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

We had touted the possibility of a significant beat at the OP level for Capcom on account of improvements in the underlying profit structure at the company. Unfortunately, this did not come through and both results (¥22.8bn OP) and guidance (¥25.5bn OP) were just in-line with consensus (¥22.3bn and ¥25.7bn respectively). The company also boosted its final dividend from ¥20 to ¥25 so the impression overall is slightly positive. Nevertheless, we have our suspicions that the company is pushing forward OP into FY21 and profitability trends need to be monitored. We go through our reasoning below.

We had touted the possibility of a significant beat at the OP level for Capcom on account of improvements in the underlying profit structure at the company. Unfortunately, this did not come through and both results (¥22.8bn OP) and guidance (¥25.5bn OP) were just in-line with consensus (¥22.3bn and ¥25.7bn respectively). The company also boosted its final dividend from ¥20 to ¥25 so the impression overall is slightly positive. Nevertheless, we have our suspicions that the company is pushing forward OP into FY21 and profitability trends need to be monitored. We go through our reasoning below.

Capcom – Changes in Seasonality Patterns a Focus

Nintendo blew the doors off with OP of ¥352.4bn vs. consensus at ¥314.9bn. Revenue of ¥1,308.5bn was also above consensus at ¥1,273bn, but by a smaller margin, showing the magnitude of the profitability improvements that we have been flagging as a key driver for the stock. Guidance of ¥300bn in OP for next FY looks conservative, and to us so does consensus at ¥369bn. Below we examine exactly how much upside may remain, but in short, it is not too late to buy.

Nintendo blew the doors off with OP of ¥352.4bn vs. consensus at ¥314.9bn. Revenue of ¥1,308.5bn was also above consensus at ¥1,273bn, but by a smaller margin, showing the magnitude of the profitability improvements that we have been flagging as a key driver for the stock. Guidance of ¥300bn in OP for next FY looks conservative, and to us so does consensus at ¥369bn. Below we examine exactly how much upside may remain, but in short, it is not too late to buy.

Nintendo – Deftly Animal Crossing Over the COVID Trap

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

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic. The stay at home theme remains in full force and with most of the space breaking out simultaneously, it gives us added confidence that price and RS appreciation is likely just getting started. In today’s report we highlight our favorite technical setups, all offering compelling and timely opportunities to add exposure at current levels. Buy: SE-US (our favorite setup), EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic. The stay at home theme remains in full force and with most of the space breaking out simultaneously, it gives us added confidence that price and RS appreciation is likely just getting started. In today’s report we highlight our favorite technical setups, all offering compelling and timely opportunities to add exposure at current levels. Buy: SE-US (our favorite setup), EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video Game Stocks Breaking Out; Buy SE-US, EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Reviews of RE3 are broadly positive but not quite to the extent of RE2 which sold so well. However, game sales volumes in a franchise can often lag game quality so the question is whether this is affecting sales and profitability for Capcom. We analyse these points below.

Reviews of RE3 are broadly positive but not quite to the extent of RE2 which sold so well. However, game sales volumes in a franchise can often lag game quality so the question is whether this is affecting sales and profitability for Capcom. We analyse these points below.

Capcom – Tracking the Remake of RE3 Vs. RE2 and a Likely Beat

We continue to believe global equities (ACWI-US) are likely to test the recent low made on March 23, with an undercut of roughly 10% also in the cards. This expectation is supported by price action during prior major waterfall declines in past recessionary periods. With the global economy likely headed for a recession (or worse) we believe it is important to stay with the Sectors that have been outperforming amid the COVID-19 pandemic as we believe they are likely to continue outperforming. That means we are sticking primarily with Staples, Health Care, and Technology. We are also expanding our recommendations to include bottom-up ideas within several other Sectors.

We continue to believe global equities (ACWI-US) are likely to test the recent low made on March 23, with an undercut of roughly 10% also in the cards. This expectation is supported by price action during prior major waterfall declines in past recessionary periods. With the global economy likely headed for a recession (or worse) we believe it is important to stay with the Sectors that have been outperforming amid the COVID-19 pandemic as we believe they are likely to continue outperforming. That means we are sticking primarily with Staples, Health Care, and Technology. We are also expanding our recommendations to include bottom-up ideas within several other Sectors.

Global Equities (ACWI-US) Likely to Retest the March Low

Japan

CAPCOM CO., LTD. develops consumer video game software.  The Company also develops, manufactures, markets, and leases arcade game machines.  Capcom also operates amusement facilities.

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Capcom Co Ltd (9697 JP)

Capcom – Changes in Seasonality Patterns a Focus

We had touted the possibility of a significant beat at the OP level for Capcom on account of improvements in the underlying profit structure at the...

Mio Kato

Nintendo – Deftly Animal Crossing Over the COVID Trap

Nintendo blew the doors off with OP of ¥352.4bn vs. consensus at ¥314.9bn. Revenue of ¥1,308.5bn was also above consensus at ¥1,273bn, but by a...

Mio Kato

Video Game Stocks Breaking Out; Buy SE-US, EA-US, ATVI-US, ZNGA-US, CDR-PL, UBI-FR, and 9697-JP

Video game stocks have been a major focus of ours for several months with the space outperforming the broad market amid the coronavirus pandemic....

Vermilion Research

Capcom – Tracking the Remake of RE3 Vs. RE2 and a Likely Beat

Reviews of RE3 are broadly positive but not quite to the extent of RE2 which sold so well. However, game sales volumes in a franchise can often lag...

Mio Kato

Global Equities (ACWI-US) Likely to Retest the March Low

We continue to believe global equities (ACWI-US) are likely to test the recent low made on March 23, with an undercut of roughly 10% also in the...

Vermilion Research

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