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

It seems that <a href="https://www.smartkarma.com/entities/222" target="_blank" data-smartkarma-citation="entities:222:1">Panasonic Corp (6752 JP)</a> is planning for long term growth by concentrating on building its relationship with <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> while witnessing its key customer, <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a>, drifts away. Toyota and Panasonic are in discussion to form a JV by 2020E with the aim of mass manufacturing EV batteries with possible benefits from cost-cutting efforts. We mentioned in <a href="https://www.smartkarma.com/insights/tesla-drifting-away-could-leave-panasonic-struggling-to-gain-traction-in-china" target="_blank" data-smartkarma-citation="insights:26185">Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China</a>, that Tesla is looking for Chinese local players to source its factory in China upon the refusal from Panasonic to join hands with them in investing in their Chinese factory. Panasonic, which seemed to have felt the pressure mounting from Tesla potentially distancing itself from them, given that the majority of their battery sales are currently dependent on Tesla, is now preparing itself for the future by building long terms plans with its not-so-new customer, Toyota. Panasonic entered a partnership agreement with Toyota back in 2017 to develop EV batteries including their traditional prismatic batteries while also aiming to develop new battery solutions for the growing and evolving EV market. Thus, its plan to form a JV with Toyota by 2020E displays the confidence Panasonic has in Toyota while also indicating that the former is paving a path for some steady growth in its battery business being supported by one of the leading automakers.

It seems that Panasonic Corp (6752 JP) is planning for long term growth by concentrating on building its relationship with Toyota Motor (7203 JP) while witnessing its key customer, Tesla Motors (TSLA US), drifts away. Toyota and Panasonic are in discussion to form a JV by 2020E with the aim of mass manufacturing EV batteries with possible benefits from cost-cutting efforts. We mentioned in Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, that Tesla is looking for Chinese local players to source its factory in China upon the refusal from Panasonic to join hands with them in investing in their Chinese factory. Panasonic, which seemed to have felt the pressure mounting from Tesla potentially distancing itself from them, given that the majority of their battery sales are currently dependent on Tesla, is now preparing itself for the future by building long terms plans with its not-so-new customer, Toyota. Panasonic entered a partnership agreement with Toyota back in 2017 to develop EV batteries including their traditional prismatic batteries while also aiming to develop new battery solutions for the growing and evolving EV market. Thus, its plan to form a JV with Toyota by 2020E displays the confidence Panasonic has in Toyota while also indicating that the former is paving a path for some steady growth in its battery business being supported by one of the leading automakers.

Panasonic Is Bonding with Toyota- A JV Plan for 2020

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media for profligate spending on art and trips to the moon, and for only turning up to work three days a week.
More importantly, its private brand business is off to a bumpy start, a problem when Zozo expects it to account for 30% of sales in three years time.
Analysts have focused on the failure of the Zozosuit, but this was always more of a marketing gimmick and will soon be superseded by mobile-only measuring systems. The real challenge is being able to produce a measured semi-bespoke apparel service on time, of a good quality and at a reasonable price. Given Zozo's supply chain support and early start, it could still lead on this.
Nevertheless building a ¥200 billion apparel business in three years remains highly questionable; Zozo has stumbled at the launch, and no one has built such a large apparel concern so quickly in Japanese retail history.
Zozo will continue to grow in tandem with the growth in apparel e-commerce, but its target of ¥700 billion in revenues in three years remains in doubt leaving us bearish about the short-term.
More important than achieving its targets is whether Zozo can manage to build a solid foundation for a scalable private brand-based business. If Zozo succeeds, then the long-term prospects for Zozo as an integrated apparel brand rather than a merchant mall could be bright.

ZOZO (3092 JP) has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media for profligate spending on art and trips to the moon, and for only turning up to work three days a week.
More importantly, its private brand business is off to a bumpy start, a problem when Zozo expects it to account for 30% of sales in three years time.
Analysts have focused on the failure of the Zozosuit, but this was always more of a marketing gimmick and will soon be superseded by mobile-only measuring systems. The real challenge is being able to produce a measured semi-bespoke apparel service on time, of a good quality and at a reasonable price. Given Zozo's supply chain support and early start, it could still lead on this.
Nevertheless building a ¥200 billion apparel business in three years remains highly questionable; Zozo has stumbled at the launch, and no one has built such a large apparel concern so quickly in Japanese retail history.
Zozo will continue to grow in tandem with the growth in apparel e-commerce, but its target of ¥700 billion in revenues in three years remains in doubt leaving us bearish about the short-term.
More important than achieving its targets is whether Zozo can manage to build a solid foundation for a scalable private brand-based business. If Zozo succeeds, then the long-term prospects for Zozo as an integrated apparel brand rather than a merchant mall could be bright.

Zozo: Teething Problems for Private Brand and Signs of Hubris

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

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)

Panasonic Is Bonding with Toyota- A JV Plan for 2020

It seems that Panasonic Corp (6752 JP) is planning for long term growth by concentrating on building its relationship with Toyota Motor (7203 JP)...

Aqila Ali

Zozo: Teething Problems for Private Brand and Signs of Hubris

ZOZO (3092 JP) has been losing a bit of its shine of late, with its stock price plummeting and its CEO being hammered in the press and social media...

Michael Causton

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

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