Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

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

The Nikkei reported on Tuesday that <a href="https://www.smartkarma.com/entities/222" target="_blank" data-smartkarma-citation="entities:222:1">Panasonic Corp (6752 JP)</a> ’s key customer, <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> , is looking to locally source its factory in Shanghai. Paradoxically, it seems that Panasonic is continuing to focus on capacity expansions for its US factory to supply EV Li-ion batteries for Tesla. This news from Musk came shortly after Panasonic released its 2Q earnings result.
<ul class="">
<li>Panasonic’s 2Q earnings were quite disappointing, failing to meet both consensus and our estimates. Panasonic reported revenue of JPY1,999.5bn and OP of JPY95.2bn witnessing an OPM of 4.8% down from an OPM of 5.7% in 2Q last year. A majority of revenue growth came from the A&amp;IS segment which witnessed the strongest growth in revenue at nearly 7% YoY. Despite the steady growth in revenue, this segment continued to display a decline in profits by almost 8% YoY.</li>
<li>Panasonic has been trying to diversify its customer base joining hands with automakers such as Toyota and Honda. This seems to be the case for Tesla as well given its latest news on the look-out for other battery suppliers. Tesla indicates that it should not be relying on one supplier. That said, this news from Tesla follows the news in August, where Tesla announced that it was cancelling its order for solar cells from Panasonic.</li>
<li>As we mentioned in our initial note: <a href="https://www.smartkarma.com/insights/a-look-at-panasonic-s-battery-business-will-the-company-drift-away-from-tesla" target="_blank" data-smartkarma-citation="insights:21069">A Look at Panasonic’s Battery Business: Will the Company Drift Away from Tesla?</a> , any volatility from Tesla could result in downside risk for Panasonic over the short-to-medium term. While Tesla’s ramp up in Model 3 after the long-held delays has boosted Panasonic’s revenue in the recent quarters, the news of Tesla potentially distancing itself from Panasonic raises questions regarding the stability of Panasonic’s energy business, unless the latter is successful in building a strong diversified customer.</li>
</ul>

The Nikkei reported on Tuesday that Panasonic Corp (6752 JP) ’s key customer, Tesla Motors (TSLA US) , is looking to locally source its factory in Shanghai. Paradoxically, it seems that Panasonic is continuing to focus on capacity expansions for its US factory to supply EV Li-ion batteries for Tesla. This news from Musk came shortly after Panasonic released its 2Q earnings result.

Panasonic’s 2Q earnings were quite disappointing, failing to meet both consensus and our estimates. Panasonic reported revenue of JPY1,999.5bn and OP of JPY95.2bn witnessing an OPM of 4.8% down from an OPM of 5.7% in 2Q last year. A majority of revenue growth came from the A&amp;IS segment which witnessed the strongest growth in revenue at nearly 7% YoY. Despite the steady growth in revenue, this segment continued to display a decline in profits by almost 8% YoY.
Panasonic has been trying to diversify its customer base joining hands with automakers such as Toyota and Honda. This seems to be the case for Tesla as well given its latest news on the look-out for other battery suppliers. Tesla indicates that it should not be relying on one supplier. That said, this news from Tesla follows the news in August, where Tesla announced that it was cancelling its order for solar cells from Panasonic.
As we mentioned in our initial note: A Look at Panasonic’s Battery Business: Will the Company Drift Away from Tesla? , any volatility from Tesla could result in downside risk for Panasonic over the short-to-medium term. While Tesla’s ramp up in Model 3 after the long-held delays has boosted Panasonic’s revenue in the recent quarters, the news of Tesla potentially distancing itself from Panasonic raises questions regarding the stability of Panasonic’s energy business, unless the latter is successful in building a strong diversified customer.


Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China

'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

Japan Equity Analyst, all sectors

David Rubenstein

Life behind bars
We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap, this small cap punches above its weight, trading $2 million dollars per day. However, we believe that the real value has yet to be unleashed. Asahi is the only listed pure-play bicycle retailer in Japan. It has the top market share at 18-20% and continues to increase share every year by opening new stores and expanding existing stores footprint.
Why we want to ride Asahi’s bicycles:
<ul>
<li>Secular growth: Solid, stable growth by ASP rise and store expansion.</li>
<li>Scale merit: smashing the local bike shops; procures low-cost China product.</li>
<li>Defensive: domestic play, anti-currency.</li>
<li>Carbon footprint low: Largest bike seller in Japan, could attract green funds.</li>
<li>Valuation attractive: PB of 1.4x is near all-time low.</li>
<li>Currency hedge: JPY strength against the RMB is a tailwind for earnings.</li>
</ul>

Life behind bars
We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap, this small cap punches above its weight, trading $2 million dollars per day. However, we believe that the real value has yet to be unleashed. Asahi is the only listed pure-play bicycle retailer in Japan. It has the top market share at 18-20% and continues to increase share every year by opening new stores and expanding existing stores footprint.
Why we want to ride Asahi’s bicycles:

Secular growth: Solid, stable growth by ASP rise and store expansion.
Scale merit: smashing the local bike shops; procures low-cost China product.
Defensive: domestic play, anti-currency.
Carbon footprint low: Largest bike seller in Japan, could attract green funds.
Valuation attractive: PB of 1.4x is near all-time low.
Currency hedge: JPY strength against the RMB is a tailwind for earnings.


Asahi (3333 Jp): I Want to Ride My Bicycle

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27423" target="_blank" data-smartkarma-citation="entities:27423:1">S-Fuelcell (SFUEL KS)</a>'s CEO made a presentation of the company today, which I attended. The institutional investors bookbuilding for the S-Fuelcell IPO started today. I was impressed with the CEO's presentation as well as the Q&amp;A session. I remain positive on the S-Fuelcell IPO. The following are the main highlights of the presentation as well as additional details about the company that is worth mentioning. </li>
<li>
Why is S-Fuelcell profitable when so many fuel cell companies around the world are not? Although S-Fuelcell is a small company, it has been profitable in the past several years, whereas most companies around the world that are "pure fuel cell" companies are not profitable. According to the CEO, this is mainly due to a combination of the company's technology in the building-purpose fuel cells as well as its long record of providing various systems of fuel cell systems and it has been able to reduce its total costs of these systems over many years of built-up experience. </li>
<li>
Who are the best companies in the world that makes building purpose fuel cell systems? According to the CEO, the Japanese companies are the world leaders in making building purpose fuel cell systems, especially Toshiba and Panasonic. However, the CEO was quick to address that S-Fuelcell is definitely one of the leaders of the fuel cell systems in Korea. </li>
<li>
How long do the building purpose fuel cell systems last? According to the company, the core components of the building purpose fuel cell systems are expected to last about ten years or more. However, in our view, the overall reliability (especially in terms of how many years they can last without further repairs) is yet to be proven to a large extent because many of its products have been sold only in the past several years and they have yet to be proven to last a long period of time (such as more than 10 years) without extensive repairs. Thus, in our view the potential problems about reliability is likely to be one of the key question marks for fuel cell systems going forward. </li>
</ul>



S-Fuelcell (SFUEL KS)'s CEO made a presentation of the company today, which I attended. The institutional investors bookbuilding for the S-Fuelcell IPO started today. I was impressed with the CEO's presentation as well as the Q&amp;A session. I remain positive on the S-Fuelcell IPO. The following are the main highlights of the presentation as well as additional details about the company that is worth mentioning. 

Why is S-Fuelcell profitable when so many fuel cell companies around the world are not? Although S-Fuelcell is a small company, it has been profitable in the past several years, whereas most companies around the world that are "pure fuel cell" companies are not profitable. According to the CEO, this is mainly due to a combination of the company's technology in the building-purpose fuel cells as well as its long record of providing various systems of fuel cell systems and it has been able to reduce its total costs of these systems over many years of built-up experience. 

Who are the best companies in the world that makes building purpose fuel cell systems? According to the CEO, the Japanese companies are the world leaders in making building purpose fuel cell systems, especially Toshiba and Panasonic. However, the CEO was quick to address that S-Fuelcell is definitely one of the leaders of the fuel cell systems in Korea. 

How long do the building purpose fuel cell systems last? According to the company, the core components of the building purpose fuel cell systems are expected to last about ten years or more. However, in our view, the overall reliability (especially in terms of how many years they can last without further repairs) is yet to be proven to a large extent because many of its products have been sold only in the past several years and they have yet to be proven to last a long period of time (such as more than 10 years) without extensive repairs. Thus, in our view the potential problems about reliability is likely to be one of the key question marks for fuel cell systems going forward. 


My Thoughts from the S-Fuelcell's CEO Presentation

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Thematic (Sector/Industry)

<div class="content-remarks">
<blockquote>‘Solid state batteries are already working in the lab, but bringing them to production is proving incredibly difficult…’</blockquote>
Dr. Ian Robertson, head of BMW in UK
<blockquote>‘Yes, we did say we are starting this initiative and want to make solid-state batteries available in the early part of the 2020s decade. But in fact, that won’t be on a mass-production basis. We will begin with small-lot and trial production. We would never experiment on customers. Like you said, 2030 might be a more realistic timeframe...’ </blockquote>
Shinzuo Abe, Toyota’s powertrain general manager, in a recent Wards Auto interview
<blockquote> ‘The cumulative impact of water rights granted over the years to copper and lithium miners in the world’s most arid desert has never been considered, according to Ingrid Garces, a professor who studies salt flats at Chile’s University of Antofagasta. “We’re managing lithium as though it were a type of hard-rock mining,” said Garces. “But we’re mining water, not rock. This is a watershed.” The brine from which miners extract lithium is water, but in Chile, it is regulated as a mineral like copper or iron. Environmental regulators handle permits for brine, while the water authority permits freshwater pumping.’</blockquote>
Recent <a href="https://uk.reuters.com/article/us-chile-lithium-water/in-chilean-desert-global-thirst-for-lithium-is-fueling-a-water-war-idUKKCN1LE16T" target="_blank">Reuters analysis of shifting Chilean water resource policies</a>
</div>


‘Solid state batteries are already working in the lab, but bringing them to production is proving incredibly difficult…’
Dr. Ian Robertson, head of BMW in UK
‘Yes, we did say we are starting this initiative and want to make solid-state batteries available in the early part of the 2020s decade. But in fact, that won’t be on a mass-production basis. We will begin with small-lot and trial production. We would never experiment on customers. Like you said, 2030 might be a more realistic timeframe...’ 
Shinzuo Abe, Toyota’s powertrain general manager, in a recent Wards Auto interview
 ‘The cumulative impact of water rights granted over the years to copper and lithium miners in the world’s most arid desert has never been considered, according to Ingrid Garces, a professor who studies salt flats at Chile’s University of Antofagasta. “We’re managing lithium as though it were a type of hard-rock mining,” said Garces. “But we’re mining water, not rock. This is a watershed.” The brine from which miners extract lithium is water, but in Chile, it is regulated as a mineral like copper or iron. Environmental regulators handle permits for brine, while the water authority permits freshwater pumping.’
Recent Reuters analysis of shifting Chilean water resource policies


Lithium 'Glut' Fears Overblown, as Solid State Battery Progress Slows…

Japan

Panasonic Corporation manufactures electric and electronic products. The Company produces home appliances, car navigation systems, digital devices, computer peripherals, telecommunications, industrial equipment, and electronic parts. Panasonic has associated companies around the world.

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Panasonic Corp (6752 JP)

Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China

The Nikkei reported on Tuesday that Panasonic Corp (6752 JP) ’s key customer, Tesla Motors (TSLA US) , is looking to locally source its factory in...

Aqila Ali

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

Asahi (3333 Jp): I Want to Ride My Bicycle

Life behind bars We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap,...

David Rubenstein

My Thoughts from the S-Fuelcell's CEO Presentation

S-Fuelcell (SFUEL KS)'s CEO made a presentation of the company today, which I attended. The institutional investors bookbuilding for the...

Douglas Kim

Lithium 'Glut' Fears Overblown, as Solid State Battery Progress Slows…

‘Solid state batteries are already working in the lab, but bringing them to production is proving incredibly difficult…’ Dr. Ian Robertson, head...

Sean Maher

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