Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<p>Subsequent to our earlier update a quarter ago, below we publish updated results from our dividend forecasting models. Our models take into account most recent reported fiscal year-end financials to provide updated results. We also discuss notable changes within our top 10 conviction list.</p>

Subsequent to our earlier update a quarter ago, below we publish updated results from our dividend forecasting models. Our models take into account most recent reported fiscal year-end financials to provide updated results. We also discuss notable changes within our top 10 conviction list.

Asia Dividend Forecasting | Quarterly Update 2.0

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/175/original/2020-12-03_05-39-01.png?1606941555" class="editor-image img-responsive" data-smartkarma-image-id="176175"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics </div></section><div><p><strong>FOUR QUADRANTS PICKS</strong> - Our recent series of Insights covering companies that are extreme outliers in our Relative Price Score/Results &amp; Revision Score matrix has featured the following seven companies:-  </p></div><div>
<ul style="list-style-type: disc;">
<li>
<strong>CONTRARIAN BUYS</strong> - <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, <a href="https://www.smartkarma.com/entities/fuji-media-holdings-inc" target="_blank" data-smartkarma-citation="entities:3191:1" rel="noopener">Fuji Media (4676 JP)</a>, <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway (9020 JP)</a> </li>
<li>
<strong>CONTRARIAN SELLS</strong> - <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/disco-corp" target="_blank" data-smartkarma-citation="entities:15817:1" rel="noopener">DISCO (6146 JP)</a> </li>
<li>
<strong>TURNAROUND BUYS</strong> - <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> </li>
<li>
<strong>EX-GROWTH SELLS</strong> - <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao  (4452 JP)</a> </li>
</ul>
<p><strong>2021 HIGH CONVICTION COLLECTION</strong> - For Smartkarma's '2021 High Conviction Collection' we have chosen one of the seven to be our selection. Given the lack of short ideas so far - only two and both in the US - our pick, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, is the first Asian, and first Japanese, 'short' to join the Collection.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/209/original/2020-12-03_10-35-14.png?1606959327" class="editor-image img-responsive" data-smartkarma-image-id="176209"></figure></section><p><a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener"><strong>M3</strong></a>- M3 is the most extreme outlier of the seven stocks we have featured and was recommended as a 'Suga Growth Long in our Smartkarma Original - <a href="https://www.smartkarma.com/insights/japan-in-the-suga-era-policy-priorities-suga-stocks" target="_blank" data-smartkarma-citation="insights:43773" rel="noopener">Japan in the Suga Era - Policy Priorities &amp; 'Suga Stocks'</a>. Since then the stock has appreciated by 40% and by 10% since we published <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-sells" target="_blank" data-smartkarma-citation="insights:45725" rel="noopener">Contrarian Sells</a>, adding almost ¥2 trillion in market value M3 is Japan's fifteenth largest company with a market value of ¥6.4 trillion, despite having only ¥144 billion in trailing revenues, ¥43 billion in trailing operating income, and just ¥18 billion in trailing CITC. While valuations may be less of a concern in the momentum-driven post-COVID era, we have highlighted several areas of concern regarding the company's margin-diluting diversification, that suggest that M3's tripling in value seen in 2020 will not be repeated. <strong>M3 is our 2021 'High Conviction Sell' </strong>     </p>
</div>

Source for all charts &amp; tables: Japan Analytics FOUR QUADRANTS PICKS - Our recent series of Insights covering companies that are extreme outliers in our Relative Price Score/Results &amp; Revision Score matrix has featured the following seven companies:-  


CONTRARIAN BUYS - Nikon (7731 JP), Fuji Media (4676 JP), East Japan Railway (9020 JP) 

CONTRARIAN SELLS - M3 (2413 JP), DISCO (6146 JP) 

TURNAROUND BUYS - Softbank Corp (9434 JP) 

EX-GROWTH SELLS - Kao  (4452 JP) 

2021 HIGH CONVICTION COLLECTION - For Smartkarma's '2021 High Conviction Collection' we have chosen one of the seven to be our selection. Given the lack of short ideas so far - only two and both in the US - our pick, M3 (2413 JP), is the first Asian, and first Japanese, 'short' to join the Collection.
M3- M3 is the most extreme outlier of the seven stocks we have featured and was recommended as a 'Suga Growth Long in our Smartkarma Original - Japan in the Suga Era - Policy Priorities &amp; 'Suga Stocks'. Since then the stock has appreciated by 40% and by 10% since we published Contrarian Sells, adding almost ¥2 trillion in market value M3 is Japan's fifteenth largest company with a market value of ¥6.4 trillion, despite having only ¥144 billion in trailing revenues, ¥43 billion in trailing operating income, and just ¥18 billion in trailing CITC. While valuations may be less of a concern in the momentum-driven post-COVID era, we have highlighted several areas of concern regarding the company's margin-diluting diversification, that suggest that M3's tripling in value seen in 2020 will not be repeated. M3 is our 2021 'High Conviction Sell'      


2021 High Conviction 🇯🇵 Sell M3 (2413 JP)

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>Although Daifuku beat consensus at both the revenue and OP lines in 2Q, the company did not raise guidance and order/sales trends are becoming a concern. With the EV/OP multiple at 33.4x, the lack of OP growth despite a relatively mild net impact from COVID create a sense of vulnerability for the stock.</p>

Although Daifuku beat consensus at both the revenue and OP lines in 2Q, the company did not raise guidance and order/sales trends are becoming a concern. With the EV/OP multiple at 33.4x, the lack of OP growth despite a relatively mild net impact from COVID create a sense of vulnerability for the stock.

<p>In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut dividend. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 150+ and 20+ companies, respectively, that have a high likelihood of raising/cutting dividends, over the next five years.</p>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<ul>
<li>We have two separate models, one for forecasting Dividend Raise and the other for Dividend Cut.</li>
<li>Our back test results are very encouraging with &gt;90% hit rate for our Dividend Raise model and 100% hit rate for our Dividend Cut model.</li>
<li>For our Dividend Raise model, we apply a combination of eight stringent parameters and use last 7Y historical data to find companies that have consistently performed strong, lending our model a high hit rate.</li>
<li>For our Dividend Cut model, we differentiate from other models by focusing on companies that have had high dividend payout ratio (&gt;50%) over last 3Y. This criterion helps us in identifying companies where there is limited scope for dividend growth through increase in dividend payouts. In our observation, such companies are most vulnerable to cut dividend when faced with weakening fundamentals or deteriorating balance sheet.</li>
</ul>
</div>
<h3>Insight Flow</h3>
<ul>
<li>Live Dashboard</li>
<li> Methodology
<ul>
<li>Philosophy</li>
<li>Dividend Raise Model</li>
<li>Dividend Cut Model</li>
</ul>
</li>
<li>Universe</li>
<li>Back Test Results
<ul>
<li>Dividend Raise Model</li>
<li>Dividend Cut Model</li>
</ul>
</li>
<li>Model Results
<ul>
<li>Companies with High Probability of Dividend Raise</li>
<li>Companies with High Probability of Dividend Cut</li>
</ul>
</li>
<li>Model Risks &amp; Limitations</li>
<li>Conclusion</li>
</ul>

In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut dividend. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 150+ and 20+ companies, respectively, that have a high likelihood of raising/cutting dividends, over the next five years.

What's Original?

We have two separate models, one for forecasting Dividend Raise and the other for Dividend Cut.
Our back test results are very encouraging with &gt;90% hit rate for our Dividend Raise model and 100% hit rate for our Dividend Cut model.
For our Dividend Raise model, we apply a combination of eight stringent parameters and use last 7Y historical data to find companies that have consistently performed strong, lending our model a high hit rate.
For our Dividend Cut model, we differentiate from other models by focusing on companies that have had high dividend payout ratio (&gt;50%) over last 3Y. This criterion helps us in identifying companies where there is limited scope for dividend growth through increase in dividend payouts. In our observation, such companies are most vulnerable to cut dividend when faced with weakening fundamentals or deteriorating balance sheet.


Insight Flow

Live Dashboard
 Methodology

Philosophy
Dividend Raise Model
Dividend Cut Model


Universe
Back Test Results

Dividend Raise Model
Dividend Cut Model


Model Results

Companies with High Probability of Dividend Raise
Companies with High Probability of Dividend Cut


Model Risks &amp; Limitations
Conclusion


Asia Dividend Forecasting | The Rise and Fall of Dividends Across Asian Companies

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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/102/797/original/2019-10-22_07-21-37.png?1571696560" class="editor-image img-responsive" data-smartkarma-image-id="102797"></figure><div class="content-caption">Source: Japan Analytics</div><p>There has been much discussion on Smartkarma in the last week on the 'overexuberance' in Japan's semiconductor production equipment ("SPE") and factory automation (FA) companies' share prices following a 'spike' in <strong><a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a></strong>(HDS) as discussed <a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc/discussion?discussion=56418" target="_blank" rel="noopener">here, </a>and Capital Group’s block sale in SK Hynix. <a href="https://www.smartkarma.com/companies/lightstream-research" target="_blank" data-smartkarma-citation="companies:909" rel="noopener">LightStream Research</a> explored the topic in detail in yesterday's <a href="https://www.smartkarma.com/insights/readthrough-to-japanese-fa-sector-from-capital-s-sk-hynix-block-sale" target="_blank" data-smartkarma-citation="insights:33298" rel="noopener">Readthrough to Japanese FA Sector from Capital's SK Hynix Block Sale</a>. As <a href="https://www.smartkarma.com/profiles/raghav-kapoor" target="_blank" data-smartkarma-citation="accounts:2" rel="noopener">Raghav Kapoor</a> noted in the discussion on that note: - "<em><strong>The trends between the pricing of the BI Japan Factory Automation Index (BIAPJAVP Index) and the SOX are strikingly similar</strong></em>."   </p><p>This Insight will briefly examine these correlations using the Japan Analytic's scoring framework as well as updating our valuation work on <strong><a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP)</a>, <a href="https://www.smartkarma.com/entities/daifuku-co-ltd" target="_blank" data-smartkarma-citation="entities:10408:1" rel="noopener">Daifuku (6383 JP)</a>, </strong><a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener"><strong>Harmonic Drive Systems (6324 JP)</strong>, </a>as well as <strong><a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a>, <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest (6857 JP)</a>,</strong> and <strong><a href="https://www.smartkarma.com/entities/disco-corp" target="_blank" data-smartkarma-citation="entities:15817:1" rel="noopener">Disco (6146 JP)</a></strong>.     Please refer to our earlier Insight <a href="https://www.smartkarma.com/insights/6954-fanuc-timing-the-cycle" target="_blank" data-smartkarma-citation="insights:29401" rel="noopener">Fanuc • Timing the Cycle</a> for details on our scoring methodology.</p><p><strong>We conclude that, although we are likely to confirm the cycle bottom in the next few weeks as interim results are announced, the potential for recovery is more than adequately reflected in these group's extreme valuations and relative-to-market stock prices. As we noted in the discussion on HDS, "the market is re-running the playbook of 2009-2010 where earnings momentum recovered sharply [..] we think the better scenario is the more gradual recovery of  2012-2015 which saw the stock trade sideways until the recovery was well-advanced."</strong></p>

Source: Japan AnalyticsThere has been much discussion on Smartkarma in the last week on the 'overexuberance' in Japan's semiconductor production equipment ("SPE") and factory automation (FA) companies' share prices following a 'spike' in Harmonic Drive Systems (6324 JP)(HDS) as discussed here, and Capital Group’s block sale in SK Hynix. LightStream Research explored the topic in detail in yesterday's Readthrough to Japanese FA Sector from Capital's SK Hynix Block Sale. As Raghav Kapoor noted in the discussion on that note: - "The trends between the pricing of the BI Japan Factory Automation Index (BIAPJAVP Index) and the SOX are strikingly similar."   This Insight will briefly examine these correlations using the Japan Analytic's scoring framework as well as updating our valuation work on Fanuc (6954 JP), Yaskawa Electric (6506 JP), Daifuku (6383 JP), Harmonic Drive Systems (6324 JP), as well as Tokyo Electron (8035 JP), Advantest (6857 JP), and Disco (6146 JP).     Please refer to our earlier Insight Fanuc • Timing the Cycle for details on our scoring methodology.We conclude that, although we are likely to confirm the cycle bottom in the next few weeks as interim results are announced, the potential for recovery is more than adequately reflected in these group's extreme valuations and relative-to-market stock prices. As we noted in the discussion on HDS, "the market is re-running the playbook of 2009-2010 where earnings momentum recovered sharply [..] we think the better scenario is the more gradual recovery of  2012-2015 which saw the stock trade sideways until the recovery was well-advanced."

🇯🇵 Japan • FA & SPE - Calling Bottoms and Tops

Japan

DAIFUKU CO., LTD. designs, manufactures, and sells material handling equipment such as automated storage systems, conveyors, and automatic sorters.  The Company's products are used for automation in manufacturing and distribution businesses.

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Daifuku Co Ltd (6383 JP)

Asia Dividend Forecasting | Quarterly Update 2.0

Subsequent to our Dividend Forecasting Original in Sep 2020, this is our second quarterly update. Our models take into account latest reported...

Ankit Agrawal, CFA

2021 High Conviction 🇯🇵 Sell M3 (2413 JP)

2021 HIGH CONVICTION COLLECTION - For Smartkarma's '2021 High Conviction Collection' we have chosen one of our seven RPS/RRS outliers to be our...

Campbell Gunn

Daifuku – A Little Underwhelming

Daifuku's earnings results beat consensus by 8.8% at the revenue line and 18.8% at the OP line in 2Q but do they justify a 33.4x EV/OP multiple?

Mio Kato

Asia Dividend Forecasting | The Rise and Fall of Dividends Across Asian Companies

Methodology Back Test Results Companied

Ankit Agrawal, CFA

🇯🇵 Japan • FA & SPE - Calling Bottoms and Tops

There has been much discussion on Smartkarma in the last week on the 'overexuberance' in Japan's semiconductor production equipment ("SPE") and...

Campbell Gunn

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)