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

<ul>
<li>
<a href="https://asia.nikkei.com/Business/Automobiles/Toyota-plans-to-make-record-11m-cars-in-fiscal-year-starting-April" target="_blank" rel="noopener"> The Nikkei is reporting</a> that Toyota has set internal production targets of 11m units for the fiscal year ending March 2023. </li>
<li>That would imply a more than 20% YoY increase in production volumes. </li>
<li>And that in turn is very positive news not just for Toyota but for several other auto-related names.</li>
</ul>



 The Nikkei is reporting that Toyota has set internal production targets of 11m units for the fiscal year ending March 2023. 
That would imply a more than 20% YoY increase in production volumes. 
And that in turn is very positive news not just for Toyota but for several other auto-related names.


Toyota – 11m Unit Production Target Is a Positive Surprise

<ul>
<li>We spoke to Aisin on Friday to discuss the impact of Toyota’s EV strategy announcement, the new Tundra and semi shortages. </li>
<li>Overall, our impression was positive, and we expect strong performance from the company next year. </li>
<li>While there are still various reports on semi shortages we expect the market to look through production stoppages from now on.</li>
</ul>


We spoke to Aisin on Friday to discuss the impact of Toyota’s EV strategy announcement, the new Tundra and semi shortages. 
Overall, our impression was positive, and we expect strong performance from the company next year. 
While there are still various reports on semi shortages we expect the market to look through production stoppages from now on.


Aisin announced its 2QFY22 results on Friday (29th October) and the company recorded revenue of ¥887bn (-9.2% QoQ, -1.5% YoY) and OP of ¥25bn (OPM of 2.9% compared to 4.6% and 6.1% respectively in 2QFY21 and 1QFY22). Like with Denso, Aisin maintained guidance despite relatively weak production volumes and margins. Unlike Denso, Aisin’s valuation multiples look depressed.

Aisin announced its 2QFY22 results on Friday (29th October) and the company recorded revenue of ¥887bn (-9.2% QoQ, -1.5% YoY) and OP of ¥25bn (OPM of 2.9% compared to 4.6% and 6.1% respectively in 2QFY21 and 1QFY22). Like with Denso, Aisin maintained guidance despite relatively weak production volumes and margins. Unlike Denso, Aisin’s valuation multiples look depressed.

Aisin – Underlying Improvements Materially Underappreciated

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/owari-precise-products" target="_blank" data-smartkarma-citation="entities:7242:1" rel="noopener">Owari Precise Products (7249 JP)</a> known as Owari Seiki in Japanese makes precision-forged metal parts for the automotive (synchronizer rings for transmissions), aircraft (fasteners), and bicycle (cranks, etc) manufacturing industries. The largest corporate shareholders are <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener">Hitachi Metals (5486 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a>, and there are several financial crossholders. Today it was announced that a fund called Rising Japan Equity Fund 2 would launch a takeover of the company. RJE describes itself as having been founded in 2010 as "5 core members" who have markets experience along with SMBC and Mitsui Sumitomo Trust. So... the company which is owned by cross-holders to the level of 57-60% is selling itself to a fund sponsored by one of those cross-holders for.... checks notes... <h3>...0.34x Book Value Per Share and 1.9x 5yr EBITDA?</h3><h3> </h3>And if you take out the securities and the net receivables (67 days of A/R, 30 days of A/P), it is 0.3x 5yr average EBITDA. And the company appears to have net surplus assets connected to its pension benefit obligations which would take that to below zero. And that does not count the fact that it has another 75% of its market cap in &lt;3 months of inventory, where near 40% of sales goes to relatively large and stable customers like Aishin AW, Toyota, and Mazda) on long-term supply contracts. <h3>So the purchase price is below net cash, securities, and high-quality receivables. </h3>This is going too cheap. And there is probably not much you can do about it except complain.Or launch a competing bid.<hr>Some corporate and financial crossholders should really be ashamed of themselves for allowing this to happen at this price. If a company needs cash, they can sell securities holdings, factor receivables, get some of their customers to pay more quickly, push back payables, sell and lease back real estate, etc. This is being done for virtually free, and the forecast the "fair" value is based on expects to make JPY 500mm a year of OP two years out.

Owari Precise Products (7249 JP) known as Owari Seiki in Japanese makes precision-forged metal parts for the automotive (synchronizer rings for transmissions), aircraft (fasteners), and bicycle (cranks, etc) manufacturing industries. The largest corporate shareholders are Hitachi Metals (5486 JP), Toyota Motor (7203 JP), Aisin Seiki (7259 JP), and there are several financial crossholders. Today it was announced that a fund called Rising Japan Equity Fund 2 would launch a takeover of the company. RJE describes itself as having been founded in 2010 as "5 core members" who have markets experience along with SMBC and Mitsui Sumitomo Trust. So... the company which is owned by cross-holders to the level of 57-60% is selling itself to a fund sponsored by one of those cross-holders for.... checks notes... ...0.34x Book Value Per Share and 1.9x 5yr EBITDA? And if you take out the securities and the net receivables (67 days of A/R, 30 days of A/P), it is 0.3x 5yr average EBITDA. And the company appears to have net surplus assets connected to its pension benefit obligations which would take that to below zero. And that does not count the fact that it has another 75% of its market cap in &lt;3 months of inventory, where near 40% of sales goes to relatively large and stable customers like Aishin AW, Toyota, and Mazda) on long-term supply contracts. So the purchase price is below net cash, securities, and high-quality receivables. This is going too cheap. And there is probably not much you can do about it except complain.Or launch a competing bid.Some corporate and financial crossholders should really be ashamed of themselves for allowing this to happen at this price. If a company needs cash, they can sell securities holdings, factor receivables, get some of their customers to pay more quickly, push back payables, sell and lease back real estate, etc. This is being done for virtually free, and the forecast the "fair" value is based on expects to make JPY 500mm a year of OP two years out. 

Owari Precise Products - Another Tiny Cap Takeover at <0.5 Book

Japan

Aisin Corporation manufactures and distributes motor vehicle parts. The Company produces drive train, transmissions, clutches, disc brakes, anti-skid brake system, suspensions, oil pumps, power windows, power door locks, and more. Aisin operates sales and production subsidiaries worldwide.

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Aisin (7259 JP)

Toyota – 11m Unit Production Target Is a Positive Surprise

Toyota has set internal production targets of 11m units for the FY23 implying a more than 20% YoY increase which is very positive news not just for...

Mio Kato

Aisin – Positive Chat With the Company

We spoke to Aisin on Friday to discuss the impact of Toyota’s EV strategy announcement, the new Tundra and semi shortages. Our impression was...

Mio Kato

Aisin – Underlying Improvements Materially Underappreciated

Like with Denso, Aisin maintained guidance despite relatively weak production volumes and margins. Unlike Denso, Aisin’s valuation multiples look...

Mio Kato

Toyota – Electrifying Lexus

Lexus has seen less EV related news flow than the main Toyota brand in terms of technological progress but this appears to now be changing and has...

Mio Kato

Owari Precise Products - Another Tiny Cap Takeover at <0.5 Book

A largely cross-held microcap gets a Tender Offer proposal at a 34% premium which takes the company out at 0.34x book, and 0.0-2.0x EV/EBITDA...

Travis Lundy

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