'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-<ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul>THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>.


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last week in <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a> I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. <h2>NOT, MAYBE, and LIKELY Problems</h2>NOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the <a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank">previous insight</a>), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart UNY Holdings Co Ltd (8028 JP)</a>, as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.<h2>What To Do?</h2>The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

Last week in JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership, and the expected impact from its purchases going forward. NOT, MAYBE, and LIKELY ProblemsNOT A PROBLEM: The fact that the BOJ owned 80.7% of the ETFs outstanding at the end of June.MAYBE A PROBLEM: The fact that BOJ-owned ETFs own 15% or more of 6 names on a look-through basis and more than 10% of 30+ names looks a bit odd.LIKELY A PROBLEM: Based on June month-end prices and the existing program of purchasing ¥5.7 trillion/year of ETFs under the 'regular index' Asset Purchase Plan (ETFs tracking TOPIX, the Nikkei 225, and JPX-Nikkei400 as discussed in the previous insight), over the next 12 months the BOJ would purchase 16-18% of the remaining real float in Fast Retailing, and even more of FamilyMart UNY Holdings Co Ltd (8028 JP), as well as more than 5% of the remaining float of a half dozen other names in its ETF ownership universe.What To Do?The previous insight proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. This insight delves into the risk metrics of a Nikkei-related trade in greater detail. That's a good start. If the BOJ or Nikkei makes changes, there is probably A LOT more to go.

JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes

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.

Equity Bottom-Up

Following the initial results of <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco Inc (2914 JP)</a>'s relaunch of  Ploom, Philip Morris announced that it would cut the price of its IQOS HNB tobacco units by about 30% to JPY7,980. Following the announcement, both JT and BAT announced retaliatory price cuts for Ploom and Glo respectively. IQOS as the market leader had been priced at a significant premium at about JPY11,000 prior to the price cut, while Glo was priced at JPY5,980 and Ploom at JPY4,000. As the price war intensifies, both…

Following the initial results of Japan Tobacco Inc (2914 JP)'s relaunch of  Ploom, Philip Morris announced that it would cut the price of its IQOS HNB tobacco units by about 30% to JPY7,980. Following the announcement, both JT and BAT announced retaliatory price cuts for Ploom and Glo respectively. IQOS as the market leader had been priced at a significant premium at about JPY11,000 prior to the price cut, while Glo was priced at JPY5,980 and Ploom at JPY4,000. As the price war intensifies, both…

JT: Let's Analyse Alternative Data to See How the IQOS Counterattack on Ploom Is Going

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Japan Tobacco’s first-quarter results came in largely in line with our expectations and its internal targets. Like-for-like adjusted operating profits saw marginal 0.5% growth. Pricing of the overseas tobacco business, along with increased pharmaceutical royalty income, offset the doubledigit profit decline in the domestic tobacco business. We reiterate our view that brand equity and cost advantages will sustain JT’s competitive edge in combustible cigarettes, although the secular volume decline…

Japan Tobacco’s first-quarter results came in largely in line with our expectations and its internal targets. Like-for-like adjusted operating profits saw marginal 0.5% growth. Pricing of the overseas tobacco business, along with increased pharmaceutical royalty income, offset the doubledigit profit decline in the domestic tobacco business. We reiterate our view that brand equity and cost advantages will sustain JT’s competitive edge in combustible cigarettes, although the secular volume decline…

Japan Tobacco Reports In-Line Results, but Improved PloomTech Sales and Disclosure a Positive

Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

Global Automotive Stocks/EV Focus/Event Driven

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

<ul><li>Japan Tobacco (JT) has seen its stock price fall by -17% YTD versus the Topix decline of -5% due to the continued fall in its regular cigarette sales in Japan as Philip Morris International's (PMI) iQos product continues to take away market share.</li><li>Our recent visit to JT revealed something that few analysts on the Street are reporting: JT is aiming to take over all major segments of the "reduced-risk products" (RRP) segment of the Japanese tobacco market and then do the same in its other major markets in developing countries. </li><li>The RRP market includes vape-type products like JT's Ploom Tech, which heat capsules of nicotine-laced liquid at low temperatures, and higher-temperature heat-not-burn (HNB) products that use specialized cigarette sticks like PMI's iQos and provide an experience closer to smoking real cigarettes.</li><li>Both are said to reduce the risks to health from smoking (90% less toxins, as you're not burning the cigarette, rather just heating it) and are taking off in more health-conscious markets, especially those where tobacco makers can market them as having much lower negative impacts on health, namely Japan, Korea, Italy and Switzerland at this point (the US is still in the process of deciding on how far tobacco makers can go in claiming such products as being "healthier" than normal cigarettes). </li><li>Success in this JT strategy banks on 1) JT gaining market share of Japan's RRP market with its new Ploom Tech product and 2) consumer acceptance and success of its upcoming high-temperature HNB product due to be launched by year-end or early 2019 and slated to go up directly against PMI's iQos, which has taken away at least 15% of JT's market share in Japan. </li><li>These products generate much higher profit margins than conventional cigarettes. Using the scant disclosure from JT, we estimate that Ploom Tech should generate around 50% OP margins this year, despite ramp-up costs. Normal cigarettes in JT's domestic market only generate between 30% to 35% OP margins. This makes sense, as they're roughly the same price as regular cigarettes, but much smaller.</li><li>JT should dominate the market for Ploom Tech users (who prefer a lighter, more odorless smoking experience), but if its new higher-temperature HNB product slated to go up against iQos succeeds, JT could potentially regain its 65%+ market share in Japan (currently, its under 50% due to the rise of PMI's iQos). </li><li>JT has clearly been studying all of the faults in the iQos product (which include frequent charging, faulty products, bad taste and bad smell) and should come out with something that is both closer to a real cigarette smoking experience (iQos's forte), yet tastes better and releases less annoying odor.</li><li>If JT succeeds, it will could take away market share from PMI's iQos while expanding sales among the Ploom Tech (cool vapor-type) users. In this sense, JT is essentially planning to corner every type of smoking market among more health-conscious consumers in Japan and the rest of its major markets. This is something that may differentiate it from PMI, especially in terms of dividend growth.</li><li>Tobacco stocks globally have fallen year-to-date given rising concerns over stricter regulations on smoking in the future. JT's current dividend yield of 5% is higher than the average 4.6% at major rivals. JT's EV/EBITDA multiple of 8.9x is also at a 30% discount to the average of 12.7x among rivals--the steepest discount ever. </li><li>If you believe that JT has studied PMI's iQos product well and can roll out a better product by year-end or early 2019, then the stock is a buy for the main 3 reasons:  1) the stock currently trades at a stable dividend yield of 5%; 2) JT's stock has just had its largest (-17% YTD) share price decline in over 9 years; and 3) valuations are near record lows.   </li></ul>

Japan Tobacco (JT) has seen its stock price fall by -17% YTD versus the Topix decline of -5% due to the continued fall in its regular cigarette sales in Japan as Philip Morris International's (PMI) iQos product continues to take away market share.Our recent visit to JT revealed something that few analysts on the Street are reporting: JT is aiming to take over all major segments of the "reduced-risk products" (RRP) segment of the Japanese tobacco market and then do the same in its other major markets in developing countries. The RRP market includes vape-type products like JT's Ploom Tech, which heat capsules of nicotine-laced liquid at low temperatures, and higher-temperature heat-not-burn (HNB) products that use specialized cigarette sticks like PMI's iQos and provide an experience closer to smoking real cigarettes.Both are said to reduce the risks to health from smoking (90% less toxins, as you're not burning the cigarette, rather just heating it) and are taking off in more health-conscious markets, especially those where tobacco makers can market them as having much lower negative impacts on health, namely Japan, Korea, Italy and Switzerland at this point (the US is still in the process of deciding on how far tobacco makers can go in claiming such products as being "healthier" than normal cigarettes). Success in this JT strategy banks on 1) JT gaining market share of Japan's RRP market with its new Ploom Tech product and 2) consumer acceptance and success of its upcoming high-temperature HNB product due to be launched by year-end or early 2019 and slated to go up directly against PMI's iQos, which has taken away at least 15% of JT's market share in Japan. These products generate much higher profit margins than conventional cigarettes. Using the scant disclosure from JT, we estimate that Ploom Tech should generate around 50% OP margins this year, despite ramp-up costs. Normal cigarettes in JT's domestic market only generate between 30% to 35% OP margins. This makes sense, as they're roughly the same price as regular cigarettes, but much smaller.JT should dominate the market for Ploom Tech users (who prefer a lighter, more odorless smoking experience), but if its new higher-temperature HNB product slated to go up against iQos succeeds, JT could potentially regain its 65%+ market share in Japan (currently, its under 50% due to the rise of PMI's iQos). JT has clearly been studying all of the faults in the iQos product (which include frequent charging, faulty products, bad taste and bad smell) and should come out with something that is both closer to a real cigarette smoking experience (iQos's forte), yet tastes better and releases less annoying odor.If JT succeeds, it will could take away market share from PMI's iQos while expanding sales among the Ploom Tech (cool vapor-type) users. In this sense, JT is essentially planning to corner every type of smoking market among more health-conscious consumers in Japan and the rest of its major markets. This is something that may differentiate it from PMI, especially in terms of dividend growth.Tobacco stocks globally have fallen year-to-date given rising concerns over stricter regulations on smoking in the future. JT's current dividend yield of 5% is higher than the average 4.6% at major rivals. JT's EV/EBITDA multiple of 8.9x is also at a 30% discount to the average of 12.7x among rivals--the steepest discount ever. If you believe that JT has studied PMI's iQos product well and can roll out a better product by year-end or early 2019, then the stock is a buy for the main 3 reasons:  1) the stock currently trades at a stable dividend yield of 5%; 2) JT's stock has just had its largest (-17% YTD) share price decline in over 9 years; and 3) valuations are near record lows.   

Japan Tobacco--The 5% Yield & Possibilities of Reclaiming Its 65% Market Share in Japan

Japan

Japan Tobacco, Inc. operates as an tobacco product company. The Company manufactures, markets and sells cigarettes and other tobacco products internationally. Japan Tobacco is also engaged in pharmaceutical and food businesses.

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Japan Tobacco (2914 JP)

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

JAPAN PASSIVE: The Nikkei 225 Baskets if BOJ Changes

Last week in JAPAN PASSIVE: BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership,...

Travis Lundy

JT: Let's Analyse Alternative Data to See How the IQOS Counterattack on Ploom Is Going

Following the initial results of Japan Tobacco Inc (2914 JP)'s relaunch of Ploom, Philip Morris announced that it would cut the price of its IQOS...

Mio Kato

Japan Tobacco Reports In-Line Results, but Improved PloomTech Sales and Disclosure a Positive

Japan Tobacco’s first-quarter results came in largely in line with our expectations and its internal targets. Like-for-like adjusted operating...

Morningstar, Inc.

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

JAPAN PASSIVE: The Nikkei 225 Baskets if BOJ Changes

Last week in JAPAN PASSIVE: BOJ Heading For Trouble with Nikkei 225 I discussed the BOJ's past and current ETF purchasing selection, ownership,...

Travis Lundy

JT: Let's Analyse Alternative Data to See How the IQOS Counterattack on Ploom Is Going

Following the initial results of Japan Tobacco Inc (2914 JP)'s relaunch of Ploom, Philip Morris announced that it would cut the price of its IQOS...

Mio Kato

Japan Tobacco Reports In-Line Results, but Improved PloomTech Sales and Disclosure a Positive

Japan Tobacco’s first-quarter results came in largely in line with our expectations and its internal targets. Like-for-like adjusted operating...

Morningstar, Inc.

Japan Tobacco--The 5% Yield & Possibilities of Reclaiming Its 65% Market Share in Japan

Japan Tobacco (JT) has seen its stock price fall by -17% YTD versus the Topix decline of -5% due to the continued fall in its regular cigarette...

SC Capital