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

<p>Keyence reported relatively weak 3Q numbers with revenue down 8.4% YoY (consensus -3.4%) although OP was down just -4.9% (consensus -8.1%). We believe the “less bad” OP result is more pertinent than the weaker than expected revenue number and believe that consensus fails to recognise the early indicators for this stock. We discuss why below.</p>

Keyence reported relatively weak 3Q numbers with revenue down 8.4% YoY (consensus -3.4%) although OP was down just -4.9% (consensus -8.1%). We believe the “less bad” OP result is more pertinent than the weaker than expected revenue number and believe that consensus fails to recognise the early indicators for this stock. We discuss why below.

Keyence – Valuations a Risk but Increasingly Attractive Relative to Peers

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/540/original/2020-01-30_04-53-40.png?1580327644" class="editor-image img-responsive" data-smartkarma-image-id="115540"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>29TH JANUARY ROUNDUP</strong> - Thre were 74 results and 30 forecasts or revisions announcements yesterday. Of the 32 larger-cap companies reporting results, seven saw year-on-year declines in their quarterly OP of greater than 25%, while three - <a href="https://www.smartkarma.com/entities/nec-corp" target="_blank" data-smartkarma-citation="entities:17084:1" rel="noopener">NEC (6701 JP)</a>, <a href="https://www.smartkarma.com/entities/cyberagent-inc" target="_blank" data-smartkarma-citation="entities:8197:1" rel="noopener">CyberAgent(4751 JP)</a>, and <a href="https://www.smartkarma.com/entities/valuecommerce-co-ltd" target="_blank" data-smartkarma-citation="entities:7970:1" rel="noopener">ValueCommerce (2491 JP)</a> grew profits by more than 25%, with the last of the three showing the strongest revenue growth. <a href="https://www.smartkarma.com/entities/omron-corp" target="_blank" data-smartkarma-citation="entities:15904:1" rel="noopener">Omron (6645 JP)</a> saw sales fall by 23%. Our market composite cap-weighted Results Score declined by 8bps to 0.99</p><p><strong>FORECASTS</strong> - <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon (7751 JP)</a> released the most optimistic forecasts and account for the 24bps uptick in our Forecast/Revision Score; however, in terms of OP the FY2020 forecast is the same as the FY2016 actual result which was the second-worst outcome in the last decade after FY2019. The weakest outlook came from <a href="https://www.smartkarma.com/entities/screen-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:5563:1" rel="noopener">Screen (7735 JP)</a> (-28% v TTM OP), which, when combined with <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest (6857 JP)</a>'s third-quarter results, should go some way to puncturing the current fad for owning SPE companies.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/543/original/2020-01-30_05-28-22.png?1580329720" class="editor-image img-responsive" data-smartkarma-image-id="115543"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>POST-RELEASE RPS CHANGES</strong> - Of the larger-cap companies announcing the day before yesterday or pre-close yesterday, <a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">OBIC (4684 JP)</a>, <a href="https://www.smartkarma.com/entities/obic-business-consultants" target="_blank" data-smartkarma-citation="entities:17383:1" rel="noopener">Obic Business Consultants (4733 JP)</a>, and <a href="https://www.smartkarma.com/entities/sakai-moving-service-co-ltd" target="_blank" data-smartkarma-citation="entities:10020:1" rel="noopener">Sakai Moving Service (9039 JP)</a> saw Relative Price Score declines. In contrast, the two Canon group companies, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, and <a href="https://www.smartkarma.com/entities/sekisui-jushi-corp" target="_blank" data-smartkarma-citation="entities:7654:1" rel="noopener">Sekisui Jushi (4212 JP)</a> rose.  </p><p>In the <strong>DETAIL</strong> below, we review our Sector Timelines and the announcements from <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon (7751 JP)</a>, <a href="https://www.smartkarma.com/entities/nec-corp" target="_blank" data-smartkarma-citation="entities:17084:1" rel="noopener">NEC (6701 JP)</a>, <a href="https://www.smartkarma.com/entities/cyberagent-inc" target="_blank" data-smartkarma-citation="entities:8197:1" rel="noopener">CyberAgent (4751 JP)</a>, <a href="https://www.smartkarma.com/entities/omron-corp" target="_blank" data-smartkarma-citation="entities:15904:1" rel="noopener">Omron (6645 JP)</a>, and <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest(6857 JP)</a>. </p>

Source • Japan Analytics29TH JANUARY ROUNDUP - Thre were 74 results and 30 forecasts or revisions announcements yesterday. Of the 32 larger-cap companies reporting results, seven saw year-on-year declines in their quarterly OP of greater than 25%, while three - NEC (6701 JP), CyberAgent(4751 JP), and ValueCommerce (2491 JP) grew profits by more than 25%, with the last of the three showing the strongest revenue growth. Omron (6645 JP) saw sales fall by 23%. Our market composite cap-weighted Results Score declined by 8bps to 0.99FORECASTS - Canon (7751 JP) released the most optimistic forecasts and account for the 24bps uptick in our Forecast/Revision Score; however, in terms of OP the FY2020 forecast is the same as the FY2016 actual result which was the second-worst outcome in the last decade after FY2019. The weakest outlook came from Screen (7735 JP) (-28% v TTM OP), which, when combined with Advantest (6857 JP)'s third-quarter results, should go some way to puncturing the current fad for owning SPE companies.Source • Japan AnalyticsPOST-RELEASE RPS CHANGES - Of the larger-cap companies announcing the day before yesterday or pre-close yesterday, OBIC (4684 JP), Obic Business Consultants (4733 JP), and Sakai Moving Service (9039 JP) saw Relative Price Score declines. In contrast, the two Canon group companies, M3 (2413 JP), and Sekisui Jushi (4212 JP) rose.  In the DETAIL below, we review our Sector Timelines and the announcements from Fanuc (6954 JP), Canon (7751 JP), NEC (6701 JP), CyberAgent (4751 JP), Omron (6645 JP), and Advantest(6857 JP). 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 29th January - 6954▲ 7751► 6701▲ 4751▲ 6645▼6857▼

<p>Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%. On a QoQ basis, profitability decreased 4% but we feel conditions have now bottomed. Despite this, valuations look stretched and we remain most negative on Fanuc out of the FA names including Keyence, Yaskawa and Harmonic Drive.</p>

Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%. On a QoQ basis, profitability decreased 4% but we feel conditions have now bottomed. Despite this, valuations look stretched and we remain most negative on Fanuc out of the FA names including Keyence, Yaskawa and Harmonic Drive.

<p>Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance vs. TOPIX ended in late October. We continue to believe that the market is pricing in too strong of a recovery too early and so far, financial results have been poor. The market has looked past this deterioration in anticipation of the next recovery, but we remain unconvinced about the strength of a potential recovery. As such we remain highly cautious on the sector and heavily favour the more robust earnings structure and greater potential for overseas growth of Keyence within the FA space.</p>

Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance vs. TOPIX ended in late October. We continue to believe that the market is pricing in too strong of a recovery too early and so far, financial results have been poor. The market has looked past this deterioration in anticipation of the next recovery, but we remain unconvinced about the strength of a potential recovery. As such we remain highly cautious on the sector and heavily favour the more robust earnings structure and greater potential for overseas growth of Keyence within the FA space.

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<div>Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every time an agreement has been "<strong>reached</strong>" either China or the US had gone back on their words, causing the said agreement to falter, again. Midea's valuation has increased proportionately to the earnings growth with the exception of August this year but it has since caught up. </div>
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<div class="content-caption">source: Capital IQ</div>
<div>Post-acquisition of Toshiba Appliances, <a href="https://www.smartkarma.com/entities/midea-group-co-ltd-a" target="_blank" data-smartkarma-citation="entities:16185:1" rel="noopener">Midea Group Co Ltd A (000333 CH)</a> enjoyed a strong revenue growth and caused the PEG ratio to be below 1, indicating undervaluation for a growth stock. Meanwhile, there has been no notable improvement in the margins and debt to equity level remains the same. </div>
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<p><em><strong>For Growth Investors: </strong></em>it has performed much better than many other stocks in light of the volatilities and now the hope for trade deal has been more realistic thus the aggressive buying should soon fade out. Recently, the PEG ratio has hit 1 and with the modest growth prospect, the PEG ratio will be higher thus it will be considered expensive for growth investors. </p>
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<strong>Lock in the +90%</strong> return while possible and wait for the contribution from the Robotics division to be sizeable enough before rushing to own Midea stock again. </div>
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<strong><em>For Value Investors: </em></strong>the stock is unlikely to experience such a massive sell-off given it is still one of the largest household appliances globally and its five year PBR ratio ranged from 2.5x to 5.5x at the highest. In the event that the share price falls hard and Midea trades at below book value, value investors should rush to seek ownership in Midea. Currently, the stock is trading at 3.89 PBR. </div>
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Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every time an agreement has been "reached" either China or the US had gone back on their words, causing the said agreement to falter, again. Midea's valuation has increased proportionately to the earnings growth with the exception of August this year but it has since caught up. 




source: Capital IQ
Post-acquisition of Toshiba Appliances, Midea Group Co Ltd A (000333 CH) enjoyed a strong revenue growth and caused the PEG ratio to be below 1, indicating undervaluation for a growth stock. Meanwhile, there has been no notable improvement in the margins and debt to equity level remains the same. 


For Growth Investors: it has performed much better than many other stocks in light of the volatilities and now the hope for trade deal has been more realistic thus the aggressive buying should soon fade out. Recently, the PEG ratio has hit 1 and with the modest growth prospect, the PEG ratio will be higher thus it will be considered expensive for growth investors. 


Lock in the +90% return while possible and wait for the contribution from the Robotics division to be sizeable enough before rushing to own Midea stock again. 



For Value Investors: the stock is unlikely to experience such a massive sell-off given it is still one of the largest household appliances globally and its five year PBR ratio ranged from 2.5x to 5.5x at the highest. In the event that the share price falls hard and Midea trades at below book value, value investors should rush to seek ownership in Midea. Currently, the stock is trading at 3.89 PBR. 


Midea (000333): Sell and Wait for the Robot

Japan

FANUC CORPORATION manufactures factory automation (FA) systems and equipments, and robots. The Company's products include computerized numerically-controlled (CNC) equipment, servo motors, laser systems, industrial robots, wire-cut electric discharge machines, and CNC drill.  Fanuc participates in a joint venture with General Electric in the FA field.

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Fanuc Corp (6954 JP)

Keyence – Valuations a Risk but Increasingly Attractive Relative to Peers

Keyence reported relatively weak 3Q numbers with revenue down 8.4% YoY (consensus -3.4%) although OP was down just -4.9% (consensus -8.1%). We...

Mio Kato

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 29th January - 6954▲ 7751► 6701▲ 4751▲ 6645▼6857▼

29TH JANUARY ROUNDUP - Thre were 74 results and 30 forecasts or revisions announcements yesterday. Of the 32 larger-cap companies reporting...

Campbell Gunn

Fanuc – Still the Ugly Duckling

Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%....

Mio Kato

Yaskawa – No Signs of Recovery

Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance...

Mio Kato

Midea (000333): Sell and Wait for the Robot

Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every...

Henry Soediarko

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