Japan Post equity sale hampered by Toll experience

The Japanese government is selling off another large slice of Japan Post.

Although the price of the individual shares will be announced on September 24, the sale should generate around ¥1.3 tn, approximately US$12bn in dollar terms. Representing 990m shares, this is around 22% of the equity of the company.

Japan Post Holdings is huge, with a revenue of ¥13.3 tn in financial year 2016, however much of this is accounted for by the banking and insurance arms of the business. Japan Post itself had a revenue of ¥3.7 tn and an ordinary income – essentially operating profit – of ¥52.2bn, the latter being an increase of 23%. However, net profit fell into negative territory. The latter was driven by the write down in the value of Toll Group, something which took over ¥500bn off the company’s balance sheet.

The heart of Japan Post’s problem is how to find growth. Press comment around the share sale concentrated largely on the poor performance of the share price, which is presently below that of the Initial Public Offering in 2015. It is believed that the company has only mediocre growth prospects.

The write-offs around Toll however, disguise a reasonably stable business in Japan aided by its huge financial divisions. The company ought to be able to rectify the problems at Toll Group which had been profitable and growing, if a little volatile, before Japan Post bought it. Indeed, the ability of Japan Post to buy and operate such acquisitions is fundamental to its prospects. With Japan being a mature market, it needs to expand internationally. Japan Post is about to roll out a three-year growth strategy which will include its ideas for the future of Toll and its possible future acquisitions. It also needs to roll out e-commerce related logistics capabilities at a global level to complement its attempts to purchase companies outside Japan.  If it is not capable of doing this, it will be little more than an investment vehicle for Asia Pacific logistics operations.

Source: Transport Intelligence, September 12, 2017

Author: Thomas Cullen


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