Daiwa Securities Group (HKSE:01037), Japan’s second-largest broker, was the top contributor to performance over the past 12 months, returning 139%. As discussed in previous letters, Daiwa has benefitted from the Japanese stock market rally and the weakened yen that followed talks of economic reform. Daiwa’s fiscal 2012 results were very strong: net operating revenues increased by 24% while operating costs decreased by 7%. The most recent quarterly numbers also exceeded our expectations. The retail business achieved operating margins around 50%, and the quarter’s EBIT was more than half of what we estimated for Daiwa’s entire fiscal year. Although Daiwa’s stock price has almost tripled over the past year, we continue to believe the company’s stock has significant upside and will remain a good investment for our shareholders.
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