'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/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>
<p></p>
Source: Japan Analytics</div>
<p style="text-align: left;"><strong>CURRENCY DRIVER</strong> - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>¥ &lt; 100</strong> - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>EARNINGS DRIVER</strong> - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>CURRENCY CORRELATIONS</strong> - In the <strong>DETAIL</strong> below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT </strong>- We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.</p>




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

Asia Long-Short PM/Analyst

Curtis Lehnert

Event-Driven

Jardine Matheson Southeast Asia / Event-Driven

Jardine Matheson Southeast Asia (JCNC SP)

<p>In my original insight on October 17, 2018 <a href="https://www.smartkarma.com/insights/trade-idea-jardine-cycle-carriage-jcnc-sp-stub" target="_blank" data-smartkarma-citation="insights:24780">TRADE IDEA - Jardine Cycle &amp; Carriage (JCNC SP) Stub</a> , I proposed setting up a stub trade to profit from volatility in the markets that caused the <a href="https://www.smartkarma.com/entities/347" target="_blank" data-smartkarma-citation="entities:347:1">Jardine Cycle &amp; Carriage (JCNC SP)</a> stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, <a href="https://www.smartkarma.com/entities/347" target="_blank" data-smartkarma-citation="entities:347:1">Jardine Cycle &amp; Carriage (JCNC SP)</a> has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.</p><p>In this insight I will discuss:</p><ul>
<li>Performance of <strong>ALL </strong>my recommended stub trades</li>
<li>a post-mortem trade analysis on the JCNC stub</li>
</ul>

In my original insight on October 17, 2018 TRADE IDEA - Jardine Cycle &amp; Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle &amp; Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle &amp; Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.In this insight I will discuss:
Performance of ALL my recommended stub trades
a post-mortem trade analysis on the JCNC stub


Jardine C&C (JCNC SP): Close the Stub Trade

<p>If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric vehicle prevalence, it is that of <a href="https://www.smartkarma.com/entities/4500" target="_blank" data-smartkarma-citation="entities:4500:1">Toyota Industries (6201 JP)</a>. In August, I took an in-depth look at the major businesses of Toyota Industries and concluded that the market was not giving the company credit for the global leadership it has established in the forklifts and automobile A/C compressor businesses, nor for the progress it has made in the logistics equipment business. While the market's oversight appeared to have corrected in September and October as the discount to NAV contracted from 34% to 25%, the trend has since reversed and the discount is back at trough levels of 35%. In August, I implied that this would be a good trading opportunity. Today, I explicitly recommend going long the stub.</p>
<p>In this insight I will cover:</p>
<ul class="">
<li>A market-neutral trade setup </li>
<li>A review of the core unlisted businesses</li>
<li>Alternative data used to gauge performance in the core business</li>
<li>Risks of the trade</li>
<li>A recap of ALL my stub trade ideas on Smartkarma, including track record of performance</li>
</ul>

If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric vehicle prevalence, it is that of Toyota Industries (6201 JP). In August, I took an in-depth look at the major businesses of Toyota Industries and concluded that the market was not giving the company credit for the global leadership it has established in the forklifts and automobile A/C compressor businesses, nor for the progress it has made in the logistics equipment business. While the market's oversight appeared to have corrected in September and October as the discount to NAV contracted from 34% to 25%, the trend has since reversed and the discount is back at trough levels of 35%. In August, I implied that this would be a good trading opportunity. Today, I explicitly recommend going long the stub.
In this insight I will cover:

A market-neutral trade setup 
A review of the core unlisted businesses
Alternative data used to gauge performance in the core business
Risks of the trade
A recap of ALL my stub trade ideas on Smartkarma, including track record of performance


TRADE IDEA - Toyota Industries (6201 JP) Stub: Riding the Automation Wave

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

<p>On Wednesday last week, most of the Toyota group companies released their earnings results for 1HFY03/19. We have analysed <a href="https://www.smartkarma.com/entities/18703" target="_blank" data-smartkarma-citation="entities:18703:1">Denso Corp (6902 JP)</a> and <a href="https://www.smartkarma.com/entities/11809" target="_blank" data-smartkarma-citation="entities:11809:1">Aisin Seiki (7259 JP)</a> separately in our previous Insights. Here we compare the performance of Denso, Aisin Seiki, <a href="https://www.smartkarma.com/entities/4500" target="_blank" data-smartkarma-citation="entities:4500:1">Toyota Industries (6201 JP)</a>, <a href="https://www.smartkarma.com/entities/20567" target="_blank" data-smartkarma-citation="entities:20567:1">Toyota Boshoku (3116 JP)</a> and <a href="https://www.smartkarma.com/entities/20125" target="_blank" data-smartkarma-citation="entities:20125:1">Toyoda Gosei (7282 JP)</a>. Although these companies have reported strong revenue growth this half, they have failed to beat consensus estimates and our estimates, except for Aisin Seiki. On the OP front, all companies- except for Aisin Seiki- witnessed a decline in their OPs while failing to meet their own forecast as well as consensus estimates. All five Toyota suppliers’ share prices declined following the release in earnings. However, they managed to rally again by Tuesday this week.</p>

On Wednesday last week, most of the Toyota group companies released their earnings results for 1HFY03/19. We have analysed Denso Corp (6902 JP) and Aisin Seiki (7259 JP) separately in our previous Insights. Here we compare the performance of Denso, Aisin Seiki, Toyota Industries (6201 JP), Toyota Boshoku (3116 JP) and Toyoda Gosei (7282 JP). Although these companies have reported strong revenue growth this half, they have failed to beat consensus estimates and our estimates, except for Aisin Seiki. On the OP front, all companies- except for Aisin Seiki- witnessed a decline in their OPs while failing to meet their own forecast as well as consensus estimates. All five Toyota suppliers’ share prices declined following the release in earnings. However, they managed to rally again by Tuesday this week.

Toyota Suppliers 1H Analysis: Decline in 1H Earnings for Most Except Aisin

<p>On Wednesday, <a href="https://www.smartkarma.com/entities/11809" target="_blank" data-smartkarma-citation="entities:11809:1">Aisin Seiki (7259 JP)</a> reported revenues of JPY 1,994.5bn (+7.5% YoY) and OP of JPY 123.3bn (+14.1% YoY) in 1HFY03/19 supported by the strong sales of AT and body parts especially in China, and Asia. Despite Aisin’s strong financial performance in 1HFY03/19,  it has revised its OP down by 8.2% despite a 0.5% upward revision in revenue guidance.  </p>
<p>The guidance for the FY remains quite conservative, based on the strong 1H results where almost 50% of revenue guidance and 53% of the OP guidance have already been achieved beating its own target for 1HFY03/19 (revenue by 0.2%, and OP by 2.8%). Aisin has not provided a solid reason for the expected decline in OP although, it reported during August this year, that it would take a hit in profitability if US auto tariffs hike. However, we feel that Aisin is being conservative by revising its OP guidance downwards and we continue to believe that the company’s expected strong growth in revenue alongside its business restructuring efforts should drive margins to about 6.5% cf. 6.1% for FY03/18. Following the release, Aisin closed 4.5% down on Thursday from Wednesday’s close.</p>

On Wednesday, Aisin Seiki (7259 JP) reported revenues of JPY 1,994.5bn (+7.5% YoY) and OP of JPY 123.3bn (+14.1% YoY) in 1HFY03/19 supported by the strong sales of AT and body parts especially in China, and Asia. Despite Aisin’s strong financial performance in 1HFY03/19,  it has revised its OP down by 8.2% despite a 0.5% upward revision in revenue guidance.  
The guidance for the FY remains quite conservative, based on the strong 1H results where almost 50% of revenue guidance and 53% of the OP guidance have already been achieved beating its own target for 1HFY03/19 (revenue by 0.2%, and OP by 2.8%). Aisin has not provided a solid reason for the expected decline in OP although, it reported during August this year, that it would take a hit in profitability if US auto tariffs hike. However, we feel that Aisin is being conservative by revising its OP guidance downwards and we continue to believe that the company’s expected strong growth in revenue alongside its business restructuring efforts should drive margins to about 6.5% cf. 6.1% for FY03/18. Following the release, Aisin closed 4.5% down on Thursday from Wednesday’s close.

Aisin Revises OP Guidance Downwards Despite 14.1% YoY Growth in 1HFY03/19

Japan

TOYOTA INDUSTRIES CORPORATION, a member of the Toyota Motor Group, assembles motor vehicles and manufactures automotive parts such as engines and air conditioner compressors.  The Company also produces industrial equipment and textile machinery as well as electronic devices such as computer modems and power inverters.

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

Toyota Industries (6201 JP)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA - Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit...

Curtis Lehnert

TRADE IDEA - Toyota Industries (6201 JP) Stub: Riding the Automation Wave

If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric...

Curtis Lehnert

Toyota Suppliers 1H Analysis: Decline in 1H Earnings for Most Except Aisin

On Wednesday last week, most of the Toyota group companies released their earnings results for 1HFY03/19. We have analysed Denso Corp (6902 JP) and...

Aqila Ali

Aisin Revises OP Guidance Downwards Despite 14.1% YoY Growth in 1HFY03/19

On Wednesday, Aisin Seiki (7259 JP) reported revenues of JPY 1,994.5bn (+7.5% YoY) and OP of JPY 123.3bn (+14.1% YoY) in 1HFY03/19 supported by the...

Aqila Ali

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)