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

On Wednesday, <a href="https://www.smartkarma.com/entities/18703" target="_blank" data-smartkarma-citation="entities:18703:1">Denso Corp (6902 JP)</a> reported 2QFY03/19 results posting revenue growth of 11.1% YoY falling below consensus estimates by 1.4% and our estimates by nearly 4%. Further, on profitability, Denso failed to meet market expectations again posting OP down by 25.5% YoY falling below market expectations by a significant 29.3%.
The company mentioned that the decline in OP was mainly due to transient profit in the last fiscal year and variance of periods in collecting expenses alongside its increase in investment for future growth towards becoming a leading mobility supplier. We consider the latter to be consistent with the company’s recent moves, having witnessed the company’s business restructuring and its recent announcement on changes to the business model, aiming to focus on software-based solutions in addition to its hardware expertise.  Despite experiencing a decline in OP this quarter, Denso optimistically revises its OP guidance upwards by 0.8%. Following the release, Denso closed 2.4% down on Thursday from Wednesday’s close.

On Wednesday, Denso Corp (6902 JP) reported 2QFY03/19 results posting revenue growth of 11.1% YoY falling below consensus estimates by 1.4% and our estimates by nearly 4%. Further, on profitability, Denso failed to meet market expectations again posting OP down by 25.5% YoY falling below market expectations by a significant 29.3%.
The company mentioned that the decline in OP was mainly due to transient profit in the last fiscal year and variance of periods in collecting expenses alongside its increase in investment for future growth towards becoming a leading mobility supplier. We consider the latter to be consistent with the company’s recent moves, having witnessed the company’s business restructuring and its recent announcement on changes to the business model, aiming to focus on software-based solutions in addition to its hardware expertise.  Despite experiencing a decline in OP this quarter, Denso optimistically revises its OP guidance upwards by 0.8%. Following the release, Denso closed 2.4% down on Thursday from Wednesday’s close.

Denso Upgrades Its OP Guidance Despite Failing to Meet Market Expectations in 2QFY03/19

'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/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Yesterday <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> announced that they would be further reforming their domestic sales structure to emphasise regional focus while also positioning car-sharing as a key business to help maintain domestic sales at the 1.5m unit level.The Toyota group is going through a lot of changes and we analyse these moves in that context below.And a new take on Pizza delivery -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/502/original/2018_SEMA_PIE_PRO_TUNDRA_01_1B7CFABF746E20852CB01A94D0574C4215047919.jpg?1541119297" class="editor-image img-responsive" data-smartkarma-image-id="68502"></figure><div style="text-align: left;" class="content-caption">Source: Toyota</div>

Yesterday Toyota Motor (7203 JP) announced that they would be further reforming their domestic sales structure to emphasise regional focus while also positioning car-sharing as a key business to help maintain domestic sales at the 1.5m unit level.The Toyota group is going through a lot of changes and we analyse these moves in that context below.And a new take on Pizza delivery -Source: Toyota

Toyota Group: Mobility as a Service Strategy Takes Shape with a Dash of Mobile Robot Pizza

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

Event-Driven

The Nikkei Shimbun predicted last Friday that Mazda will likely lower FY3/19 operating profit outlook by 29% to Y75bn, from current forecasts of Y105bn (consensus is at Y96.5bn).  This is largely due to the one-off negative impact of the flood around Mazda's factories in southern Japan during July (-Y20bn hit to earnings, according to the Nikkei) and stronger than expected currency headwinds (-Y10bn), mainly from the weak Australian dollar. Both of these points are largely factored into the share price. However, the Nikkei's report that earnings would only be revised down to Y75bn appears surprisingly optimistic. Mazda Could Guide Much Lower than Nikkei Forecasts: If the numbers forecast by the Nikkei are indeed what Mazda plans for, it could be met with skepticism, as the current auto demand environment is weakening quickly and currency headwinds are 60% stronger than Mazda had originally forecast for the 2H of this fiscal year. We expect only Y63bn in full-year OP at Mazda, and this is with generous assumptions for a sharp rebound in output during Q3 of FY3/19 (see details below and table-1). This would be 20% lower than the Nikkei's prediction of Y75bn and 35% lower than consensus estimates of Y96.5bn. Mazda is scheduled to announce Q2 results on October 31st after market close. Europe is a High-Risk Factor and Mazda's Exposure is Large: At 17% of global sales volume in FY3/18, Mazda has the highest exposure to Europe among Japanese automakers. While Q2 sales volumes for Mazda in the region during Q2 were flat YoY, incentives are rising, possibly more than Mazda expected. This is due to the new-model effect from Mazda's popular CX-5 SUV having run its course and steeper competition from European automakers, who are discounting cars due to bloated inventories from delays in meeting stricter European emission standards (WLTP).  Daimler and BMW have already made profit warnings because of this. Capex Set to Double over the Next 2 Years: Mazda's capex plans this year are set to grow by 67% to Y145bn ($1.3bn) in FY3/19 and should peak out at around Y200bn in FY3/21, as it expands capacity at the new Alabama plant being jointly-developed with Toyota Motor. This steep rise in capex comes at a time when global auto demand is dropping after 8 years of of consecutive growth through 2017 and should lead to negative free cash flow (FCF) over the next two years due to Mazda's high investment plans. Mind the Dividend--Payout Ratio Surpassing 50% this Fiscal Year: On our assumptions of Y63bn in FY3/19 OP, Mazda's dividend per share of Y35 becomes an increasing burden to the company (see Chart-1) as it amounts to 53% of our FY3/19 net profit estimate of Y39bn (consensus is at Y79bn and the Nikkei said Mazda would guide down from Y80bn to Y50bn). After five years of positive FCF, Mazda should see negative FCF of -Y19bn in FY3/19 and this should widen to -Y35bn in FY3/20, making its annual Y21bn in dividend payouts a bigger drain on net cash. Mazda's PBR is Low but so is Growth for a While: Mazda does not appear that cheap at these levels mainly because of tough growth prospects over the next 3 years. The PER of 17x our FY3/20 estimates is higher than the average 10x for Japanese rivals. Same goes for its EV/EBITDA multiple of 4.2x versus rivals at 3.8x. And while the PBR of 0.60x is approaching the all-time low of 0.52x recorded in FY3/13, Honda is at a PBR of 0.58x FY3/20 consensus estimates, yet has stronger footing in the market.  Would Toyota raise its stake in Mazda if the PBR were to become cheaper? We think there's no rush, and explain the details why via a comparison of Toyota's take-out of former minicar affiliate, Daihatsu Motor, below.

The Nikkei Shimbun predicted last Friday that Mazda will likely lower FY3/19 operating profit outlook by 29% to Y75bn, from current forecasts of Y105bn (consensus is at Y96.5bn).  This is largely due to the one-off negative impact of the flood around Mazda's factories in southern Japan during July (-Y20bn hit to earnings, according to the Nikkei) and stronger than expected currency headwinds (-Y10bn), mainly from the weak Australian dollar. Both of these points are largely factored into the share price. However, the Nikkei's report that earnings would only be revised down to Y75bn appears surprisingly optimistic. Mazda Could Guide Much Lower than Nikkei Forecasts: If the numbers forecast by the Nikkei are indeed what Mazda plans for, it could be met with skepticism, as the current auto demand environment is weakening quickly and currency headwinds are 60% stronger than Mazda had originally forecast for the 2H of this fiscal year. We expect only Y63bn in full-year OP at Mazda, and this is with generous assumptions for a sharp rebound in output during Q3 of FY3/19 (see details below and table-1). This would be 20% lower than the Nikkei's prediction of Y75bn and 35% lower than consensus estimates of Y96.5bn. Mazda is scheduled to announce Q2 results on October 31st after market close. Europe is a High-Risk Factor and Mazda's Exposure is Large: At 17% of global sales volume in FY3/18, Mazda has the highest exposure to Europe among Japanese automakers. While Q2 sales volumes for Mazda in the region during Q2 were flat YoY, incentives are rising, possibly more than Mazda expected. This is due to the new-model effect from Mazda's popular CX-5 SUV having run its course and steeper competition from European automakers, who are discounting cars due to bloated inventories from delays in meeting stricter European emission standards (WLTP).  Daimler and BMW have already made profit warnings because of this. Capex Set to Double over the Next 2 Years: Mazda's capex plans this year are set to grow by 67% to Y145bn ($1.3bn) in FY3/19 and should peak out at around Y200bn in FY3/21, as it expands capacity at the new Alabama plant being jointly-developed with Toyota Motor. This steep rise in capex comes at a time when global auto demand is dropping after 8 years of of consecutive growth through 2017 and should lead to negative free cash flow (FCF) over the next two years due to Mazda's high investment plans. Mind the Dividend--Payout Ratio Surpassing 50% this Fiscal Year: On our assumptions of Y63bn in FY3/19 OP, Mazda's dividend per share of Y35 becomes an increasing burden to the company (see Chart-1) as it amounts to 53% of our FY3/19 net profit estimate of Y39bn (consensus is at Y79bn and the Nikkei said Mazda would guide down from Y80bn to Y50bn). After five years of positive FCF, Mazda should see negative FCF of -Y19bn in FY3/19 and this should widen to -Y35bn in FY3/20, making its annual Y21bn in dividend payouts a bigger drain on net cash. Mazda's PBR is Low but so is Growth for a While: Mazda does not appear that cheap at these levels mainly because of tough growth prospects over the next 3 years. The PER of 17x our FY3/20 estimates is higher than the average 10x for Japanese rivals. Same goes for its EV/EBITDA multiple of 4.2x versus rivals at 3.8x. And while the PBR of 0.60x is approaching the all-time low of 0.52x recorded in FY3/13, Honda is at a PBR of 0.58x FY3/20 consensus estimates, yet has stronger footing in the market.  Would Toyota raise its stake in Mazda if the PBR were to become cheaper? We think there's no rush, and explain the details why via a comparison of Toyota's take-out of former minicar affiliate, Daihatsu Motor, below. 

Mazda (7261)--Things Are Likely Worse Than the Headlines

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: WorleyParsons, Clarion, Healthscope, Idemitsu/Showa, Intu, Mazda, Orion

Japan

Toyota Motor Corporation manufactures, sells, leases, and repairs passenger cars, trucks, buses, and their related parts worldwide. The Company also operates financing services through their subsidiaries. Toyota Motor builds homes, produces pleasure boats, and develops intelligent transportation systems including radar cruise control and electronic toll collection systems.

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

Toyota Motor (7203 JP)

Denso Upgrades Its OP Guidance Despite Failing to Meet Market Expectations in 2QFY03/19

On Wednesday, Denso Corp (6902 JP) reported 2QFY03/19 results posting revenue growth of 11.1% YoY falling below consensus estimates by 1.4% and our...

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

Toyota Group: Mobility as a Service Strategy Takes Shape with a Dash of Mobile Robot Pizza

Yesterday Toyota Motor (7203 JP) announced that they would be further reforming their domestic sales structure to emphasise regional focus while...

Mio Kato

Mazda (7261)--Things Are Likely Worse Than the Headlines

The Nikkei Shimbun predicted last Friday that Mazda will likely lower FY3/19 operating profit outlook by 29% to Y75bn, from current forecasts of...

SC Capital

Last Week in Event SPACE: WorleyParsons, Clarion, Healthscope, Idemitsu/Showa, Intu, Mazda, Orion

Last Week in Event SPACE ... WorleyParsons Ltd (WOR AU) investors who were bullish at 23x earnings should be more bullish a bigger, better...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)