Japan Specialist

Mark Chadwick

Equity Bottom-Up

<ul>
<li>Komatsu reported above Consensus 2Q OP; lifted OP guidance; and raised dividends.  Outlook for next FY3/24 looks bright</li>
<li>Share price is pricing in a severe recession. A PBR of 1.1x is implies a significant OP decline. We see no evidence of an earnings contraction next year</li>
<li>We expect the share price to re-rate as the market prices in resilient earnings outlook. Our back test still suggests over 45% upside </li>
</ul>


Komatsu reported above Consensus 2Q OP; lifted OP guidance; and raised dividends.  Outlook for next FY3/24 looks bright
Share price is pricing in a severe recession. A PBR of 1.1x is implies a significant OP decline. We see no evidence of an earnings contraction next year
We expect the share price to re-rate as the market prices in resilient earnings outlook. Our back test still suggests over 45% upside 


Komatsu(6301) | Post 2Q Earnings – BACKTEST STILL Says over 45% Upside

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.</li>
<li>Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.</li>
<li>Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.</li>
</ul>


At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.
Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.
Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.


TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

<ul>
<li>At 1.1x PB, Komatsu’s stock price has already discounted a severe recession </li>
<li>Our back test suggests a 56% return over 12-months from this level (100% hit rate) </li>
<li>We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors  </li>
</ul>


At 1.1x PB, Komatsu’s stock price has already discounted a severe recession 
Our back test suggests a 56% return over 12-months from this level (100% hit rate) 
We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors  


Komatsu (6301) | Back Test Suggests 56% Upside from Here

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

<ul>
<li>The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).</li>
<li>Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.</li>
<li>We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.</li>
</ul>


The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).
Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.
We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.


Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

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.

<ul>
<li>Komatsu reported 4QFY22 results on the 28th of April and recorded revenue of ¥787bn (6.2% above consensus) and OP of ¥94.5bn (13.1% above consensus). </li>
<li>They also guided for revenue to increase 7.1% YoY vs. HCM which guided for a 6.3% fall driving a significant and premature share price decline. </li>
<li>The market has corrected some of that fall as it appears to increasingly agree with our call that HCM’s guidance was nonsense conservatism.</li>
</ul>


Komatsu reported 4QFY22 results on the 28th of April and recorded revenue of ¥787bn (6.2% above consensus) and OP of ¥94.5bn (13.1% above consensus). 
They also guided for revenue to increase 7.1% YoY vs. HCM which guided for a 6.3% fall driving a significant and premature share price decline. 
The market has corrected some of that fall as it appears to increasingly agree with our call that HCM’s guidance was nonsense conservatism.


Komatsu – Sensible Top Line Guidance But Margins Too Conservative

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.

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Komatsu Ltd (6301 JP)

Komatsu(6301) | Post 2Q Earnings – BACKTEST STILL Says over 45% Upside

Komatsu is severely undervalued vs fundamentals. 2Q results should go a far way to ally fears of a significant earnings contraction. This is a top...

Mark Chadwick

TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Lower FFWs on 970 stocks and higher FFWs on 114 stocks will result in one-way turnover of 2.52% leading to a one-way trade of ¥1.8tn at the close...

Brian Freitas

Komatsu (6301) | Back Test Suggests 56% Upside from Here

Our back test suggests that Komatsu is significantly undervalued, despite risks of a global recession. Our model suggests a 56% return over the...

Mark Chadwick

Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China $MCHI, and...

Vermilion Research

Komatsu – Sensible Top Line Guidance But Margins Too Conservative

Komatsu's strong revenue guidance should reassure investors but there is still more upside as margin assumptions are far too conservative.

Mio Kato

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