Japanese Smaller Companies Fund

The Jan 25 update

Dear reader,

Smaller Japanese Companies is ISIN code:GB0006014582 - can be found via this link for example.

Baillie Giff has released its January update. So let’s put some colour on what’s ACTUALLY happening at the top #5 holdings in the Smaller Japanese Companies fund.

#1 Lifenet

Lifenet still hasn’t got round to upgrading its logo - too busy growing its profits, perhaps. Knock out results last week and a CAGR of 19% well ahead of guidance for the third quarter of fiscal 2024, with significant growth in insurance revenue and net income. The annualised premium of policies-in-force increased notably, reflecting effective premium rate revisions and increased business from group credit life insurance. Policyholders grew 21,000 since the 9 months to 31/12/24 to nearly 400,000.

The company reduced its surrender and lapse ratio, and despite a minor FX loss, the company’s overall profitability improved to over £34m (on a £791m market cap). The share price is up sharply on the news.

#2 Katitas

Homes under the hammer developer increased sales and properties sold, with operating profits up 15%. 3Q is always a busy period because sellers want to avoid paying property taxes for another year so are keen to offload their property. So Katitas has been hoovering these up and will focus on sales in 4Q24 to March 2025.

#3 Nifco

In the quarter to 31/12 operating profits are sharply up 20%

Demand for semiconductors was strong although difficult conditions remain in the automotive segment, confidence remains high levels. China exports increased, particularly for IT-related goods and EVs, and the delaying of punitive tariffs on Chinese goods by the U.S. Causes for concern still remain, including weak consumer spending, sluggish capital investment, and growing risk of deflation.

The European economy was on a moderate recovery trend as a whole. On the other hand, in the European automobile industry, it looks like price competition will continue to worsen, particularly against Chinese automobiles. Additionally, German automotive has been strongly impacted by rising energy prices. U.S. non-manufacturing industries continued to perform well and conditions improved in many areas. This was in sharp contrast with manufacturing industries, which were put under pressure by a downturn in demand for goods, driven by tightening financial conditions. This has produced adverse effects in areas such as production activities, and business sentiment is that the market is growing sluggish. Overall, despite a slowdown in the growth rate, the U.S. business environment remains resilient.

Thus, though there was a standstill in certain regions, the global economy picked up. Going forward, the global economy is expected to continue on a recovery trend. However, the outlook remains uncertain and there is a need to watch how economic and foreign relations policies by the new U.S. administration affect the global economy, and how the global economy responds.

#4 Yonex

3Q24 results are also strong at Yonex with sales, profit up.

Increasing profit mainly through sales growth in Asia (+19.3%), so its China/India strategy is paying off.

Badminton and apparel are the main drivers of growth. Up 18.8% for Badminton, with apparel up a larger 34.1%

Who has heard of Minomushi bagworms (?!) but apparently that is part of the secret behind its new tennis racquet. Yonex romped home with Yonex racquet players winning 12 out of 19 events at the Australian Open 2025.

JEOL

Year on year sales in 3Q24 (to 31/12/24) grew by about a third, while net profit virtually doubled. Much of that growth was industrial equipment for 3D Printing and Lithography (production of semiconductors). It is astonishing that this is on a P/E of 8.8

Conclusion

Every one of the top 5 of the holdings in Baillie Giff’s Smaller Japanese are reporting record profits and the swathe of results have been released relating to the period to 31/12/24. Its holdings are all listed in Japan and the top 10 are up 19% since the start of last year, on average. Some have more than double bagged. The average P/E of the top 10 is 17X which considering the quality of the companies is I believe is very reasonable.

During 2025 the fund’s share price has responded by a few percent and this idea is up 3.1% since I included it in the OB 25 for 25 but there’s plenty of runway left I believe.

Regards

The Oak Bloke

Disclaimers:

This is not advice - make your own investment decisions.

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"