On last week's pod we talked about having a shopping list ready. Japan has had extreme bursts of volatility over the last couple of years that have served as buying opportunities, and when you compare the daily Nikkei moves to the US right now, it is clear we are within one of those episodes. We specifically flagged the nuclear supply chain as a space that belongs on that shopping list.

JSW (5631) is the figurehead. Large cap, strong moat, exposure to both nuclear construction and defense rearmament. The Nikkei ran a piece today echoing what we flagged weeks ago. If the Muroran plant stopped, global nuclear construction would stop. Margins have expanded from 7.7% to 18.5% in FY2024, defense sales set to quadruple as Japan's sole artillery manufacturer, and the stock has underperformed Tier 1 defense names for seven months. The longer-term setup remains compelling.

That said, we also noted that less crowded smaller caps deserve more focus than the larger cap names right now. These smaller names within the nuclear basket really kicked into gear after the February 19 US-Japan deal details but are starting to pull back with the broader market over the last few days.

Three clusters to watch.

Valves. Nippon Gear (6356) holds 96% market share for valve actuators in domestic nuclear power stations. Okano Valve (6492) makes the high-pressure, high-temperature valves that control fluid flow inside reactors. TVE (6466) is more service-heavy, capturing high-margin maintenance, reactor restarts and long-term decommissioning contracts. All three are among the strongest performers in the basket. Miyairi (6495) has given most gains back, nuclear is peripheral to its core LPG business.

Equipment. Kimura Chemical Plants (6378) has held well with around 30% of revenue from nuclear, spanning Fukushima decommissioning, fuel-cycle facilities, radioactive waste treatment and nuclear engineering. Shigematsu (7980) plays the dual use defense and nuclear PPE angle. Toyo Tanso (5310) is the longer dated fusion and fission materials thesis, now at 1.2x P/B after giving everything back since the conflict began. A washout is worth watching here.

Testing. Tokyo Koki (7719) is the strongest mover in the basket since Feb 19. A speculative small cap, but it sells the mandatory material-testing rigs used to certify aging reactor vessels for restarts.

We are watching the whole space carefully. Kimura and Toyo Tanso are the two names highest on the list, but we are not pulling the trigger just yet.

Best regards, Kabu Japan