Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.</p>

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.

Japan Breaking Out; EM Remains Leadership

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

Hitachi Construction Machinery / Equity Bottom-Up

<h2>Revenue Guidance Overly Conservative</h2><p>HCM reported its 3QFY21 results on Friday (29th January) which saw both revenues and OP decrease YoY by 4.3% and 30.6% respectively with the deterioration in its profitability mainly due to the impact of lower sales volume in 3QFY21. However, the reported revenue was 1.6% higher than consensus while OP was -23.1% lower.</p><div><table class="table table-striped"><tbody>
<tr>
<td rowspan="2" style="width: 23.9%;"><p style="text-align: center;"><strong>In ¥m</strong></p></td>
<td colspan="3" style="width: 76.1%;"><p style="text-align: center;"><strong>3QFY21</strong></p></td>
</tr>
<tr>
<td style="width: 29.8%;"><p style="text-align: center;"><strong>Actual Results</strong></p></td>
<td style="width: 30.4%;"><p style="text-align: center;"><strong>Consensus</strong></p></td>
<td style="width: 15.9%;"><p style="text-align: center;"><strong>Surprise</strong></p></td>
</tr>
<tr>
<td style="width: 23.9%;"><p>Revenue</p></td>
<td style="width: 29.8%;"><p style="text-align: right;">                             197,825</p></td>
<td style="width: 30.4%;"><p style="text-align: right;">                              194,733</p></td>
<td style="width: 15.9%;"><p style="text-align: right;">1.6%</p></td>
</tr>
<tr>
<td style="width: 23.9%;"><p>Operating Profit</p></td>
<td style="width: 29.8%;"><p style="text-align: right;">                                  9,749</p></td>
<td style="width: 30.4%;"><p style="text-align: right;">                                 12,675</p></td>
<td style="width: 15.9%;"><p style="text-align: right;">-23.1%</p></td>
</tr>
<tr>
<td style="width: 23.9%;"><p>OPM</p></td>
<td style="width: 29.8%;"><p style="text-align: right;">4.9%</p></td>
<td style="width: 30.4%;"><p style="text-align: right;">6.5%</p></td>
<td style="width: 15.9%;"><p style="text-align: right;">-1.6% points</p></td>
</tr>
</tbody></table></div><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, CapIQ</em></div><p>The company has not changed its full year guidance for FY21 and expects revenue and OP of ¥211bn (-13.5% YoY) and ¥21bn (-1% YoY, implying an OPM of 10.4%) respectively in 4QFY21.</p><p>HCM's revenue expectation for 4QFY21 is 9.0% lower than consensus while OP is 6% higher than consensus implying an OPM of 10.3%.</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 29.1%;"><p><strong>In ¥m</strong></p></td>
<td style="width: 34.96%;"><p style="text-align: center;"><strong>Expected 4QFY21</strong></p></td>
<td style="width: 35.94%;"><p style="text-align: center;"><strong>Guidance – FY21</strong></p></td>
</tr>
<tr>
<td style="width: 29.1%;"><p>Net sales</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">                             211,273</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">                              770,000</p></td>
</tr>
<tr>
<td style="width: 29.1%;"><p>Operating income</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">                               21,702</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">                                 40,000</p></td>
</tr>
<tr>
<td style="width: 29.1%;"><p>OPM</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">10.3%</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">5.2%</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, CapIQ</em></div>

Revenue Guidance Overly ConservativeHCM reported its 3QFY21 results on Friday (29th January) which saw both revenues and OP decrease YoY by 4.3% and 30.6% respectively with the deterioration in its profitability mainly due to the impact of lower sales volume in 3QFY21. However, the reported revenue was 1.6% higher than consensus while OP was -23.1% lower.

In ¥m
3QFY21


Actual Results
Consensus
Surprise


Revenue
                             197,825
                              194,733
1.6%


Operating Profit
                                  9,749
                                 12,675
-23.1%


OPM
4.9%
6.5%
-1.6% points

Source: Company disclosures, CapIQThe company has not changed its full year guidance for FY21 and expects revenue and OP of ¥211bn (-13.5% YoY) and ¥21bn (-1% YoY, implying an OPM of 10.4%) respectively in 4QFY21.HCM's revenue expectation for 4QFY21 is 9.0% lower than consensus while OP is 6% higher than consensus implying an OPM of 10.3%.

In ¥m
Expected 4QFY21
Guidance – FY21


Net sales
                             211,273
                              770,000


Operating income
                               21,702
                                 40,000


OPM
10.3%
5.2%

Source: Company disclosures, CapIQ

<h2>Better Revenue, but Lower Profitability Compared to 2QFY21</h2><p>Komatsu reported its 3QFY21 results on Friday (29th January) with revenue and OP decreasing YoY by 10% and 20% respectively. Revenue beat consensus by 2% but OP missed by 6.6%.</p><table class="table table-striped"><tbody>
<tr>
<td rowspan="2" style="width: 24.18%;"><p><strong>In ¥m</strong></p></td>
<td colspan="3" style="width: 75.82%;"><p style="text-align: center;"><strong>3QFY21</strong></p></td>
</tr>
<tr>
<td style="width: 29.08%;"><p style="text-align: center;"><strong>Actual Results</strong></p></td>
<td style="width: 29.9%;"><p style="text-align: center;"><strong>Consensus</strong></p></td>
<td style="width: 16.84%;"><p style="text-align: center;"><strong>Surprise</strong></p></td>
</tr>
<tr>
<td style="width: 24.18%;"><p>Revenue</p></td>
<td style="width: 29.08%;"><p style="text-align: right;">                             555,593</p></td>
<td style="width: 29.9%;"><p style="text-align: right;">                              544,731</p></td>
<td style="width: 16.84%;"><p style="text-align: right;">2.0%</p></td>
</tr>
<tr>
<td style="width: 24.18%;"><p>Operating Profit</p></td>
<td style="width: 29.08%;"><p style="text-align: right;">                               34,017</p></td>
<td style="width: 29.9%;"><p style="text-align: right;">                                 36,440</p></td>
<td style="width: 16.84%;"><p style="text-align: right;">-6.6%</p></td>
</tr>
<tr>
<td style="width: 24.18%;"><p>OPM</p></td>
<td style="width: 29.08%;"><p style="text-align: right;">6.1%</p></td>
<td style="width: 29.9%;"><p style="text-align: right;">6.7%</p></td>
<td style="width: 16.84%;"><p style="text-align: right;">-0.6% points</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, CapIQ</em></div><p>The company did not change its full year guidance for FY21 and thus implied guidance for 4Q is now revenue of ¥606bn (-1.6% YoY) and OP of ¥26bn (-54% YoY) implying an OPM of 4.4% in 4QFY21.</p><p>Even though, Komatsu’s revenue guidance for 4QFY21 is 11% higher than consensus OP guidance is -27% lower and the implied OPM of 4.4% would be extremely low when considering typical seasonality.</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 29.08%;"><p><strong>In ¥m</strong></p></td>
<td style="width: 34.96%;"><p style="text-align: center;"><strong>Implied 4QFY21 Guidance</strong></p></td>
<td style="width: 35.94%;"><p style="text-align: center;"><strong>Guidance – FY21</strong></p></td>
</tr>
<tr>
<td style="width: 29.08%;"><p>Net sales</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">                             605,690</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">                           2,119,000</p></td>
</tr>
<tr>
<td style="width: 29.08%;"><p>Operating income</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">                               26,464</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">                              134,000</p></td>
</tr>
<tr>
<td style="width: 29.08%;"><p>OPM</p></td>
<td style="width: 34.96%;"><p style="text-align: right;">4.4%</p></td>
<td style="width: 35.94%;"><p style="text-align: right;">6.3%</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, CapIQ</em></div>

Better Revenue, but Lower Profitability Compared to 2QFY21Komatsu reported its 3QFY21 results on Friday (29th January) with revenue and OP decreasing YoY by 10% and 20% respectively. Revenue beat consensus by 2% but OP missed by 6.6%.

In ¥m
3QFY21


Actual Results
Consensus
Surprise


Revenue
                             555,593
                              544,731
2.0%


Operating Profit
                               34,017
                                 36,440
-6.6%


OPM
6.1%
6.7%
-0.6% points

Source: Company disclosures, CapIQThe company did not change its full year guidance for FY21 and thus implied guidance for 4Q is now revenue of ¥606bn (-1.6% YoY) and OP of ¥26bn (-54% YoY) implying an OPM of 4.4% in 4QFY21.Even though, Komatsu’s revenue guidance for 4QFY21 is 11% higher than consensus OP guidance is -27% lower and the implied OPM of 4.4% would be extremely low when considering typical seasonality.

In ¥m
Implied 4QFY21 Guidance
Guidance – FY21


Net sales
                             605,690
                           2,119,000


Operating income
                               26,464
                              134,000


OPM
4.4%
6.3%

Source: Company disclosures, CapIQ

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>In the first week of 2021, TMI's machinery sentiment indicators hit their highest levels since pre-pandemic readings, attributed to recent bullish commentary from the likes of Sany Heavy, Hengli Hydraulic, Zoomlion and the CCMA (China Construction Machinery Association); the indicators have been strongly correlated with <a href="https://www.smartkarma.com/entities/caterpillar-inc" target="_blank" data-smartkarma-citation="entities:697:1" rel="noopener">Caterpillar Inc (CAT US)</a> , <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu Ltd (6301 JP)</a> &amp; <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK) </a> with a slight lead</li>
<li>On Friday, Komatsu reported Komtrax equipment utilization data for December, highlighting sharply stronger average hours of machinery use Y/Y comps in key jurisdictions</li>
<li>The CCMA recently pointed out that Chinese OEMs expect 2021 demand to range from high single-digits to 15% Y/Y while the association expects a range of 8-10% supported by continued robust infrastructure FAI</li>
<li>Komatsu's European data indicates potential positive surprise with a second month of +4% Y/Y growth, despite weaker EU Construction PMI readings throughout Q4</li>
<li>US data also highlights a first positive utilization comp in over a year, despite still-tentative construction spending data and slippage in the ABI index</li>
<li>Japanese machinery utilization also bounced back in December to its best Y/Y comp in more than a year, with elevated public sector construction in progress and a potential inflection in housing starts</li>
<li>Given such a robust starting point for 2021, markets are more likely to look through seasonal air pockets going into Spring</li>
</ul>


In the first week of 2021, TMI's machinery sentiment indicators hit their highest levels since pre-pandemic readings, attributed to recent bullish commentary from the likes of Sany Heavy, Hengli Hydraulic, Zoomlion and the CCMA (China Construction Machinery Association); the indicators have been strongly correlated with Caterpillar Inc (CAT US) , Komatsu Ltd (6301 JP) &amp; Zoomlion Heavy Industry H (1157 HK)  with a slight lead
On Friday, Komatsu reported Komtrax equipment utilization data for December, highlighting sharply stronger average hours of machinery use Y/Y comps in key jurisdictions
The CCMA recently pointed out that Chinese OEMs expect 2021 demand to range from high single-digits to 15% Y/Y while the association expects a range of 8-10% supported by continued robust infrastructure FAI
Komatsu's European data indicates potential positive surprise with a second month of +4% Y/Y growth, despite weaker EU Construction PMI readings throughout Q4
US data also highlights a first positive utilization comp in over a year, despite still-tentative construction spending data and slippage in the ABI index
Japanese machinery utilization also bounced back in December to its best Y/Y comp in more than a year, with elevated public sector construction in progress and a potential inflection in housing starts
Given such a robust starting point for 2021, markets are more likely to look through seasonal air pockets going into Spring


TMI Snapshot: Machinery Sentiment at Pre-COVID High as Komtrax Data Shows Synchronized Global Surge

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><div>
<p>Our best and worst pair from yesterday's announcements is <a href="https://www.smartkarma.com/entities/ibiden-co-ltd" target="_blank" data-smartkarma-citation="entities:16630:1" rel="noopener">Ibiden (4062 JP)</a> and <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao (4452 JP). </a> </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/168/135/original/2020-10-29_06-17-58.png?1603919897" class="editor-image img-responsive" data-smartkarma-image-id="168135"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/168/136/original/2020-10-29_06-18-56.png?1603919953" class="editor-image img-responsive" data-smartkarma-image-id="168136"></figure></section>
</div><div><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></div><hr><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p style="text-align: center;"><strong>88 Quarterly Results</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 52% Positive / 2% Neutral / 45% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> -0.5 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -5.9% Quarter YoY / -4.2% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change</strong>: -2.0ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 20%</p></li>
</ul></div><hr><div><p style="text-align: center;"><strong>66 Annual • 39 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Annual Forecast/Revision Score</strong>: 44% Positive / 11% Neutral / 45% Negative</p></li>
<li><p><strong>Interim Forecast/Revision Score Change:</strong> 44% Positive / 18% Neutral / 38% Negative</p></li>
<li><p><strong>Average Forecast/Revision Score Change:</strong> -0.6 points</p></li>
</ul></div>

• BEST &amp; WORST •
Our best and worst pair from yesterday's announcements is Ibiden (4062 JP) and Kao (4452 JP).  

Source for all charts &amp; tables: Japan AnalyticsDAILY STATS88 Quarterly Results
Results Score: 52% Positive / 2% Neutral / 45% Negative
Average Results Score Change: -0.5 points
Average % Change in Revenue: -5.9% Quarter YoY / -4.2% Rolling TTM YoY 
Average Operating Profit Margin Change: -2.0ppt
Percentage Making Quarterly Losses: 20%
66 Annual • 39 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 44% Positive / 11% Neutral / 45% Negative
Interim Forecast/Revision Score Change: 44% Positive / 18% Neutral / 38% Negative
Average Forecast/Revision Score Change: -0.6 points


🇯🇵 JAPAN • Results & Revisions 10/​​​​​​​​​​​​​​​​​​​28 - Ibiden, Sony, Komatsu, Kao, Toyo Suisan

Japan

KOMATSU LTD. manufactures and sells construction and mining machinery, including excavators, bulldozers, and wheel loaders.  The Company, operating on a global scale, also produces forklift trucks and engineering equipment such as press system.

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

Komatsu Ltd (6301 JP)

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

HCM - Favour HCM over Komatsu for Now

HCM's guidance looks conservative on the revenue line though margins have been disappointing. However, there are signs of underlying improvement...

Mio Kato

Komatsu - Guidance Beat Looking Likely

Komatsu looks to be on track for recovery and the lack of an upward revision looks conservative, putting the company in a position to beat guidance.

Mio Kato

TMI Snapshot: Machinery Sentiment at Pre-COVID High as Komtrax Data Shows Synchronized Global Surge

TMI's Machinery Sentiment Indicators are now back to pre-pandemic levels, while Komatsu's Friday release of Komtrax machinery utilization hours...

Elan Gore

🇯🇵 JAPAN • Results & Revisions 10/28 - Ibiden, Sony, Komatsu, Kao, Toyo Suisan

• BEST & WORST • Our best and worst pair from yesterday's announcements is Ibiden (4062 JP) and Kao (4452 JP). ________________

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

HCM - Favour HCM over Komatsu for Now

HCM's guidance looks conservative on the revenue line though margins have been disappointing. However, there are signs of underlying improvement...

Mio Kato

Komatsu - Guidance Beat Looking Likely

Komatsu looks to be on track for recovery and the lack of an upward revision looks conservative, putting the company in a position to beat guidance.

Mio Kato

TMI Snapshot: Machinery Sentiment at Pre-COVID High as Komtrax Data Shows Synchronized Global Surge

TMI's Machinery Sentiment Indicators are now back to pre-pandemic levels, while Komatsu's Friday release of Komtrax machinery utilization hours...

Elan Gore

🇯🇵 JAPAN • Results & Revisions 10/​​​​​​​​​​​​​​​​​​​28 - Ibiden, Sony, Komatsu, Kao, Toyo Suisan

• BEST & WORST • Our best and worst pair from yesterday's announcements is Ibiden (4062 JP) and Kao (4452 JP). ________________

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 10/28 - Ibiden, Sony, Komatsu, Kao, Toyo Suisan