Astro Japan Trust (AJA.ASX)

Friday 10th July 2015

Sharechat.co.nz Hot Stock – Astro Japan Trust (AJA.ASX)

More in at the ground level

What’s new?

Astro Japan has continued with its buyback program in recent months, and we believe this strategy will ultimately yield longer term gains to shareholders as the discount to NTA closes.

Last month, the company announced that it had completed a buyback in the order of 4,940,400 securities, equating to around A$26.2 million, and 7.5 percent of issued capital. There was some scaling back, with the average buyback price of $5.30 conducted at a 17.7 percent discount to pro forma NTA of $6.44 at 31 March 2015.

We think the buyback initiative has been a positive move, as the company has ample liquidity available. Total cash at the end of March was around A$65 million.

Some of this cash has also been earmarked for distributions, with management increasing guidance here for the second half by 16 cents per share. Total distribution guidance for FY15 is now 28.5 cents per share.

Astro Japan meanwhile continues to have ample liquidity to build out its property portfolio, should the opportunity arise. In June, management announced that AJA had increased its interest in the Musashino Towers to 29 percent from 21 percent. This required additional equity investment of around ¥187 million or A$2 million.

Last week, the company announced it had upped its interest even further, taking the value of its stake to 52 percent, at a further cost of around ¥644 million, or A$6.78 million. The latest investment was also made at a small discount to the most recent valuation. Following the deal, AJA still has significant cash balances at some A$30 million equivalent.

More generally, last week’s Tankan survey showed that the big manufacturer’s sentiment index has risen 3 points in the past three months to come in at plus 15 in June. This compares to expectations of plus 12. Non-manufacturing firms are also feeling cheerier, with the sentiment gauge here improving 4 points to plus 23.

It is also telling that companies are coming out of their hibernation as well, and starting to invest more, after sitting on cash piles for decades. Big firms plan to raise capital expenditures by 9.3 percent in the fiscal year from April, beating the 5.2 percent increase expected. This would be the fastest rate of capex growth since fiscal 2006.

Clearly Shinzo Abe’s grand plan to reinvigorate the economy is starting to filter down, and free the shackles of pessimism which have been entrenched for decades.

Outlook

We continue to expect that a combination of rising real estate prices, better funding terms, and gradual improvements in rental yields will underpin Astro Japan’s NTA, profitability, cash flow, and ultimately dividends, over the medium term. We also note that AUD/JPY exchange rate appears to be going more in AJA’s favour, with the AUD weakening against the yen of late. We also believe that another rate cut by the RBA in the coming months will lend support to this dynamic.

Price

AJA’s share price has traded in line with the broader market this calendar year to date, and is unchanged on an absolute basis. However on a price to NTA basis, AJA’s discount has increased, with this being indicative of the recent improvements to the Trust’s balance sheet.

Worth buying?

An improving economy also bodes well for the Japanese property markets, with Astro Japan Property remaining one of our favoured plays here. The trust has been performing well, with earnings, cash flows, and ultimately dividends benefitting from higher property valuations, profits on the sale of assets, lower debt, and better financing terms.

Meanwhile, we expect adverse currency translations to abate, with declines in the AUD potentially outstripping those in the yen over the medium term. In such context, we find the 20 percent discount to the trust’s net tangible asset backing compelling value, especially when also taking into account a 5.6 percent yield.

Greg Smith is an Analyst at Fat Prophets share market research. To receive a recent Fat Prophets Report, call 0800 438 328 or Click here.

Disclosure: Astro Japan Property is held in the Fat Prophets Australian Share Income and Small & Mid-Cap models.

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