12 abrdn Japan Investment Trust plc
ability to procure components and flexibility in adjusting
production. Many companies reported profit increases
and a large number have announced share buyback
programmes.
With this backdrop, we have been busy considering the
new trends, assessing how they might affect the portfolio’s
underlying holdings, and evaluating the opportunities that
lie ahead. We lay this out in greater detail below.
Portfolio review
Several of our holdings reported weaker-than-expected
results, primarily due to rising costs and component
shortages, which has resulted in a muted near-term
outlook for some companies and led to share price
weakness. While the stock price declines are
disappointing, we believe these companies’ issues are
manageable and will be resolved.
The biggest detractor from the Company’s performance
was Nabtesco. The factory automation company sector
has struggled over the year, facing higher expenses and
shortages of key components. Weak automotive capital
expenditure has meant lower investment in robots,
slowing orders for the company’s reduction gears. The
company’s recent results have been mixed, with investors
fearing that supply chain shortages will continue to slow
shipments. Koito Manufacturing’s profits were also weaker
than expected as higher raw material costs and weaker
auto production from component shortages reduced
margins. While we do see some conservatism forecast
into its new assumptions, management made
considerable cuts to its profit guidance. Elsewhere, our
holding of Tokyo Century
weighed on returns. Results from
the diversified financial firm have been mixed as travel-
related businesses, such as its airline leasing and car rental
subsidiaries, remained weak due to rolling shutdowns
across markets. Meanwhile, the company’s aircraft
leasing business will record an impairment from planes
that were leased to airlines in Russia, although we believe
that the exposure is contained and relatively manageable.
In contrast, Tokio Marine was one of our best performing
stocks, as the company delivered impressive results and
consistently raised its full-year guidance to factor in
better-than-expected underwriting profits and
investment gains. A recent purchase of Kohoku Kogyo also
performed well, further detail on the company is given
below. We also benefited from our holding in mobile
operator KDDI, which reported strong results and
increased its share buyback programme. KDDI offers a
range of bundled services that have helped raise its
average revenue per account. It has also been able to
deliver on both earnings growth and shareholder return in
what is a mature market.
During the year, we took advantage of the market’s
volatility to initiate several new holdings, exiting others to
fund these more attractive investment opportunities.
Early in the year, we initiated a position in AGC, a leading
maker of glass products, chemicals and electronics that
trades at attractive valuations. The company has been
using cash generated by mature businesses, including
glass products, to invest in structural growth opportunities
such as pharmaceutical development, manufacturing
outsourcing, EUV mask blanks and glass and display
products for next-generation vehicles. The company has
a number of world leading products, enabling stable
cashflow generation to support continued reinvestment in
the business and underpinning shareholder returns. For
further details on AGC, see our case study on page 32.
Late in 2021, we participated in the initial public offerings
of Kohoku Kogyo and Net Protections Holdings. Kohoku
Kogyo is the global leader in manufacturing key
components used in submarine optical cables and
automotive aluminium electrolytic capacitors. The
company’s integrated production system and its ability to
produce everything internally, from raw materials to
equipment, enables it to maintain its business advantage.
The president, who comes from the founder’s family, is
keen to establish a third pillar of growth, leveraging on the
company’s existing technologies. Net Protections is
Japan’s largest Buy-Now-Pay-Later service provider. Its
credit technology, built on the large amount of settlement
data collected over its 20-year history, gives the company
a solid competitive position. The company’s offering
represents an attractive solution to both parties in credit
based e-commerce transactions: its high and accurate
approval rate offers retail customers frictionless
purchasing experiences while enabling merchants to
maximise sales opportunities. The company also brings
this technology to transactions among corporate
customers, offering one-stop solutions such as payment
collection and invoicing, aiming to replicate its success
gained in the e-commerce business.
Towards the end of the year, we bought Ajinomoto, Ibiden
and Denso. Ajinomoto, Japan’s largest producer of
seasonings, has a strong sales and product development
capability to develop products suited to local tastes. With
a high market share in its core business, the company
commands pricing power. In addition, the management
team have successfully restructured the business portfolio
through the divestment of lower-return, commoditised
businesses, while prioritising investments in value-added
areas within foods and higher growth sectors. The
company has also expanded into products such as
semiconductor materials and contract development and
manufacturing for biopharmaceuticals. Ibiden is a
manufacturer of packaging substrates that protect
Investment Mana
er’s Review
Continued