Three small Japanese companies with big potential

Professional investor Eiji Saito of the JPMorgan Japanese Smaller Companies Trust picks three of his current favourite Japanese small-cap stocks.

Amid ongoing market volatility caused by Covid-19, looking beyond the immediate economic and political uncertainties can be challenging. Nevertheless, the fundamental long-term outlook for Japanese smaller companies remains positive and we see no shortage of exciting investment opportunities.

Quality companies boasting strong balance sheets and a positive long-term growth outlook have proven to be resilient through periods of heightened volatility, leaving them well positioned to thrive in the current market environment. 

Many of these companies tap into exciting structural trends such as automation. And in Japan, in sharp contrast to other developed economies, it is the smaller, more entrepreneurial companies that are at the forefront of the trend towards digitalisation and broader IT innovation. 

Cashing in on digitised business cards 

While Japan is an advanced industrial economy, certain areas such as financial services and payments lag other markets in terms of technological sophistication. Japanese manufacturing, however, is world- class and the country is a leading supplier of factory automation equipment and electronics parts. So companies that specialise in niche technology products driving global innovation look appealing.

One such firm is Sansan (Tokyo: 4443), a software company that provides a cloud-based, multi-platform contact management tool for corporate customers in Japan. Its product offering is centred around digitised business cards, which can be simply scanned to build a database designed to enhance staff productivity in sales, marketing and client service activities. The business occupies 83% of market share in Japanese business card management market. With the ongoing pandemic more people will want to shift to contactless ways of exchanging information, so we remain upbeat on the long-term growth prospects of the company. 

A winner in video gaming software 

Revenues in the video gaming sector are projected to reach US$12.2bn in Japan this year. Enter Capcom (Tokyo: 9697), which develops and publishes video game software, including bestsellers such as Street Fighter, Monster Hunter, and Resident Evil (Biohazard)

Over the years, the game software business has become more robust, especially for those providers with strong intellectual property protection. This is because of the rising penetration of digital downloads, which has increased from 6% of sales in 2012 to around 77% now. 

Bringing green boilers to China

Despite the shaky economic backdrop, we continue to see attractive opportunities in industrials. Miura (Tokyo: 6005) is Japan’s leading boiler manufacturer, with environmentally friendly credentials and global expansion plans. 

The need to reduce carbon dioxide emissions is a big topic across the global economy and Miura’s ‘on-demand steam solution’ boilers are more environmentally friendly than traditional coal-fired boilers. We believe the company is well positioned to achieve long-term growth by selling its boiler technologies across China (where the boiler market is six times larger than Japan’s and dominated by coal-fired products) and other emerging countries.

Recommended

Four high-quality US stocks to give shelter from the storm
Share tips

Four high-quality US stocks to give shelter from the storm

Professional investor Timothy Parton of the JPMorgan American Investment Trust picks four solid US stocks to buy now.
24 May 2022
Three undervalued mid-cap stocks with attractive prospects
Share tips

Three undervalued mid-cap stocks with attractive prospects

Professional investor Katen Patel of the JPMorgan Mid Cap Investment Trust picks three fast-growing mid-cap stocks to buy now.
24 May 2022
Could a stronger euro bring relief to global markets?
Currencies

Could a stronger euro bring relief to global markets?

The European Central Bank is set to end its negative interest rate policy. That should bring some relief to markets, says John Stepek. Here’s why.
24 May 2022
2021 Akitu: New Zealand’s finest “white” pinot noir
Wine

2021 Akitu: New Zealand’s finest “white” pinot noir

Act without delay to secure this enchanting Kiwi white – there is nothing like it on earth
24 May 2022

Most Popular

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022