Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

In <a href="https://www.smartkarma.com/insights/would-a-maxim-acquisition-be-digestable" target="_blank" data-smartkarma-citation="insights:17216">Would a Maxim Acquisition Be Digestable?</a>, we discussed the difficulty of <a href="https://www.smartkarma.com/entities/15933" target="_blank" data-smartkarma-citation="entities:15933:1">Renesas Electronics (6723 JP)</a> completing an acquisition of <a href="https://www.smartkarma.com/entities/18619" target="_blank" data-smartkarma-citation="entities:18619:1">Maxim Integrated Products (MXIM US)</a> due to the relatively equal sizes of the two companies and Renesas' balance sheet situation following its Intersil acquisition.We noted that given the company's balance sheet it would be better served by acquiring one or two smaller players rather than trying to complete a giant acquisition and we identified <a href="https://www.smartkarma.com/entities/10555" target="_blank" data-smartkarma-citation="entities:10555:1">Semtech Corp (SMTC US)</a>, <a href="https://www.smartkarma.com/entities/13405" target="_blank" data-smartkarma-citation="entities:13405:1">Power Integrations (POWI US)</a>, <a href="https://www.smartkarma.com/entities/6073" target="_blank" data-smartkarma-citation="entities:6073:1">Sanken Electric (6707 JP)</a>, <a href="https://www.smartkarma.com/entities/2088" target="_blank" data-smartkarma-citation="entities:2088:1">Monolithic Power Systems, Inc (MPWR US) </a>and  <a href="https://www.smartkarma.com/entities/3721" target="_blank" data-smartkarma-citation="entities:3721:1">Integrated Device Tech (IDTI US)</a> as likely targets. The last of these candidates has now emerged as the front-runner target in Renesas' quest for a comprehensive product lineup.While Renesas is down 5% this morning, we would be in favour of this acquisition as we believe the product lineup fit is attractive and it also removes the overhang from the acquisition of an oversized competitor such as <a href="https://www.smartkarma.com/entities/18619" target="_blank" data-smartkarma-citation="entities:18619:1">Maxim Integrated Products (MXIM US)</a>.<ul>
<li>Renesas stock has sold off as the company has guided conservatively, but given its recent track record of excessive conservatism and negative trade war headlines, we wonder if it is too early to price in a slowdown prior to an actual confirmation of decelerating sales.</li>
<li>Production adjustments similarly negatively impacted gross margins in 2Q and should do so again in 3Q but we believe these moves may be slightly premature and could create the opportunity for a strong rebound in 4Q onwards.</li>
<li>The potential acquisition would be expensive and dilutive at 19x EV/EBITDA and 21x EV/OP based on the reported JPY660bn price, but given market conditions for automotive semiconductors we believe a high price is inevitable and a strong product lineup is strategically necessary, so we like the move for the long-term, despite the short-term pressure it is likely to place on the share price.</li>
<li>If completed, the acquisition would likely move Net D/E above 1.0x, manageable, but not a position from which the company could conduct further large M&amp;A easily. Potential investments from Denso also bear watching.</li>
<li>Pro-forma calculations put the combined company on about 8.9x EV/EBITDA vs. Infineon at 10.8x and NXP at 11.2x. We believe the discount would be unwarranted given similar scales and Renesas' improved momentum and profit structure with the move closer to a fabless model.</li>
</ul>

In Would a Maxim Acquisition Be Digestable?, we discussed the difficulty of Renesas Electronics (6723 JP) completing an acquisition of Maxim Integrated Products (MXIM US) due to the relatively equal sizes of the two companies and Renesas' balance sheet situation following its Intersil acquisition.We noted that given the company's balance sheet it would be better served by acquiring one or two smaller players rather than trying to complete a giant acquisition and we identified Semtech Corp (SMTC US), Power Integrations (POWI US), Sanken Electric (6707 JP), Monolithic Power Systems, Inc (MPWR US) and  Integrated Device Tech (IDTI US) as likely targets. The last of these candidates has now emerged as the front-runner target in Renesas' quest for a comprehensive product lineup.While Renesas is down 5% this morning, we would be in favour of this acquisition as we believe the product lineup fit is attractive and it also removes the overhang from the acquisition of an oversized competitor such as Maxim Integrated Products (MXIM US).
Renesas stock has sold off as the company has guided conservatively, but given its recent track record of excessive conservatism and negative trade war headlines, we wonder if it is too early to price in a slowdown prior to an actual confirmation of decelerating sales.
Production adjustments similarly negatively impacted gross margins in 2Q and should do so again in 3Q but we believe these moves may be slightly premature and could create the opportunity for a strong rebound in 4Q onwards.
The potential acquisition would be expensive and dilutive at 19x EV/EBITDA and 21x EV/OP based on the reported JPY660bn price, but given market conditions for automotive semiconductors we believe a high price is inevitable and a strong product lineup is strategically necessary, so we like the move for the long-term, despite the short-term pressure it is likely to place on the share price.
If completed, the acquisition would likely move Net D/E above 1.0x, manageable, but not a position from which the company could conduct further large M&amp;A easily. Potential investments from Denso also bear watching.
Pro-forma calculations put the combined company on about 8.9x EV/EBITDA vs. Infineon at 10.8x and NXP at 11.2x. We believe the discount would be unwarranted given similar scales and Renesas' improved momentum and profit structure with the move closer to a fabless model.


Renesas Electronics: Our Shortlist Candidate IDT Emerges as Acquisition Target

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Technicals continue to endorse a bullish outlook. And with the S&amp;P 500 breaking out to new highs yesterday, and insurance stocks recovering from last week, we are benefitting from renewed clarity following the muddled, past two months.In today’s report we highlight actionable ideas in the following Groups:<ul><li>Semis... see page 14-20</li><li>Insurers... see page 8-13</li></ul>

Technicals continue to endorse a bullish outlook. And with the S&amp;P 500 breaking out to new highs yesterday, and insurance stocks recovering from last week, we are benefitting from renewed clarity following the muddled, past two months.In today’s report we highlight actionable ideas in the following Groups:Semis... see page 14-20Insurers... see page 8-13

U.S. Equity Uptrend Resumes; Outlook Remains Bullish

United States

Power Integrations, Inc. designs, develops, and markets analog integrated circuits for use in alternating current (AC) to direct current (DC) power conversion.  The Company sells its products to original equipment manufacturers in the cellular telephone, consumer electronics, personal computer, and industrial electronics industries.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Power Integrations (POWI US)

Renesas Electronics: Our Shortlist Candidate IDT Emerges as Acquisition Target

In Would a Maxim Acquisition Be Digestable?, we discussed the difficulty of Renesas Electronics (6723 JP) completing an acquisition of Maxim...

Mio Kato

U.S. Equity Uptrend Resumes; Outlook Remains Bullish

Technicals continue to endorse a bullish outlook. And with the S&P 500 breaking out to new highs yesterday, and insurance stocks recovering...

Vermilion Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)