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.

Event-Driven

On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due to relative value unwinds that were being rushed for completion prior to the long weekend. This morning the skews are reversing and with Nikkei now outperforming Topix (+02.7% vs. -0.87% at the time of this writing) we believe this opportunity is being realised quickly. Our thoughts on next steps below.

On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due to relative value unwinds that were being rushed for completion prior to the long weekend. This morning the skews are reversing and with Nikkei now outperforming Topix (+02.7% vs. -0.87% at the time of this writing) we believe this opportunity is being realised quickly. Our thoughts on next steps below.

Japan Long Weekend Portfolio Blowout Theme Is Working Quickly

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

'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/000/118/403/original/2020-02-18_08-44-22.png?1581983074" class="editor-image img-responsive" data-smartkarma-image-id="118403"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/404/original/2020-02-18_08-42-56.png?1581983098" class="editor-image img-responsive" data-smartkarma-image-id="118404"></figure><div class="content-caption">Source • Japan Analytics</div>THREE-YEAR LOW - With <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a>'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/405/original/2020-02-18_09-29-28.png?1581985792" class="editor-image img-responsive" data-smartkarma-image-id="118405"></figure><div class="content-caption">Source • Japan Analytics</div>LEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-<ul>
<li>Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.</li>
<li>The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.</li>
<li>The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.</li>
<li>
All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.
<hr>
• SECTOR SCORES •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/410/original/2020-02-18_09-55-29.png?1581987489" class="editor-image img-responsive" data-smartkarma-image-id="118410"></figure><div class="content-caption">Source • Japan Analytics</div>
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 
</li>
</ul>

Source • Japan AnalyticsTHREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. Source • Japan AnalyticsLEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-
Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.
The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.
The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.

• SECTOR SCORES •
Source • Japan Analytics
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 



🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/367/original/2020-02-05_03-43-39.png?1580847984" class="editor-image img-responsive" data-smartkarma-image-id="116367"></figure><div class="content-caption">Source • Japan Analytics</div>4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new three-year low, although the Score is still positive. The Forecast/REvision Score added 13bps helped by <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 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> although the latter's forecast is optimistic as we discuss in the DETAIL below.<hr>• SECTOR TIMELINE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/368/original/2020-02-05_03-47-58.png?1580848469" class="editor-image img-responsive" data-smartkarma-image-id="116368"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - <a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya (7741 JP)</a>'s results were the largest factor in the decline in the Other Commerical Products Sector. <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> helped Healthcare tick up, while <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> fuelled the strong recovery in the Banks Sector.  <a href="https://www.smartkarma.com/entities/systena-corp" target="_blank" data-smartkarma-citation="entities:20438:1" rel="noopener">Systena (2317 JP)</a> and <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data (9613 JP)</a> added to the erosion of the Information Technology Sector's lead, although partially offset by <a href="https://www.smartkarma.com/entities/itochu-techno-solutions-corp" target="_blank" data-smartkarma-citation="entities:2431:1" rel="noopener">Itochu Techno Solutions (4739 JP)</a>.  <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui (8031 JP)</a> 21% yoy decline in Q3 Net Income continued to downtrend in the Wholesale Sector's Score.

Source • Japan Analytics4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new three-year low, although the Score is still positive. The Forecast/REvision Score added 13bps helped by Takeda Pharmaceutical (4502 JP) and Kao (4452 JP) although the latter's forecast is optimistic as we discuss in the DETAIL below.• SECTOR TIMELINE •Source • Japan AnalyticsSECTOR TIMELINE - Hoya (7741 JP)'s results were the largest factor in the decline in the Other Commerical Products Sector. Takeda Pharmaceutical (4502 JP) helped Healthcare tick up, while Mitsubishi UFJ Financial (MUFG) (8306 JP) fuelled the strong recovery in the Banks Sector.  Systena (2317 JP) and NTT Data (9613 JP) added to the erosion of the Information Technology Sector's lead, although partially offset by Itochu Techno Solutions (4739 JP).  Mitsui (8031 JP) 21% yoy decline in Q3 Net Income continued to downtrend in the Wholesale Sector's Score.   

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 4th February ▲2371 4502 4739 ▼7741 4452 2317

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Equity Bottom-Up

Hoya reported its 3QFY03/2020 results today which saw revenues increasing 2.1% YoY while both OP and Pre-tax profit dropped YoY by 4% and 3.5% respectively. Compared to consensus estimates, Hoya’s revenue beat consensus by 1.1% while both OP and Pre-tax profit were lower than consensus by 3% and 1.2% respectively.<table class="table table-striped"><tbody>
<tr>
<td style="width: 106.0pt;">JPY (bn)</td>
<td style="width: 61.0pt;">3QFY03/19</td>
<td style="width: 72.0pt;">3QFY03/20</td>
<td style="width: 50.0pt;">YoY Change</td>
<td style="width: 67.0pt;">Consensus Median</td>
<td style="width: 56.0pt;">Actual Vs. Consensus</td>
</tr>
<tr>
<td style="width: 106.0pt;">Revenue</td>
<td style="width: 61.0pt;">143.4</td>
<td style="width: 72.0pt;">146.5</td>
<td style="width: 50.0pt;">2.1%</td>
<td style="width: 67.0pt;">144.9</td>
<td style="width: 56.0pt;">1.1%</td>
</tr>
<tr>
<td style="width: 106.0pt;">Operating Profit</td>
<td style="width: 61.0pt;">39.9</td>
<td style="width: 72.0pt;">38.3</td>
<td style="width: 50.0pt;">-4.0%</td>
<td style="width: 67.0pt;">39.5</td>
<td style="width: 56.0pt;">-3.0%</td>
</tr>
<tr>
<td style="width: 106.0pt;">OPM</td>
<td style="width: 61.0pt;">27.8%</td>
<td style="width: 72.0pt;">26.1%</td>
<td style="width: 50.0pt;"> </td>
<td style="width: 67.0pt;">27.3%</td>
<td style="width: 56.0pt;"> </td>
</tr>
<tr>
<td style="width: 106.0pt;">Pre-Tax Profit</td>
<td style="width: 61.0pt;">39.7</td>
<td style="width: 72.0pt;">38.3</td>
<td style="width: 50.0pt;">-3.5%</td>
<td style="width: 67.0pt;">38.8</td>
<td style="width: 56.0pt;">-1.2%</td>
</tr>
<tr>
<td style="width: 106.0pt;">Pre-tax Profit Margin</td>
<td style="width: 61.0pt;">27.7%</td>
<td style="width: 72.0pt;">26.1%</td>
<td style="width: 50.0pt;"> </td>
<td style="width: 67.0pt;">26.8%</td>
<td style="width: 56.0pt;"> </td>
</tr>
</tbody></table><div class="content-caption">Source: Company Disclosures, Cap IQ</div>Despite the company earnings declining during the quarter, we expect Hoya’s revenue and profits to continue to increase due to solid prospects for its businesses.

Hoya reported its 3QFY03/2020 results today which saw revenues increasing 2.1% YoY while both OP and Pre-tax profit dropped YoY by 4% and 3.5% respectively. Compared to consensus estimates, Hoya’s revenue beat consensus by 1.1% while both OP and Pre-tax profit were lower than consensus by 3% and 1.2% respectively.

JPY (bn)
3QFY03/19
3QFY03/20
YoY Change
Consensus Median
Actual Vs. Consensus


Revenue
143.4
146.5
2.1%
144.9
1.1%


Operating Profit
39.9
38.3
-4.0%
39.5
-3.0%


OPM
27.8%
26.1%
 
27.3%
 


Pre-Tax Profit
39.7
38.3
-3.5%
38.8
-1.2%


Pre-tax Profit Margin
27.7%
26.1%
 
26.8%
 

Source: Company Disclosures, Cap IQDespite the company earnings declining during the quarter, we expect Hoya’s revenue and profits to continue to increase due to solid prospects for its businesses.

Hoya 3Q Results: Japan Consumption Tax Hike Causes Temporary Drop in Earnings

Japan

Hoya Corp manufactures electro-optics products such as mask blanks for semiconductors, photomasks for LCD panels, optical glasses, glass memory disks for HDDs, medical flexible endoscopes, eyeglasses, and contact lenses. The Company also provides information system architecture.

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Hoya Corp (7741 JP)

Japan Long Weekend Portfolio Blowout Theme Is Working Quickly

On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due...

Mio Kato

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei....

Mio Kato

🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

THREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 4th February ▲2371 4502 4739 ▼7741 4452 2317

4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new...

Campbell Gunn

Hoya 3Q Results: Japan Consumption Tax Hike Causes Temporary Drop in Earnings

Hoya reported its 3QFY03/2020 results today which saw revenues increasing 2.1% YoY while both OP and Pre-tax profit dropped YoY by 4% and 3.5%...

Shifara Samsudeen, FCMA, CGMA

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