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Japanese stocks have been touching new highs — and so has activist interest in the country.
Activist investors made a record number of shareholder proposals in Japan last year. Their focus is moving to previously overlooked sectors, such as the sleepy world of retail pharmacy. Despite the relatively small market size, there is much potential.
Ain Holdings, the largest prescription drugstore chain with more than 1,200 dispensing pharmacies in Japan, has become the latest target. Hong Kong-based activist fund Oasis Management has bought a 9.6 per cent stake in the company, which has a market value of $1.2bn. Ain’s shares jumped this week, following a filing suggesting Oasis could make “important proposals” to the company.
Japan’s rapidly ageing population and increasing demand for prescriptions has resulted in a rise in healthcare expenditure, with Japan’s spending one of the highest among OECD countries as a portion of gross domestic product. The country is home to the third-largest pharmaceutical market in the world.
There is still room for growth in Japan’s $53bn dispensing pharmacy market. New technology such as drones are expected to help cut costs of deliveries. At the same time, a wave of deregulation including easing restrictions on outpatient visits and plans to allow nearly all over-the-counter medications to be sold online opens up new opportunities for growth.
So far, the local dispensing pharmacy business has been strong. A rise in prescription numbers in recent months is reflected in a boost to Ain’s net sales in the current fiscal year.
But much faster growth should come from the cosmetics and drugstore business. Demand for high-margin products such as cosmetics, skincare and personal care segments may be peaking in Japan, but those are growing rapidly in south-east Asia.
For Ain, segment profit here more than tripled as both average sale prices of products and number of visiting tourists rose in the nine months to the end of January. The unit has further growth potential as it expands overseas.
Even after recent gains, Ain shares are down a third from their 2022 peak and trade at an enterprise value of just a third of forward sales. Beneficiaries from a valuation boost would include shareholders of Seven & i Holdings, Japan’s largest convenience store operator, which owns 7.8 per cent of Ain’s outstanding shares, according to the company’s website.
The local industry — with over 62,000 pharmacies in Japan — is ripe for consolidation. The activists, in this case, are on to something.
The Lex team produces timely commentary on capital trends and big businesses. We’d like to hear more from readers. Please tell us what you think in the comments section below or email lexfeedback@ft.com.
