (especially with tables). This doesn't happen as much with languages that are not kanji-based (had a lot cleaner results translating Polish), but well, we want to translate Japanese filings after all. And in both the translation is very, very far from human-translation quality (which is what I would recommend if you are running assets in size for the most important documents… but hey, I am an individual investor that's not a possibility here!)

Files with no valid text

Remember what we were talking about before, about files without valid text and similar problems? Well, there are also ways around that. The first one is probably obvious³: use Google Translate on your phone with your camera pointing to the filing. Not particularly practical unless it is a very quick thing.

The other one actually comes from Roiss' Conclusions ‘s author⁴, and implies using a couple of open source software tools, Tesseract & ocrmypdf. They are actually really easy to add to your system using Brew in Mac. In my case, I only had to install them both through that and worked out of the box, YMMV.

The instruction I am using in most cases (because in most cases I need to get rid of the nonsense icons that are the text layer in those pdfs) is this one.

ocrmypdf --force-ocr -l jpn originalFile.pdf ocrFile.pdf

but in case you need something more (or less, really) their manual is really complete.

Filings

First, let's sort through the basic filings and the information available. Even before that, let's talk about filings in English. Many companies nowadays publish in English as well, especially big ones, and that makes things somewhat easier. Now, you need to be aware that they are usually filled with some delay, so it is not the kind of thing you should use to trade immediately on the information. Second, not all documents are translated.

In Japan, they differentiate between timely disclosure information and statutory disclosure information. For results, that's akin to the difference between an 8K with the results and a 10Q/10K. Sure, the 8K will contain a lot of the same information, but not all of it⁵. And statutory disclosure information, including quarterly and annual securities reports, are not translated, at least that I have seen, and they contain information you won't find elsewhere (information about cross-shareholdings, for starters). Statutory disclosure information also includes share repurchase notifications (although they usually communicate them both ways, and earlier as a timely disclosure). What they usually translate is not the actual report, but what they call the integrated report (akin to the annual report). And as in the West, not all the regulatory information is always there.

You can access the filings here. It is the English version of the search, but all Japanese-language filings are also included. Once you enter the page for a company, the most relevant part is the timely disclosure tab

On clicking the ‘click here for access' buttons, you will get a list of the available filings or documents (a pattern that repeats elsewhere in other tabs). Except for EDINET access. In the Japanese version, EDINET files (statutory ones) are presented in the exact same way as the others, but in the English one they will take you to EDINET's search.

One thing of note: both EDINET and the TSE's public sites only keep the last 10 years of data. There are paid services that keep more, but usually the companies investor relations sites keep them as well. So it can be a hassle, but usually something you can get around (if you even need more than 10 years of filings).

Reading an annual securities report

For me, the most interesting filing out of the statutory ones is the annual securities report, so I will focus on explain this one a bit more. Now, for the most part, this deals with financials, segment information, etc. But it also has relevant information re: major shareholders, cross-shareholdings and a couple of other things. Let's highlight some sections.

The first thing you find out is a financial summary of the last 5 years. Very useful, but also very similar to what you can find in a 10k. The next section, though, is not as common: the history of the company. You will find a fairly simple enumeration of facts and dates usually since the company was founded until present day. Things like when they changed business lines, or some stores were opened are usually there

Mandarake's 2021 History section

Do double check things (they can omit things that are important for you!), but it is fairly useful to get a quick narrative of the company. Format may vary a bit (IG Port adds a couple of diagrams and doesn't follow the typical table format, for example), but it is present in all the reports I have seen so far.

After that section, you will typically find a business description and a diagram summarising the operation

IG Port's diagram in 2023

Now, those diagrams tend to be images and they tend not to have any text layer. Remember the OCR flow that I was mentioning before? Comes in handy some times. Again, this section is very useful when you are first looking into a company, and it can help you understand a bit better how it operates. The description of the business is something that, in general, I find a bit better in Japanese filings than in American or European ones (despite the language barrier, and in Europe it depends a lot on the country really).

The next section is affiliated companies, which is fairly standard (capital invested and percentage of control, basically), then employees by segment (again, nothing very interesting).

And then we come to the business status, discussing strategy, business risks (which should sound familiar) and the equivalent of MD&A, all fairly standard (if a bit less detailed than we are used to).

The next section is the status of facilities/equipment, where they analyze the most important PP&E elements (usually buildings), what part of the assets belongs to each and so on. Fairly useful to understand what the PP&E actually stands for. For Mandarake, for example, that means the stores that are not leased are explained in detail, so you know which ones actually have a bigger surface, or value allocated in goods.

The rest of the sections are fairly typical, but relevant (major shareholders, shares issued/outstanding/treasury, dividend policy, overview of corporate governance, audit and financials). The only thing you have to have be a bit careful with is the number of shares. When you see the shares outstanding translation pop-up in these filings, it usually includes treasury shares. Treasury shares are disclosed in this same filing, so you can have an accurate look here. Just careful not to fall for that!

A last note: given Japan's particular penchant for cross-shareholdings, finding all the information possible regarding them is important… and just after the audit, you will find a section (usually translated as shareholdings, but the original title is 株式の保有状況) where you will find all the issues they own with the number of shares and the percentage of voting they represent, along with their carrying value in the balance sheet. Just commenting this because it doesn’t fall in the notes to the financial statements, but in a section prior to that, and that can be misleading (took me a while to find it the first time!)

A small sample of TV Asahi’s cross-shareholdings in 2023

Other sources of information

Made in Japan 's resources page is just fantastic, although some of them depend on you speaking Japanese (video/audio interviews).

For mobile apps, I use game-i. There are other sources, but I like it.

For Pachinko companies, P-world is a nice way to check how new models are going

Those two, by the way, courtesy of @subset_member on X/Twitter.

For video games, honestly, Japan is one of the few countries which releases physical store sales pretty regularly, which helps a lot with Switch (and console in general), Gematsu usually publishes a roundup of Famitsu sales, to cite an example of where you can check them

For Manga, Mangacodex & @josu_ke (Twitter/X account of the author of the site) are the way to go.

For Anime, MyAnimeList is my drug of choice. The popularity contest aspect of it might not always be the most accurate, and there are some errors or missing data in terms of who is part of the production committee of some things. But overall, great source.

For anime collectibles, some other resources are interesting:

• Solaris Japan, a channel very focused on reviewing collectibles and explaining the strategy and areas of the different lines of product, this one I saw thanks to Continuous Compounding - Alan

• r/AnimeFigures is probably the biggest community around this in the west… and most of the thesis are around its growth in the west!

In general, as you can see, the really interesting stuff is to talk with people that knows and then steal their ideas. Happy to put these out there so you can add them to your collection!

If you found this post useful, please do not forget to like and share it so it can help other investors as well! And if you find something missing or that you would like to know more about, please do ask in the comments, I will be happy to share it if I know!

1. About 10% of Sega Sammy or Mandarake, to mention some of the companies we have discussed in this substack.

2. And no, I am not talking about kanji here.

3. Well, to most people at least. AltayCap had to tip me off. I am not particularly brilliant at times. Many, many times.

4. And here you have his Twitter/X account too!

5. In timely disclosures you will also find presentations or data annexes that are actually extremely useful. Not saying that you shouldn't make use of them, quite the opposite.