Top Stock Picks with Yuka from JapaneseIPO

Note: This article is for informational purposes only and does not constitute investment advice. For more insights and detailed analyses, you can follow Yuka Marosek on LinkedIn and visit JapanesIPO.com.

Hey everyone! I am beyond excited to bring you this conversation with Yuka from

JapaneseIPO

.

If you’re into Japanese stocks or just curious about the market, this is a must-read!

Yuka is a total powerhouse with a deep, fiery passion for Japanese stocks and IPOs.

Her journey is impressive: from a credit analyst to an underwriter in commercial banking, and then a CFA-certified equity analyst. She started with US stocks but found her true calling in the Japanese market. Yuka’s enthusiasm is contagious as she dives into the unique opportunities and challenges that make Japanese stocks so intriguing.

So, without further ado, here are the top stocks handpicked by Yuka Marosek: (Note: These are not recommendations. Please do your own research.)

Stock #1: Sunwels (TYO: 9229)

Me: Ok, Let’s dive into some specific companies. Can you tell us about a stock you find particularly interesting?

Yuka: The first company I want to discuss is Sunwels (Ticker: 9229). They IPOed in June 2022 and have done very well since. They run assisted living facilities for Parkinson’s disease patients, known as PD House (not the best name, but catchy indeed).

It’s definitely not a cheap stock in the traditional sense, but let me clarify why I still think Sunwels is an interesting pick.

Despite a high price-to-earnings (P/E) ratio of 38x and a price-to-book ratio of 11x, they are expected to see nearly 50% operating profit growth by March 2025! If those growth levels are sustainable long-term, the stock can still be viewed as very cheap. As their market cap still is relatively small at ¥95 billion, and they maintain a 96% occupancy rate in their care facilities, I believe this explosive growth is sustainable.

What is Sunwels Moat?

Yuka: What really sets Sunwels apart is the personal experience of its founder and current CEO, who endured a tough disease and a long rehabilitation process when he was younger. He realized that Japanese hospitals lack the capacity for extended rehabilitation, which patients desperately need.

Many people who needed extended rehabilitation were sent home to live with their parents or children, who often did more harm than good to these patients, not pushing them hard enough to go through rigorous rehabilitation exercises, or being too busy to take care of them.

Sunwels’ CEO Ryotatsu Nawashiro suffered from kidney disease when he was young

This insight led to the creation of PD House, a facility that combines assisted living with specialized rehabilitation for Parkinson’s patients. In less than 10 years, Sunwels has managed to build up a strong reputation and trust in in a market where customers demand a lot of trust before chosing a provider, and the company is consistently ranked as a top choice for patients and their families.

This trust and their established presence give Sunwels a significant competitive advantage in a sector where long-term relationships and reliability are crucial.

Me: As you say, the stock is expensive, but if the moats are truly unique and hard to replicate, I still believe it is undervalued.

Stock #2: Bank of Nagoya (TYO: 8522)

Me: Let’s dive into another company. Can you tell us about your second pick?

Yuka: Another company to look at is the Bank of Nagoya (Ticker: 8522).

A bank, you say? Yes, but unlike many other Japanese banks, Bank of Nagoya has a strong relationship with numerous small and medium-sized enterprises (SMEs) in the Nagoya area, many of which are suppliers to Toyota. With Japan’s interest rates normalizing and the economy moving from deflation to inflation, smaller banks like this one are well-positioned to benefit. They have around 29,000 SME clients.

One of the reasons I find the Bank of Nagoya so interesting is because of its strategic location. Nagoya is the headquarters of Toyota, and this proximity has allowed the bank to build strong relationships with Toyota’s suppliers. This network of 29,000 SME clients is crucial, especially as the Japanese economy stabilizes and interest rates normalize. While most regional banks are struggling due to Japan's shrinking population and fewer depositors, Nagoya maintains a relatively stable population, which helps the bank's prospects.

Additionally, the big banks have already benefited from the increased money flow abroad, but now it's the turn of smaller banks, like Bank of Nagoya. Moreover, the bank is actively involved in succession mergers and acquisitions, helping aging business owners find successors and ensuring the longevity of these small businesses. This service is vital in a country with an aging population and a declining birth rate.

Finally, it’s worth noting the annual spring wage negotiations, known as “Shunto,” between Japan’s biggest unions and the largest companies. This year's agreements for salary increases are a positive sign for the broader economy, though the direct impact on SMEs might be limited. Overall, the Bank of Nagoya's strategic relationships, local focus, and proactive initiatives make it a compelling pick.

Me: Interesting. The strategic location and deep integration with local SMEs, especially those tied to Toyota, give the Bank of Nagoya a unique edge. The focus on succession M&As is also a smart move given Japan’s demographic challenges. This makes the Bank of Nagoya a super interesting pick.

Stock #3: Yurtec (TYO: 1934)

Me: And what about your final pick?

Yuka: My final pick is Yurtec (Ticker: 1934), a construction company specializing in power facilities in the Tohoku region. Yurtec stands to benefit from the construction of semiconductor factories and Japan’s push towards carbon neutrality by 2050, particularly through offshore wind farms, where they already have know-how. Despite recent gains, Yurtec remains attractively valued with significant growth potential. They have a market cap of ¥116 billion, a P/E ratio of 13.3, and a price-to-book ratio of 0.76.

Yurtec’s role in the construction of semiconductor factories is particularly exciting. As more companies look to reshore their manufacturing to Japan, Yurtec is well-positioned to benefit from this trend.

The Tohoku region, where Yurtec is based, has its challenges, such as population decline and harsh winters driving younger people to bigger cities. However, this region also has open land, making it a prime spot for new industrial development, including semiconductor factories and renewable energy projects.

A good benchmark to Yurtec’s potential success is competitor Kyudenko, which has performed better so far due to its more rapid digitization and the TSMC semiconductor factory buildout in the Kyushu region.

However, another Taiwanese semiconductor manufacturer is looking to expand their footprint to Japan and rumors say they have chosen Tohoku as their region of choice!

One of the key accelerators for Yurtec is their recent commitment to digitization. Most Japanese companies have been slow to adopt digital processes, but Yurtec is finally taking this seriously to attract international investors. This move towards modernization is expected to enhance profitability and margins, positioning Yurtec well for future growth.

Me: These aspects make Yurtec a compelling choice. The combination of benefiting from semiconductor factory construction and the push towards renewable energy, particularly wind power, presents multiple growth avenues. I think it looks like a lot of the upside has already been priced into the stock, but I still think its a compelling choice.

Final Thoughts:

Me: These companies all sound very promising. Do you have any final thoughts for our readers?

Yuka: If you’re interested in Japanese stocks, I encourage you to start with companies in sectors you’re passionate about. Let’s say you love manga; Japan has tons of manga and anime production companies with an incredible financial history! However, as with anything in Japan, good numbers are not always what them seem…

Always do your homework and don’t hesitate to reach out to me if you have any questions.

Me: People can find you on Substack at Japanese IPO, and you’re very active on LinkedIn, right?

Yuka: Yes, you can find me at Yuka Marosek on LinkedIn. You can send me a comment and find many more stock insights at JapaneseIPO.com.

Me: Wonderful! Thank you so much for taking your time, and as always, this is just information, not a recommendation for purchasing or selling any stocks or assets discussed here.