'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. 

Equity Bottom-Up

<div class="content-caption">
<p></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/315/original/2019-02-09_12-04-43.png?1549681495" class="editor-image img-responsive" data-smartkarma-image-id="78315"></figure>
<p>Source: Japan Analytics</p>
</div>
<p><strong>TUMBLING DICE</strong> - After <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> (-52%) and <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> (-50%), <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">CyberAgent (4751 JP)</a> is the worst-performing large-cap <strong>Internet</strong> stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market <em>annually</em> over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, <strong>CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.</strong></p>
<p><strong>PASSIVE PERILS </strong>- We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace <a href="https://www.smartkarma.com/entities/19521" target="_blank" data-smartkarma-citation="entities:19521:1">Furukawa (5715 JP)</a> in the Nikkei 225 index, with the inclusion occurring on October 1st.<strong> Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   </strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/317/original/2019-02-09_12-52-50.png?1549684397" class="editor-image img-responsive" data-smartkarma-image-id="78317"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
<p><strong>SUMMARY</strong> - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called '<em>Abema Towers</em>' in March. We shall refrain from making any analogies to the <a href="https://en.wikipedia.org/wiki/Skyscraper_Index" target="_blank">Skyscraper Index</a>. </p>
<div class="content-highlight">
<p><strong>This Insight will review: - </strong></p>
<ul>
<li class=""><strong>CyberAgent's growth strategy</strong></li>
<li class=""><strong>The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins </strong></li>
<li class=""><strong>The three main business segments - Internet Advertising, Game Software, and Media</strong></li>
<li class=""><strong>Cash Flow and Valuation</strong></li>
</ul>
<p><strong>We will also</strong><strong> attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. </strong></p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/318/original/2019-02-09_13-06-39.png?1549685220" class="editor-image img-responsive" data-smartkarma-image-id="78318"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
<p><strong>VISION SHIFT?</strong> - In previous years, CyberAgent had a clear vision statement - <em>'To create the 21st century's leading company'</em>. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just <em>'Aiming to be a company with medium to long-term supporters'</em>.  In the vein of the lyrics from the best song on the best Rolling Stones album, <em>Exile on Main Street</em>, the business has recently been at 'all sixes and sevens and nines'. <strong>In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. </strong></p>
<center><iframe src="https://www.youtube.com/embed/6U8JlcB_BzA" width="963" height="722" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></center>
<div class="content-caption">Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 </div>




Source: Japan Analytics

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace Furukawa (5715 JP) in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   

Source: CyberAgent Way 2018
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the Skyscraper Index. 

This Insight will review: - 

CyberAgent's growth strategy
The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins 
The three main business segments - Internet Advertising, Game Software, and Media
Cash Flow and Valuation

We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 


Source: CyberAgent Way 2018
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 

Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/686/original/2019-02-02_09-34-42.png?1549067763" class="editor-image img-responsive" data-smartkarma-image-id="77686"></figure><div class="content-caption">Source: Japan Analytics</div><div style="text-align: left;" class="content-caption">
<strong>Note:</strong> The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.</div><p><strong>DRIP, DRIP, DRIP</strong> - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. <strong>If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.</strong></p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/701/original/2019-02-02_14-11-25.png?1549084295" class="editor-image img-responsive" data-smartkarma-image-id="77701"></figure><p>Source: Japan Analytics</p>
</div><p><strong>PAST THE PEAK</strong> - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point.<strong> We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'. </strong> <strong>Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/746/original/2019-02-03_07-23-31.png?1549146223" class="editor-image img-responsive" data-smartkarma-image-id="77746"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>THE FIRST CUT</strong> - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. <strong>Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/722/original/2019-02-02_18-25-46.png?1549099572" class="editor-image img-responsive" data-smartkarma-image-id="77722"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTERREGNUM</strong> - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'.<strong> In due course, we expect the preponderance of negative momentum to tip the scales.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/724/original/2019-02-02_18-41-12.png?1549100508" class="editor-image img-responsive" data-smartkarma-image-id="77724"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>TORAKU @110</strong> - The <em>Toraku</em> advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018.<strong> This signal is 'amber' and could be 'red' by the end of next week. </strong></p><div class="content-highlight">
<p><strong>OUTLOOK &amp; RECOMMENDATIONS</strong></p>
<ul>
<li><strong>We continue to recommend an underweight position in Japan in global portfolios.</strong></li>
<li><strong>The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit. <em> </em></strong></li>
<li><strong>Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.</strong></li>
<li><strong>In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.</strong></li>
</ul>
</div><p>In the <strong>DETAIL</strong> section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on <a href="https://www.smartkarma.com/entities/3700" target="_blank" data-smartkarma-citation="entities:3700:1">Anritsu (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Alpine (6770 JP)</a>, <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a>, <a href="https://www.smartkarma.com/entities/454" target="_blank" data-smartkarma-citation="entities:454:1">Lixil (5938 JP)</a> (yes, again), <a href="https://www.smartkarma.com/entities/752" target="_blank" data-smartkarma-citation="entities:752:1">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a> , and <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent (4751 JP)</a>.</p>

Source: Japan Analytics
Note: The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.DRIP, DRIP, DRIP - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.
Source: Japan Analytics
PAST THE PEAK - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point. We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'.  Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. Source: Japan AnalyticsTHE FIRST CUT - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  Source: Japan AnalyticsINTERREGNUM - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'. In due course, we expect the preponderance of negative momentum to tip the scales.Source: Japan AnalyticsTORAKU @110 - The Toraku advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018. This signal is 'amber' and could be 'red' by the end of next week. 
OUTLOOK &amp; RECOMMENDATIONS

We continue to recommend an underweight position in Japan in global portfolios.
The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit.  
Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.
In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.

In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Anritsu (6754 JP), Alps Alpine (6770 JP), SanBio (4592 JP), Lixil (5938 JP) (yes, again), Fanuc (6954 JP), Mizuho Financial Group (8411 JP) , and Cyberagent (4751 JP).

Japan Fortnightly Update: Drip, Drip, Drip...

Equity Analyst, LightStream Research

Supun Walpola

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.

<p><a href="https://www.smartkarma.com/entities/8197" target="_blank">Cyberagent Inc (4751 JP)</a> reported 1Q FY09/19 financial results on Wednesday (30<sup>th</sup> January) after the market close. CyberAgent reported revenue of JPY110.8bn (+13.2%YoY) and OP of JPY5.3bn (-35.2%YoY) for 1Q FY09/19.</p><p>Revenue and OP both missed consensus (JPY111.7bn and JPY8.2bn respectively). This was mostly due to low OP from the Game business due to increased advertising expenditure for new titles. OP margin of the Internet Advertisement business also fell due to upfront investments for expansion. Media business, driven by AbemaTV, demonstrated strong topline growth driven by robust increase in the number of AbemaTV premium users but continued to make losses due to heavy investment in content development.</p><p>CyberAgent revised down its full-year FY03/19E OP guidance to JPY20bn from JPY30bn previously, but we continue to remain positive about the company’s long term performance, driven by the prospects of its passive TV business (see <a href="https://www.smartkarma.com/profiles/713" target="_blank">Mio Kato</a>'s previous note on this <a href="https://www.smartkarma.com/insights/cyberagent-aggressive-plans-for-passive-tv" target="_blank">Cyberagent: Aggressive Plans for Passive TV</a>).</p><p>CyberAgent’s share price closed at JPY3,500 on Thursday (31st January) down 16% from its previous close. CyberAgent’s share price has been on a bearish trend for the last two quarters, down 49% from an all-time high of JPY6,800 in July. We believe this presents an ideal buying opportunity for the stock. Our SOTP valuation for CyberAgent gives a FY1 target price of JPY4,480 which implies a 28% upside to the current market price.</p><p>For details on Cyberagent's business model please see our previous notes <a href="https://www.smartkarma.com/insights/cyberagent-hot-internet-media-stock-up-50-ytd-part-1" target="_blank">CyberAgent: Hot Internet Media Stock Up ~50% YTD (Part 1)</a> and <a href="https://www.smartkarma.com/insights/cyberagent-part-ii-medium-term-prospects-are-priced-in-positive-long-term-outlook" target="_blank">CyberAgent (Part II): Medium-Term Prospects Are Priced In; Positive Long-Term Outlook</a> .</p>

Cyberagent Inc (4751 JP) reported 1Q FY09/19 financial results on Wednesday (30th January) after the market close. CyberAgent reported revenue of JPY110.8bn (+13.2%YoY) and OP of JPY5.3bn (-35.2%YoY) for 1Q FY09/19.Revenue and OP both missed consensus (JPY111.7bn and JPY8.2bn respectively). This was mostly due to low OP from the Game business due to increased advertising expenditure for new titles. OP margin of the Internet Advertisement business also fell due to upfront investments for expansion. Media business, driven by AbemaTV, demonstrated strong topline growth driven by robust increase in the number of AbemaTV premium users but continued to make losses due to heavy investment in content development.CyberAgent revised down its full-year FY03/19E OP guidance to JPY20bn from JPY30bn previously, but we continue to remain positive about the company’s long term performance, driven by the prospects of its passive TV business (see Mio Kato's previous note on this Cyberagent: Aggressive Plans for Passive TV).CyberAgent’s share price closed at JPY3,500 on Thursday (31st January) down 16% from its previous close. CyberAgent’s share price has been on a bearish trend for the last two quarters, down 49% from an all-time high of JPY6,800 in July. We believe this presents an ideal buying opportunity for the stock. Our SOTP valuation for CyberAgent gives a FY1 target price of JPY4,480 which implies a 28% upside to the current market price.For details on Cyberagent's business model please see our previous notes CyberAgent: Hot Internet Media Stock Up ~50% YTD (Part 1) and CyberAgent (Part II): Medium-Term Prospects Are Priced In; Positive Long-Term Outlook .

CyberAgent Cuts Its OP Guidance by JPY10bn; We Are Still Bullish

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names, or high weight-low float names were getting squeezed by BOJ buying or by a short squeeze on the short basket which had been proposed by a number of sellside brokers after the BOJ dropped its Nikkei 225 buying. The likelihood and nature of the change in Nikkei 225 buying by the BOJ was most recently discussed in the insights below:</p>
<table class="table table-striped">
<tbody>
<tr>
<td colspan="3">
<h2>Insights This Past Summer on BOJ ETF Buying and Nikkei 225</h2>
</td>
</tr>
<tr>
<td><strong>Date</strong></td>
<td><strong>Before/After BOJ</strong></td>
<td><strong>Title of Insight</strong></td>
</tr>
<tr>
<td>19-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-boj-heading-for-trouble-with-nikkei-225" target="_blank" data-smartkarma-citation="insights:21980">JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225</a></td>
</tr>
<tr>
<td>23-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-the-nikkei-225-baskets-if-boj-changes" target="_blank" data-smartkarma-citation="insights:22367">JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes</a></td>
</tr>
<tr>
<td>27-Jul-2018</td>
<td>Before</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-boj-to-buy-less-nikkei-225-highly-likely" target="_blank" data-smartkarma-citation="insights:22484">JAPAN PASSIVE - BOJ To Buy Less Nikkei 225? Highly Likely</a></td>
</tr>
<tr>
<td>31-Jul-2018</td>
<td>After</td>
<td><a href="https://www.smartkarma.com/insights/japan-passive-dovish-meeting-boj-to-buy-less-nikkei-225" target="_blank" data-smartkarma-citation="insights:22617">JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225</a></td>
</tr>
</tbody>
</table>
<p>However, the BOJ and Nikkei 225 story has been a deceased equine I have been belabouring for 2+ years.</p>
<p>Of course, the trigger for many people's suggestions of a trade was the decision by the BOJ on 31 July to lower its annual rate of purchases of ETFs in the grouping of the TOPIX, Nikkei 225, and JPX Nikkei 400 basket which was seeing total buys of ¥3.0trln a year (in addition to the ¥2.7trln on TOPIX alone) to ¥1.5trln, raising and lifting the portion of "only TOPIX" to ¥4.2trln. That meant the total to be bought in Nikkei would drop from about ¥1.3-1.4trln to about half that, and JPX Nikkei 400 saw its portion of BOJ ETF buys drop to very low single digit percentages, with TOPIX taking about 85% of total buys from there on.</p>
<p>As described in numerous insights on Smartkarma dating back a few years, it is to be noted that the "float" on several Japanese stocks in the Nikkei 225 is not really "float" and <em>Real World Float</em> is much smaller. In some cases single digit percentages of the shares outstanding.</p>
<p>Many of us have watched the 70+% performance since end-August for <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a> - one of my favored names to get heavily sold should the Nikkei 225 actually change its weighting methodology as I proposed earlier this year. It has been the avatar for high weight low-float names in the Nikkei 225.</p>
<p>So I tested the idea. The results were <em>somewhat</em> <em>surprising</em>.</p>

A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names, or high weight-low float names were getting squeezed by BOJ buying or by a short squeeze on the short basket which had been proposed by a number of sellside brokers after the BOJ dropped its Nikkei 225 buying. The likelihood and nature of the change in Nikkei 225 buying by the BOJ was most recently discussed in the insights below:




Insights This Past Summer on BOJ ETF Buying and Nikkei 225



Date
Before/After BOJ
Title of Insight


19-Jul-2018
Before
JAPAN PASSIVE:  BOJ Heading For Trouble with Nikkei 225


23-Jul-2018
Before
JAPAN PASSIVE:  The Nikkei 225 Baskets if BOJ Changes


27-Jul-2018
Before
JAPAN PASSIVE - BOJ To Buy Less Nikkei 225? Highly Likely


31-Jul-2018
After
JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225



However, the BOJ and Nikkei 225 story has been a deceased equine I have been belabouring for 2+ years.
Of course, the trigger for many people's suggestions of a trade was the decision by the BOJ on 31 July to lower its annual rate of purchases of ETFs in the grouping of the TOPIX, Nikkei 225, and JPX Nikkei 400 basket which was seeing total buys of ¥3.0trln a year (in addition to the ¥2.7trln on TOPIX alone) to ¥1.5trln, raising and lifting the portion of "only TOPIX" to ¥4.2trln. That meant the total to be bought in Nikkei would drop from about ¥1.3-1.4trln to about half that, and JPX Nikkei 400 saw its portion of BOJ ETF buys drop to very low single digit percentages, with TOPIX taking about 85% of total buys from there on.
As described in numerous insights on Smartkarma dating back a few years, it is to be noted that the "float" on several Japanese stocks in the Nikkei 225 is not really "float" and Real World Float is much smaller. In some cases single digit percentages of the shares outstanding.
Many of us have watched the 70+% performance since end-August for Familymart Uny Holdings (8028 JP) - one of my favored names to get heavily sold should the Nikkei 225 actually change its weighting methodology as I proposed earlier this year. It has been the avatar for high weight low-float names in the Nikkei 225.
So I tested the idea. The results were somewhat surprising.

Is It a Nikkei BOJ Squeeze on Nikkei 225 Low Float Names? Or Just FamilyMart Being FamilyMart?

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

<p>2018 has been another excellent year for the nascent eSports market, with growth of around 35~40% from 2017. With some big end-of-year tournaments yet to come, the 2018 prize pool looks to be up 28~30% at US$148~150mil, while sponsorship has grown even more quickly. With two months left in 2018, it seems highly likely that Dota 2 will continue to be the largest eSport by prize money, but the rise in Fortnite from nowhere at the start of the year to 2nd place suggests that Dota 2 is likely to be dethroned in 2019. Fortnite, though, is primarily a US phenomenon and elsewhere games like PUBG and ShadowVerse may have more of an impact as eSports, reflecting regional tastes. Overall, though, those companies investing in eSports - be it in facilities, tournaments, teams and leagues - should get rewarded.</p>

2018 has been another excellent year for the nascent eSports market, with growth of around 35~40% from 2017. With some big end-of-year tournaments yet to come, the 2018 prize pool looks to be up 28~30% at US$148~150mil, while sponsorship has grown even more quickly. With two months left in 2018, it seems highly likely that Dota 2 will continue to be the largest eSport by prize money, but the rise in Fortnite from nowhere at the start of the year to 2nd place suggests that Dota 2 is likely to be dethroned in 2019. Fortnite, though, is primarily a US phenomenon and elsewhere games like PUBG and ShadowVerse may have more of an impact as eSports, reflecting regional tastes. Overall, though, those companies investing in eSports - be it in facilities, tournaments, teams and leagues - should get rewarded.

ESports - 2018 Provides a Great Platform for 2019

Japan

CyberAgent, Inc. operates blog media website, Ameba.  The Company also operates internet advertising agency, foreign exchange trading website, and creates PC and mobile contents such as advertisements and games. CyberAgent invests in companies with internet related business.

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Is It a Nikkei BOJ Squeeze on Nikkei 225 Low Float Names? Or Just FamilyMart Being FamilyMart?

A comment from a Smartkarma client prompted me to dig through this. It was an interesting comment suggesting the high weight Nikkei 225 names,...

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2018 has been another excellent year for the nascent eSports market, with growth of around 35~40% from 2017. With some big end-of-year tournaments...

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