'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/121/977/original/2020-03-09_14-29-36.png?1583731808" class="editor-image img-responsive" data-smartkarma-image-id="121977"></figure><div class="content-caption">Source • Stoxx.com</div>ALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy which built on the work of William Beaver and R.A. Fisher. Altman's original article (attached below) was published in the September 1968 issue of the Journal of Finance when he was an assistant professor of finance at NYU Stern.  The 'classic' Z-Score sampled publically-traded manufacturing companies. Later versions were formulated for private companies, non-manufacturing companies and emerging markets.  The model is between 80% and 90% accurate in predicting bankruptcy one year ahead of the event, while the rate of false positives has been between 15% and 20%.APPLICATION TO JAPAN - We have been using Altman Z-Scores in Japan since the mid-1980s. We have found the Scores to be reasonably predictive, as has been confirmed by several academic papers, including  <a href="https://www.semanticscholar.org/paper/A-Model-of-Bankruptcy-Prediction%3A-Calibration-of/5565168f75b578ba28115ef314acbdd387f82483" target="_blank" rel="noopener">Gurau (2013)</a>. The persistence of a large number of 'zombie' companies supported by banks or keiretsu 'relatives' has, however, reduced the overall 'hit' rate for larger listed companies. The following charts show a timeline of the Altman Z-Score and Market Capitalisation for several memorable Japanese corporate bankruptcies. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/005/original/2020-03-09_15-53-11.png?1583736804" class="editor-image img-responsive" data-smartkarma-image-id="122005"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/006/original/2020-03-09_15-54-52.png?1583736903" class="editor-image img-responsive" data-smartkarma-image-id="122006"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/007/original/2020-03-09_15-56-58.png?1583737032" class="editor-image img-responsive" data-smartkarma-image-id="122007"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/009/original/2020-03-09_15-59-08.png?1583737161" class="editor-image img-responsive" data-smartkarma-image-id="122009"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/011/original/2020-03-09_16-03-28.png?1583737425" class="editor-image img-responsive" data-smartkarma-image-id="122011"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-highlight">This Insight is the second part of a three-part series attempting to highlight those Japanese companies that at the highest risk from the 2020 Covid-19 recession. The first focused on the<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-1-audit-score" target="_blank" data-smartkarma-citation="insights:37265" rel="noopener">Audit Score</a>, while a forthcoming Insight will look at Cumulative Cash Flows.</div>

Source • Stoxx.comALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy which built on the work of William Beaver and R.A. Fisher. Altman's original article (attached below) was published in the September 1968 issue of the Journal of Finance when he was an assistant professor of finance at NYU Stern.  The 'classic' Z-Score sampled publically-traded manufacturing companies. Later versions were formulated for private companies, non-manufacturing companies and emerging markets.  The model is between 80% and 90% accurate in predicting bankruptcy one year ahead of the event, while the rate of false positives has been between 15% and 20%.APPLICATION TO JAPAN - We have been using Altman Z-Scores in Japan since the mid-1980s. We have found the Scores to be reasonably predictive, as has been confirmed by several academic papers, including  Gurau (2013). The persistence of a large number of 'zombie' companies supported by banks or keiretsu 'relatives' has, however, reduced the overall 'hit' rate for larger listed companies. The following charts show a timeline of the Altman Z-Score and Market Capitalisation for several memorable Japanese corporate bankruptcies. Source • Japan AnalyticsThis Insight is the second part of a three-part series attempting to highlight those Japanese companies that at the highest risk from the 2020 Covid-19 recession. The first focused on theAudit Score, while a forthcoming Insight will look at Cumulative Cash Flows.

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 2: Altman Z-Score

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/121/814/original/naakt-jpg.png?1583659197" class="editor-image img-responsive" data-smartkarma-image-id="121814"></figure>Source  • <a href="https://hollandbesthotels.wordpress.com/" target="_blank" rel="noopener">https://hollandbesthotels.wordpress.com/</a>
</div><blockquote><a href="http://www.berkshirehathaway.com/2001ar/2001letter.html" target="_blank" aria-describedby="external-disclaimer" rel="noopener">“You only find out who is swimming naked when the tide goes out. “</a>- Warren Buffett</blockquote>WHO'S SWIMMING NAKED? - This is the first part of three Insights that will in the spirit of Buffett's famous quip, attempt to highlight those Japanese companies that at the greatest risk from the 2020 Covid-19 recession. We will focus on three factors - the Audit Score, the Altman Z-Score and Cumulative Cash Flows - that individually, and in combination, can highlight those companies most at risk.<hr><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/121/877/original/2020-03-09_07-18-54.png?1583705968" class="editor-image img-responsive" data-smartkarma-image-id="121877"></figure><div class="content-caption">Source • Japan Analytics</div>PART 1: AUDIT SCORE - This factor is 'hiding in plain sight'. Since 2003, the Auditors' Opinion has been available in a format that allows 'parsing' into a database format and the creation of an 'Audit Score'. Although often a coincident rather than a leading indicator, by cumulating the score from year to year, patterns can emerge that highlight unfolding risks as in the case of <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" data-smartkarma-citation="entities:8244:1" rel="noopener">Leopalace21 Corp (8848 JP)</a> above.


Source  • https://hollandbesthotels.wordpress.com/
“You only find out who is swimming naked when the tide goes out. “- Warren BuffettWHO'S SWIMMING NAKED? - This is the first part of three Insights that will in the spirit of Buffett's famous quip, attempt to highlight those Japanese companies that at the greatest risk from the 2020 Covid-19 recession. We will focus on three factors - the Audit Score, the Altman Z-Score and Cumulative Cash Flows - that individually, and in combination, can highlight those companies most at risk.Source • Japan AnalyticsPART 1: AUDIT SCORE - This factor is 'hiding in plain sight'. Since 2003, the Auditors' Opinion has been available in a format that allows 'parsing' into a database format and the creation of an 'Audit Score'. Although often a coincident rather than a leading indicator, by cumulating the score from year to year, patterns can emerge that highlight unfolding risks as in the case of Leopalace21 Corp (8848 JP) above.   

🇯🇵 JAPAN • Who's Swimming Naked? > Part 1: Audit Score

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
Last Week in Event SPACE ...
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<div>
<ul>
<li>It does not seem impossible for <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> to raise its offer for <a href="https://www.smartkarma.com/entities/nuflare-technology-inc" target="_blank" data-smartkarma-citation="entities:9635:1" rel="noopener">Nuflare Technology (6256 JP)</a>, but the company is in the driver’s seat and is unlikely to take the altruistic route.</li>
<li>The Tender Offer for <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> is a VERY good deal for <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and a decent deal for <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>, executed to the net detriment (in terms of significant earnings dilution and loss of control) of <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a> minority shareholders.</li>
<li>We have a "friendly" deal from Lone Star for <a href="https://www.smartkarma.com/entities/unizo-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:5209:1" rel="noopener">Unizo Holdings (3258 JP)</a>, which gets shareholders out of their shares at a 150+% premium to the July undisturbed price. That is something of a success. But it has issues.</li>
<li>A long-awaited deal at a decent premium and all-time high - there is no risk the transaction for <a href="https://www.smartkarma.com/entities/parco-co-ltd" target="_blank" data-smartkarma-citation="entities:8431:1" rel="noopener">Parco Co Ltd (8251 JP)</a> doesn't go through.</li>
<li>It is difficult to tell whether <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> played itself or whether it acted in a disciplined manner for <a href="https://www.smartkarma.com/entities/just-eat-plc" target="_blank" data-smartkarma-citation="entities:22014:1" rel="noopener">Just Eat PLC (JE/ LN)</a>. <a href="https://www.smartkarma.com/entities/takeaway-com-nv" target="_blank" data-smartkarma-citation="entities:28360:1" rel="noopener">Takeaway.com NV (TKWY NA)</a> probably wins this battle at any place better than 95% of the Prosus bid. </li>
<li>Five months after its IPO - one priced at the low-end of the range - <a href="https://www.smartkarma.com/entities/douyu-international-hold-adr" target="_blank" data-smartkarma-citation="entities:28045:1" rel="noopener">Douyu International Holdings (DOYU US)</a> oddly announces a buyback.</li>
<li>Plus, other events, CCASS movements and Mood Spins.</li>
</ul>
</div>
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(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
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Last Week in Event SPACE ...



It does not seem impossible for Toshiba Corp (6502 JP) to raise its offer for Nuflare Technology (6256 JP), but the company is in the driver’s seat and is unlikely to take the altruistic route.
The Tender Offer for LINE Corp (3938 JP) is a VERY good deal for Naver Corp (035420 KS) and a decent deal for Softbank Corp (9434 JP), executed to the net detriment (in terms of significant earnings dilution and loss of control) of Z Holdings (4689 JP) minority shareholders.
We have a "friendly" deal from Lone Star for Unizo Holdings (3258 JP), which gets shareholders out of their shares at a 150+% premium to the July undisturbed price. That is something of a success. But it has issues.
A long-awaited deal at a decent premium and all-time high - there is no risk the transaction for Parco Co Ltd (8251 JP) doesn't go through.
It is difficult to tell whether Prosus (PRX NA) played itself or whether it acted in a disciplined manner for Just Eat PLC (JE/ LN). Takeaway.com NV (TKWY NA) probably wins this battle at any place better than 95% of the Prosus bid. 
Five months after its IPO - one priced at the low-end of the range - Douyu International Holdings (DOYU US) oddly announces a buyback.
Plus, other events, CCASS movements and Mood Spins.



(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)


Last Week in Event SPACE: Nuflare, LINE/Z Holdings, Unizo, Parco, Just Eat, DouYu

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.

The Nikkei reported today that Japan Display is discussing the sale of its Hakusan factory to Apple and Sharp. Sharp later confirmed that it was in discussions but said that nothing had been decided. This represents a slight change from the initial plan for Apple to purchase equipment within Hakusan for about USD200m and the reports are that the entire factory could be sold including the land and buildings for about ¥80-90bn. Our thoughts on this development below.

The Nikkei reported today that Japan Display is discussing the sale of its Hakusan factory to Apple and Sharp. Sharp later confirmed that it was in discussions but said that nothing had been decided. This represents a slight change from the initial plan for Apple to purchase equipment within Hakusan for about USD200m and the reports are that the entire factory could be sold including the land and buildings for about ¥80-90bn. Our thoughts on this development below. 

JDI – Is Hakusan Sale to Apple and Sharp a Renewal of Hon Hai’s Display Offensive?

After Market Close JDI released more details on the new rescue structure:<ul>
<li>Ichigo Asset Management would invest ¥80-90bn in the event the Suwa consortium did not complete their investment by 31 Dec 2019, with an agreement by mid Jan 2020 and financing to be completed in Feb or Mar.</li>
<li>Of this amount, ¥20bn is apparently going to be in an escrow account until negotiations are completed.</li>
<li>The INCJ will not change its plans and provide additional financing as already agreed and will extend its ¥40bn bridge loan facility if necessary to complete Ichigo’s financing.</li>
<li>Its key customer (aka Apple) would loosen payment terms and potentially invest in production assets at Hakusan with the USD200m amount previously touted not changing.</li>
<li>Another company that JDI does business with (Wistron) would also provide support as previously noted easing payment terms and potentially investing directly in JDI to the tune of USD50m (no change).</li>
</ul>

After Market Close JDI released more details on the new rescue structure:
Ichigo Asset Management would invest ¥80-90bn in the event the Suwa consortium did not complete their investment by 31 Dec 2019, with an agreement by mid Jan 2020 and financing to be completed in Feb or Mar.
Of this amount, ¥20bn is apparently going to be in an escrow account until negotiations are completed.
The INCJ will not change its plans and provide additional financing as already agreed and will extend its ¥40bn bridge loan facility if necessary to complete Ichigo’s financing.
Its key customer (aka Apple) would loosen payment terms and potentially invest in production assets at Hakusan with the USD200m amount previously touted not changing.
Another company that JDI does business with (Wistron) would also provide support as previously noted easing payment terms and potentially investing directly in JDI to the tune of USD50m (no change).


Japan Display – Funding Structure Suggests Bigger Plans Than Previously

Japan

Japan Display Inc. manufactures small and medium sized displays.  The Company was formed through the integration of Sony Mobile Display, Toshiba Mobile Display and Hitachi Displays. Japan Display operates its business worldwide.

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Japan Display (6740 JP)

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 2: Altman Z-Score

ALTMAN'S Z-SCORE - Dr Edward Altman's Z-Score has been in use for over 50 years as a statistical model to calculate the probability of bankruptcy...

Campbell Gunn

🇯🇵 JAPAN • Who's Swimming Naked? > Part 1: Audit Score

“You only find out who is swimming naked when the tide goes out. “- Warren BuffettWHO'S SWIMMING NAKED? - This is the first part of three Insights...

Campbell Gunn

Last Week in Event SPACE: Nuflare, LINE/Z Holdings, Unizo, Parco, Just Eat, DouYu

Last Week in Event SPACE ... It does not seem impossible for Toshiba Corp (6502 JP) to raise its offer for Nuflare Technology (6256 JP), but...

David Blennerhassett

JDI – Is Hakusan Sale to Apple and Sharp a Renewal of Hon Hai’s Display Offensive?

The Nikkei reported today that Japan Display is discussing the sale of its Hakusan factory to Apple and Sharp. Sharp later confirmed that it was in...

Mio Kato

Japan Display – Funding Structure Suggests Bigger Plans Than Previously

After Market Close JDI released more details on the new rescue structure: Ichigo Asset Management would invest ¥80-90bn in the event the Suwa...

Mio Kato

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