Atlantis Japan Growth Fund — Continuing to find attractive growth opportunities

Atlantis Japan Growth Fund (LSE: AJG)

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Atlantis Japan Growth Fund — Continuing to find attractive growth opportunities

Atlantis Japan Growth Fund (AJG) is advised by Atlantis Investment Research Corporation (AIRC). Lead portfolio adviser Taeko Setaishi aims to generate long-term capital growth from a portfolio of primarily smaller-capitalisation Japanese equities. AIRC’s philosophy is that over the long term, a company’s share price performance is driven by its earnings growth, especially for smaller companies. Setaishi notes that Japanese equities have experienced negative investor fund flows in 2018, which has had a large impact on the Japanese stock market. However, while overall economic growth in the country remains modest, the adviser is continuing to find companies with attractive fundamentals that are trading on reasonable valuations, particularly in small and mid-caps. While recent performance has been more challenging, AJG has outperformed its benchmark TOPIX index over the last one, three, five and 10 years.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

Atlantis Japan Growth Fund

Continuing to find attractive growth opportunities

Investment companies

5 September 2018

Price

225.0p

Market cap

£110m

AUM

£129m

NAV*

249.9p

Discount to NAV

10.0%

*Including income. As at 4 September 2018.

Yield

0.0%

Ordinary shares in issue

48.9m

Code

AJG

Primary exchange

LSE

AIC sector

Japanese Smaller Companies

Benchmark

TOPIX

Share price/discount performance

Three-year performance vs index

52-week high/low

242.0p

186.3p

260.5p

202.8p

**Including income.

Gearing

Net*

4.2%

*As at 31 July 2018.

Analysts

Mel Jenner

+44(0)20 3077 5720

Gavin Wood

+44 (0)20 3681 2503

Atlantis Japan Growth Fund is a research client of Edison Investment Research Limited

Atlantis Japan Growth Fund is a research client of Edison Investment Research Limited

Atlantis Japan Growth Fund (AJG) is advised by Atlantis Investment Research Corporation (AIRC). Lead portfolio adviser Taeko Setaishi aims to generate long-term capital growth from a portfolio of primarily smaller-capitalisation Japanese equities. AIRC’s philosophy is that over the long term, a company’s share price performance is driven by its earnings growth, especially for smaller companies. Setaishi notes that Japanese equities have experienced negative investor fund flows in 2018, which has had a large impact on the Japanese stock market. However, while overall economic growth in the country remains modest, the adviser is continuing to find companies with attractive fundamentals that are trading on reasonable valuations, particularly in small and mid-caps. While recent performance has been more challenging, AJG has outperformed its benchmark TOPIX index over the last one, three, five and 10 years.

12 months ending

Share price
(%)

NAV
(%)

TOPIX
(%)

MSCI Japan
Small Cap (%)

MSCI AC
World (%)

FTSE All-
Share (%)

31/08/14

5.8

13.0

3.7

9.8

13.3

10.3

31/08/15

8.4

12.2

13.4

11.7

1.7

(2.3)

31/08/16

14.1

10.3

21.5

28.5

26.7

11.7

31/08/17

30.4

30.4

18.8

25.6

19.7

14.3

31/08/18

17.6

19.4

7.8

6.9

11.0

4.7

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Four-stage stock selection

Setaishi employs a largely unconstrained approach to individual stock selection, seeking companies with strong fundamentals and attractive valuations. She uses a four-stage investment process: periodic screening, company visits, in-depth fundamental research and the construction of a buy list. Sector allocations can vary markedly compared with the TOPIX index; for example, at end July, c 45% of the portfolio was invested in industrial stocks versus a benchmark weighting of c 8%. Gearing of up to 20% of NAV is permitted; net gearing was 4.2% at end July 2018.

Market outlook: Potential for rerating

Japanese equities look relatively attractively valued compared with other developed stock markets and may offer the opportunity for a rerating. While overall Japanese economic activity remains modest, there are pockets of higher growth driven by secular trends, such as increased automation, and growth in the Japanese service sector. This provides opportunities for investors employing a disciplined approach to stock selection.

Valuation: Discount has widened in 2018

In February 2018, AJG briefly traded at a small premium. However, its shares are once again trading at a discount, its 10.0% share price discount to NAV is modestly wider than the averages of the last one, three, five and 10 years (a range of 8.3% to 9.9%). The company’s board operates an active discount control mechanism, including a continuation vote if the discount regularly exceeds 10% (see page 7). AJG focuses on long-term capital growth rather than income and does not pay a dividend.

Exhibit 1: Fund at a glance

Investment objective and fund background

Recent developments

AJG aims to achieve long-term capital growth through investing wholly or mainly in listed Japanese equities. Currently all investments are in Japanese equities with a bias to smaller- and mid-sized companies.

24 August 2018: Confirmation of next redemption point (28 September 2018).

9 July 2018: 12-month results ending 30 April 2018 in £ terms. NAV TR +38.8% versus benchmark TR +13.5%. Share price TR +36.0%.

6 April 2018: the board approved payments for redeemed shares – 2.3424p/share for basic entitlements and 2.2965p/share for excess entitlements.

3 April 2018: investment manager Tiburon Partners changed its name to Quaero Capital following the merger of the two companies.

3 April 2018: 24% of shares lodged for redemption (scaled back to 5%).

Forthcoming

Capital structure

Fund details

AGM

October 2018

Ongoing charges

1.57% (FY18)

Group

Atlantis Investment Research Corp

Interim results

December 2018

Net gearing

4.2%

Manager

Quaero Capital

Year end

30 April

Annual mgmt fee

1.0%

Address

2-4 King Street,
London, SW1Y 6QL

Dividend paid

Irregular (see page 7)

Performance fee

None

Launch date

10 May 1996

Company life

Indefinite subject to cont. vote

Phone

+44 (0)207 747 5770

Continuation vote

Conditional on discount

Loan facilities

¥1.5bn

Website

www.atlantisjapangrowthfund.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Dividend payments are irregular and paid in US cents. No dividends have been paid since FY12 and there is currently no intention to make distributions.

Renewed annually, the board has authority to repurchase up to 14.99% of outstanding shares. Repurchases shown below include redeemed shares. Allotments are exercises of subscription rights.

Shareholder base (as at 31 July 2018)

Portfolio exposure by market cap (rebased for gearing as at 31 July 2018)

Top 10 holdings (as at 31 July 2018)

Portfolio weight %

Company

Sector

31 July 2018

31 July 2017*

Nidec

Electronic components

3.4

3.5

Fullcast Holdings

Staffing services

3.0

N/A

Nittoku Engineering

Electrical components

3.0

4.5

Star Mica

Homebuilding

3.0

3.0

Yamashin-Filter

Pollution control equipment

2.9

N/A

Japan Material

Semiconductor manufacturing

2.6

N/A

Japan Investment Adviser

Commercial financial services

2.6

N/A

Benefit One

IT services

2.4

2.4

Creek & River

Professional services

2.3

2.3

Hikari Tsushin

Consumer electronics & application stores

2.3

N/A

Top 10

27.5

28.8

Source: Atlantis Japan Growth Fund, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in July 2017 top 10.

Market outlook: Valuations remain relatively attractive

Exhibit 2 (left-hand side) shows how share prices have performed in sterling terms over the last five years; small-cap Japanese equities have outperformed both the broader Japanese stock market and global equities over this period. While there are constraints on Japanese economic growth due to factors such as a lack of inflation and an ageing population, there are companies that are able to harness demographic trends at home as well as tap into higher-growth overseas economies. In terms of valuation, using Datastream indices (Exhibit 2, right-hand side), Japanese stocks are trading on a forward P/E multiple of 13.5x, which is a c 9% discount to world equities and is appreciably wider than the c 3% average discount over the last five years. Exhibit 3 highlights Japanese equity valuations compared with other developed markets. The average forward P/E multiple is broadly in line with those in the UK and Europe, but at a significant more than 20% discount to the US. In addition, Japan’s current forward earnings multiple is at a discount to its 10-year average, unlike in the US, UK and Europe. This suggests there may be potential for a relative rerating of Japanese equities.

Exhibit 2: Market performance and valuation

Performance of indices (last five years, in £ terms)

Japan forward P/E multiple and discount to World index

Source: Thomson Datastream, Edison Investment Research. Note: Data at 31 August 2018.

Exhibit 3: Forward P/E multiples (x) of Datastream indices (last 10 years)

Last

High

Low

10-year average

Last as % of average

Japan

13.5

23.6

10.5

14.4

93

US

17.3

18.9

9.4

14.9

116

UK

13.0

15.8

7.4

12.4

105

Europe

13.4

15.6

7.6

12.0

111

World

14.8

16.3

4.7

12.4

120

Source: Thomson Datastream, Edison Investment Research. Note: Data at 31 August 2018.

Fund profile: Primary focus on smaller companies

AJG was launched on 10 May 1996, is incorporated in Guernsey and is listed on the Main Market of the London Stock Exchange. Tiburon Partners was appointed its investment manager in 2012, with AIRC acting as investment adviser. (Tiburon recently changed its name the Quaero Capital following the merger of the two companies.) AIRC was established in 1996 and is an independent boutique fund adviser based in Tokyo, employing four investment professionals with an average of more than 30 years’ investment experience. Since 1 May 2016, AJG’s lead portfolio adviser has been Taeko Setaishi, who had been the company’s deputy portfolio adviser since 1996. She aims to generate long-term growth in capital from a diversified portfolio of 60–70 Japanese equities (including REITs) benchmarked against the TOPIX index. Up to 100% of gross assets may be invested in companies quoted on any Japanese stock exchange; up to 20% of NAV, at the time of investment, is permitted in companies traded on other stock exchanges, that are either controlled and managed in Japan or have material Japanese operations; and up to 10% of NAV, at the time of investment, may be in unlisted companies. Up to 20% of NAV may be invested in equity warrants and convertible debt, and no more than 10% of the portfolio is permitted in a single company. Gearing of up to 20% of NAV, at the time of borrowing, is allowed (net gearing was 4.2% at end July). From the fund’s inception on 10 May 1996 to end FY18 (April), AJG’s NAV total return in sterling terms is +271.9%, which is meaningfully ahead of the benchmark’s +57.5% total return.

The fund’s lead portfolio adviser: Taeko Setaishi

The adviser’s view: Still finding attractive opportunities

Setaishi explains there has been no fundamental change in her view about the macro environment in Japan (see our February 2018 initiation note). While there was some economic weakness in Q118 as a result of extraordinary factors, since then economic data have been more favourable. There is strong capex in the domestic private sector and while consumption has been a little disappointing given higher wages and tightness in the labour market, exports remain robust. The adviser believes that over the medium term, the Japanese economy can grow at c 1% pa. However, although overall economic growth remains modest compared with other developed economies, Setaishi is continuing to find attractive investment opportunities due to significant structural changes in Japan. This is represented within AJG’s portfolio in a variety of themes such as: companies benefiting from an ageing population; Japan’s market leadership in robotics; a trend towards outsourcing due to a tight labour market; strong global demand for semiconductors; and a shift within the Japanese economy away from manufacturing and towards services. Given the very strong 15–20% Japanese corporate earnings growth in 2017, Setaishi believes growth will be more modest in 2018. For the year, she is expecting corporate sales growth of c 3%, with slightly higher growth in earnings per share. However, the adviser notes there is much higher earnings growth in aggregate at small- and mid-cap companies, which she believes should translate into outperformance by smaller companies compared with the broader Japanese market.

Setaishi suggests the Japanese stock market has been ignored by international investors, who have focused on concerns about disruptions to global trade as a result of US protectionist policies. She notes consistent negative international fund flows in Japanese equities during 2018 and, unusually, there has been a lack of domestic retail demand. The adviser believes that if corporate earnings come through and the Japanese yen remains strong, there should be a tapering of the selling pressure from overseas investors. She notes the relatively attractive valuations of Japanese compared with other developed market equities and says that in absolute terms, Japanese equities are trading towards the low end of their historical ranges on both a P/E and price-to-book basis. Setaishi believes that, given time, international investors will take note of the relatively attractive valuations of Japanese equities and the available investment opportunities in the country.

Asset allocation

Investment process: Stock prices driven by earnings growth

AIRC’s investment process is founded on the belief that a company’s long-term share price performance is driven by its earnings growth, and portfolio investments are made following a diligent individual stock selection approach. There are four steps to the process:

Periodic screening of a universe of c 2,000 companies, seeking firms with above-average growth and improving fundamentals, which are trading on reasonable valuations.

Company visits to understand a firm’s business model and its competitive position.

In-depth fundamental research, including the construction of an earnings model, a determination of a stock’s appropriate valuation and a consideration of its technical factors.

Following discussions within the investment team, construction of a buy list that the portfolio adviser uses as a source to recommend new investments.

Portfolio holdings may be sold if there is a perceived unjustified change in a company’s business model; if there is a downturn in a firm’s operating environment or an earnings disappointment; or if a position becomes too large. The portfolio adviser’s investment approach is largely unconstrained, while adhering to the parameters detailed in the Fund profile section (page 3). This means that sector allocations can vary markedly compared with the TOPIX index (see Exhibit 5). AJG’s portfolio has a high active share (97.7% at end July 2018). This is a measure of how a portfolio differs from its benchmark, with 0% representing full index replication and 100% being zero commonality with the benchmark.

Current portfolio positioning

AJG’s market cap exposure is shown in Exhibit 4. Over the last 12 months to the end of July there is a higher weighting to companies in the £500m to £2bn band (+22.5pp) at the expense of those in the smallest cap (<£500m, -13.0pp) and £2bn to £5bn (-10.1pp) bands.

Exhibit 4: Portfolio exposure by market cap (% unless stated)

Portfolio end-July 2018

Portfolio end-July 2017

Change (pp)

>£10bn

13.5

13.7

(0.2)

£5bn to £10bn

3.6

2.8

0.7

£2bn to £5bn

8.7

18.8

(10.1)

£500m to £2bn

44.4

21.9

22.5

<£500m

29.8

42.8

(13.0)

100.0

100.0

Source: Atlantis Japan Growth Fund, Edison Investment Research. Note: Rebased for gearing.

In terms of sector exposure (using Global Industry Classification Standard rather than TOPIX classifications), over the last 12 months the largest changes are in technology (-14.1pp), real estate (+9.0pp) and industrials (+7.7pp), which remains the largest overweight sector in the portfolio by quite some margin.

Exhibit 5: Portfolio sector exposure vs benchmark (% unless stated)

Portfolio end-
July 2018

Portfolio end-
July 2017

Change
(pp)

Index
weight

Active weight
vs index (pp)

Fund weight/
index weight (x)

Industrials

44.5

36.8

7.7

22.4

22.1

2.0

Information technology

15.9

30.0

(14.1)

12.2

3.7

1.3

Consumer discretionary

14.4

12.0

2.4

19.5

(5.1)

0.7

Real estate

9.0

0.0

9.0

3.0

6.0

3.0

Healthcare

7.2

4.6

2.6

7.3

(0.1)

1.0

Materials

3.9

7.9

(4.0)

6.9

(3.0)

0.6

Financials

3.4

7.2

(3.9)

11.6

(8.2)

0.3

Telecommunications

1.6

0.4

1.3

5.0

(3.4)

0.3

Energy

0.0

0.0

0.0

1.2

(1.2)

N/A

Utilities

0.0

0.0

0.0

1.8

(1.8)

N/A

Consumer staples

0.0

1.0

(1.0)

9.0

(9.0)

N/A

100.0

100.0

100.0

Source: Atlantis Japan Growth Fund, Edison Investment Research, Bloomberg. Note: Rebased for gearing.

Performance: Outperformance in FY18

During FY18 (ending 30 April), AJG’s NAV and share price total returns of 38.8% and 36.0% were meaningfully ahead of the benchmark’s 13.5% total return. Positions contributing to the outperformance include Lasertec (semiconductor equipment), Daifuku (material handling and distribution systems) and Idec (electrical components).

Exhibit 6: Investment company performance to 31 August 2018 in sterling terms

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

While AJG’s more recent performance has generally trailed that of the benchmark, as small-cap indices have lagged the broader Japanese stock market due to particularly heavy negative fund flows, the company’s longer-term performance record remains intact. AJG has outperformed the TOPIX index over one, three, five and 10 years in both NAV and share-price terms, despite more than 10pp performance dilution from subscription share issuance over the period from October 2015 to October 2017. It is also interesting to note its meaningful outperformance of the FTSE All-Share index and the MSCI AC World index (which is dominated by outperforming US stocks) over these periods.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to TOPIX

1.8

(3.3)

(7.4)

9.0

12.4

9.6

43.3

NAV relative to TOPIX

1.8

(3.8)

(4.1)

10.7

10.4

18.9

46.9

Price relative to MSCI Japan Small Cap

2.4

(1.3)

(6.7)

9.9

1.4

(5.2)

2.8

NAV relative to MSCI Japan Small Cap

2.4

(1.8)

(3.3)

11.7

(0.5)

2.8

5.3

Price relative to MSCI AC World

1.0

(8.7)

(13.7)

5.9

3.9

3.5

18.3

NAV relative to MSCI AC World

1.0

(9.3)

(10.6)

7.6

2.1

12.3

21.2

Price relative to FTSE All-Share

5.7

(1.8)

(11.2)

12.3

30.8

39.3

63.2

NAV relative to FTSE All-Share

5.7

(2.3)

(8.0)

14.1

28.4

51.1

67.3

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-August 2018. Geometric calculation. All data in GBP.

Exhibit 8: NAV total return performance relative to benchmark over three years

Source: Thomson Datastream, Edison Investment Research

Discount: Modestly wider than historical averages

Having briefly moved to trading at a small premium in February 2018, AJG is again trading at a single-digit discount. The current 10.0% share price discount to NAV is modestly wider than the historical averages of 8.3%, 8.8%, 8.5% and 9.9% over the last one, three, five and 10 years respectively. The board operates a hard discount control mechanism, whereby a continuation vote is scheduled if AJG’s shares have traded, on average, at a greater than 10% discount to NAV during any rolling 90-day period, in normal market conditions. If the continuation vote is triggered it will occur no later than the next practical AGM. There is also a continuation vote scheduled for the October 2019 AGM. Renewed annually, the board has authority to repurchase up to 14.99% of outstanding shares; the recent buyback of 75,000 shares was the first since FY17.

Exhibit 9: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

AJG is a Guernsey-incorporated investment company with one class of share outstanding. There are currently 48.9m ordinary shares in issue (and 3.9m shares held in treasury). The company has a ¥1.5bn (c £10.5m) credit facility with Royal Bank of Scotland International (RBSI), of which ¥1.0bn (c £7.0m) is drawn down, equivalent to net gearing of 4.2% at the end of July 2018. The loan covenants state that AJG’s portfolio must contain at least 60 holdings, with at least 50 quoted on the Tokyo Stock Exchange or any other equivalent exchange approved by RBSI. The amount of credit drawn down must not exceed 25% of the portfolio value and the company’s NAV must not fall below $58.8m (c £45m). There are currently 68 stocks in the portfolio and AJG’s NAV is c $150m (c £115m). The company’s subscription share mechanism was discontinued in November 2017, having successfully raised c £26m in the prior two financial years (c £11m in FY16 and c £15m in FY17). The board believes the simplified capital structure is more appealing to current and future shareholders. AJG has a facility, at the board’s discretion, to enable shareholders to sell all or part of their holdings via a regular six-monthly redemption of up to 5% of AJG’s outstanding shares. At each redemption point, the board may notionally allocate assets and liabilities into a redemption pool or use available cash to fund redemption requests. During FY18, 2.6% of AJG’s shares were lodged for redemption on 29 September 2017, with 24.0% lodged on 29 March 2018 (scaled back to 5%). Quaero Capital is paid an annual management fee of 1% of NAV. In FY18, ongoing charges were 1.57%, which was modestly higher than 1.52% in FY17. However, the current level of ongoing charges is meaningfully lower than 1.91% in FY16; this is primarily due to the company’s increased size, which spreads fixed costs over a larger asset base.

Dividend policy and record

AJG aims to generate long-term capital growth rather than focusing on income generation. The last time a dividend was paid was in FY12, and the board intends to continue a zero-distribution policy as portfolio income has tended to be more than offset by expenses.

Peer group comparison

Following the name change of Fidelity’s Japan Trust and its move to the AIC Japan sector, there are now just three funds in the AIC Japanese Smaller Companies sector. AJG’s NAV total returns are below the sector average over the periods shown. However, readers should be reminded that the trust’s performance has been diluted by more than 10pp over the two years of the subscription share issuance (October 2015 to October 2017). AJG has the highest ongoing charge of the three funds and the lowest level of gearing and none of the three peers pay a dividend. To enable a broader comparison, we also show the six trusts in the AIC Japan sector. AJG’s total returns are ahead of this sector’s average over one, three and 10 years, and broadly in line over five years.

Exhibit 10: Japanese peer groups as at 31 August 2018*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (ex-par)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

Atlantis Japan Growth

110.3

19.4

70.9

116.1

241.4

(10.1)

1.6

No

104

0.0

Baillie Gifford Shin Nippon

527.3

32.6

142.8

243.8

679.4

4.6

0.9

No

110

0.0

JPMorgan Japan Smaller Cos

234.9

14.1

77.1

127.0

193.3

(10.7)

1.1

No

109

0.0

Average – Japanese Smaller Cos

290.8

22.0

96.9

162.3

371.4

(5.4)

1.2

108

0.0

AJG Rank

3

2

3

3

2

2

1

3

Aberdeen Japan

86.6

5.8

36.5

91.0

201.1

(12.6)

1.2

No

111

0.9

Baillie Gifford Japan

773.4

21.7

91.8

155.3

359.9

2.7

0.8

No

111

0.0

CC Japan Income & Growth

205.5

16.1

5.2

1.3

No

118

2.3

Fidelity Japan

207.1

24.5

90.5

133.4

204.1

(16.0)

1.3

No

113

0.0

JPMorgan Japanese

733.7

19.7

70.0

114.0

201.4

(9.3)

0.7

No

105

1.3

Schroder Japan Growth

262.5

8.2

51.6

90.4

174.7

(8.8)

1.0

No

130

1.8

Average – Japan

378.1

16.0

68.1

116.8

228.2

(6.5)

1.0

115

1.1

Source: Morningstar, Edison Investment Research. Note: *Performance as at 30 August 2018. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are four directors on AJG’s board; all are non-executive and independent of the manager. Chairman Noel Lamb was appointed to the board on 1 February 2011 and assumed his current role on 1 May 2014. The other three directors and dates of appointment are: Philip Ehrmann (25 October 2013), Richard Pavry (1 August 2016) and Michael Moule (5 February 2018). The directors have backgrounds in investment management, corporate finance and law. In April 2018, the board made its biennial visit to Japan to spend time with the investment adviser, and to gain a greater understanding of the structural issues within the Japanese economy and the available investment opportunities for AJG.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). 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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Atlantis Japan Growth Fund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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QEX Logistics — Continued business acceleration

QEX’s revised sales turnover target indicates a robust business uptake and confirms the strong start in Q119 (despite weaker sales in Australia), with sales at NZ$15.4m (up 35% vs Q418) driven by dairy products and NZ’s international postage revenue. Importantly, management highlighted that the solid trend continued over the past two months. QEX’s ability to secure funding through its listing in February coupled with the recent NZ$2.5m placement, supports the company’s solid growth prospects.

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