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

<p>Our original take on Fujitsu General was that the company was not fulfilling its potential due to a lack of scale but was excessively cheap and could attract a nice premium with the right strategic buyer for Fujitsu to sell to. Since that early December 2019 take, the stock price saw a modest 18% rally into the end of the year, a 40% collapse as COVID fears peaked and a furious 92% rally as markets rebounded and talk of higher demand for air purification systems started. In the meantime, Fujitsu continues with its rather light TOB for Fujitsu Frontech so we refresh our view on Fujitsu General below.</p>

Our original take on Fujitsu General was that the company was not fulfilling its potential due to a lack of scale but was excessively cheap and could attract a nice premium with the right strategic buyer for Fujitsu to sell to. Since that early December 2019 take, the stock price saw a modest 18% rally into the end of the year, a 40% collapse as COVID fears peaked and a furious 92% rally as markets rebounded and talk of higher demand for air purification systems started. In the meantime, Fujitsu continues with its rather light TOB for Fujitsu Frontech so we refresh our view on Fujitsu General below.

Fujitsu General – 36% Above December Levels, What’s the Trade Now?

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Equity Bottom-Up

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/135/original/File%202020-09-10%209%2036%2022.jpeg?1599698266" class="editor-image img-responsive" data-smartkarma-image-id="158135"></figure><div style="text-align: center;" class="content-caption">Source: Daikin</div><p><strong>GLOBAL LEADER</strong> - Daikin is one of Japan's few global enterprises, and the company is rightly proud of its status as the 'world's No.1 air-conditioning company'. Based on the company's FY21 forecast, Japan represents only 23% of sales - over US$6 billion of revenues are to sourced from the Americas, one of the largest exposures of any non-auto company to that region. Daikin has benefited from its sole focus on A/C and a lack, as yet, of a viable Chinese competitor.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/140/original/2020-09-10_10-15-46.png?1599700558" class="editor-image img-responsive" data-smartkarma-image-id="158140"></figure><p>In the <strong>DETAIL</strong> section below,  we shall review Daikin's financial performance, returns and valuation. We shall not attempt to forecast the prospects for the A/C industry or assess Daikin's competitive position. Nevertheless, we expect A/C market growth to continue to exceed GDP growth and for Daikin to continue to gain market share globally, including through acquisitions. We expect the company to use the ¥183 billion increase in net debt in the last quarter to expand its global presence further.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/139/original/2020-09-10_10-15-08.png?1599700517" class="editor-image img-responsive" data-smartkarma-image-id="158139"></figure><p><strong>PERFECTION</strong> - By bidding up Daikin's shares by 50% in the last six months, the market has looked far beyond COVID-19 and has anticipated much of the company's incremental medium-term growth. At a current EV/Peak OP of 20.3 times, Daikin has only been as expensive by this metric in 1996 and 2000.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/162/original/2020-09-10_10-34-13.png?1599701664" class="editor-image img-responsive" data-smartkarma-image-id="158162"></figure>

Source: DaikinGLOBAL LEADER - Daikin is one of Japan's few global enterprises, and the company is rightly proud of its status as the 'world's No.1 air-conditioning company'. Based on the company's FY21 forecast, Japan represents only 23% of sales - over US$6 billion of revenues are to sourced from the Americas, one of the largest exposures of any non-auto company to that region. Daikin has benefited from its sole focus on A/C and a lack, as yet, of a viable Chinese competitor.In the DETAIL section below,  we shall review Daikin's financial performance, returns and valuation. We shall not attempt to forecast the prospects for the A/C industry or assess Daikin's competitive position. Nevertheless, we expect A/C market growth to continue to exceed GDP growth and for Daikin to continue to gain market share globally, including through acquisitions. We expect the company to use the ¥183 billion increase in net debt in the last quarter to expand its global presence further.PERFECTION - By bidding up Daikin's shares by 50% in the last six months, the market has looked far beyond COVID-19 and has anticipated much of the company's incremental medium-term growth. At a current EV/Peak OP of 20.3 times, Daikin has only been as expensive by this metric in 1996 and 2000.

🇯🇵 JAPAN • Daikin (6367 JP) - Perfect Pricing

Thematic (Sector/Industry)

<div><p style="text-align: center;"><strong>•BEST &amp; WORST 4th AUGUST •</strong></p></div><div>
<p>The 'best' and 'worst' from yesterday's large-cap announcements came from <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> and <a href="https://www.smartkarma.com/entities/nok-corp" target="_blank" data-smartkarma-citation="entities:2980:1" rel="noopener">NOK Corp (7240 JP)</a>, respectively - both mostly driven by forecasts.  More extensive coverage follows in the DETAIL section below.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/543/original/2020-08-05_06-36-25.png?1596577023" class="editor-image img-responsive" data-smartkarma-image-id="150543"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/530/original/2020-08-05_05-52-12.png?1596574370" class="editor-image img-responsive" data-smartkarma-image-id="150530"></figure><div class="content-caption">Source • Japan Analytics</div>
<hr>
</div><div>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
<hr>
</div><div><p><strong>PERCENTAGES</strong> - 74% of quarterly results,  80% of annual forecasts/revisions and 73% of interim forecasts have negative Scores and 33% of companies reporting lost money for the quarter.</p></div><hr><div><p style="text-align: center;"><strong>127 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 24% Positive / 2% Neutral / 74% Negative</li>
<li>
<strong>Average Results Score Change: </strong>-4.5 points</li>
<li>
<strong>Average % Change in Revenue: </strong>-13.4% Quarter YoY / -3.9% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.8 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 33%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>59 Annual • 33 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 17% Positive / 3% Neutral / 80% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 24% Positive / 3% Neutral / 73% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -9.7 points</li>
</ul></div>

•BEST &amp; WORST 4th AUGUST •
The 'best' and 'worst' from yesterday's large-cap announcements came from Itochu Techno Solutions (4739 JP) and NOK Corp (7240 JP), respectively - both mostly driven by forecasts.  More extensive coverage follows in the DETAIL section below.
Source • Japan Analytics


DAILY STATS

PERCENTAGES - 74% of quarterly results,  80% of annual forecasts/revisions and 73% of interim forecasts have negative Scores and 33% of companies reporting lost money for the quarter.127 Quarterly Results

Results Score: 24% Positive / 2% Neutral / 74% Negative

Average Results Score Change: -4.5 points

Average % Change in Revenue: -13.4% Quarter YoY / -3.9% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.8 ppt

Percentage Making Quarterly Losses: 33%
 59 Annual • 33 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 17% Positive / 3% Neutral / 80% Negative

Interim Forecast/Revision Score Change: 24% Positive / 3% Neutral / 73% Negative

Average Forecast/Revision Score Change: -9.7 points


🇯🇵 JAPAN • Results & Revisions 4th August - Sony, CTC, Kakaku.com, Daikin, Yamaha, Tokai Carbon

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/891/original/2020-07-20_11-11-13.png?1595211104" class="editor-image img-responsive" data-smartkarma-image-id="146891"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE 'HUNDRED DAYS WAR'</strong> - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the <strong>DETAIL</strong> section below, we shall look at the leading large caps in both categories and suggest opportunities in each.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/894/original/2020-07-20_11-42-42.png?1595213322" class="editor-image img-responsive" data-smartkarma-image-id="146894"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>RELATIVE PRICE</strong> - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/895/original/2020-07-20_11-58-18.png?1595214235" class="editor-image img-responsive" data-smartkarma-image-id="146895"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>RESULTS DRIVER</strong> - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. </p>

Source • Japan AnalyticsTHE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.Source • Japan AnalyticsRELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.Source • Japan AnalyticsRESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. 

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/848/original/2020-05-12_05-39-47.png?1589229610" class="editor-image img-responsive" data-smartkarma-image-id="132848"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>NEW INTERIM LOW</strong> - As we have noted in earlier Insights in this series, only half of the companies with March year-ends are issuing forecasts for the current year. Of those that do, two-thirds are also providing forecasts for the six months to September 2020. As was the case in 2019, our Interim data series is a clear signal of the depth of this recession.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/853/original/2020-05-12_06-49-09.png?1589233760" class="editor-image img-responsive" data-smartkarma-image-id="132853"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/854/original/2020-05-12_06-49-50.png?1589233810" class="editor-image img-responsive" data-smartkarma-image-id="132854"></figure><div class="content-caption">Source • Japan Analytics</div><p>In the <strong>DETAIL</strong> below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies yesterday:-</p><ul>
<li>The balance between positive/neutral/negative of the <strong>238</strong> results announcements was <strong>103:17:118</strong>. The average change in Results Score was <strong>-0.8</strong>.</li>
<li>For the <strong>137</strong> revisions/initial forecasts, the split was <strong>46:12:79, </strong>and the average Revision Score was<strong> -5.4</strong>. Of the <strong>183</strong> companies declaring full-year results, <strong>52%</strong> made forecasts for the current year.</li>
<li>263 will announce on Monday, the largest of which by market capitalisation will be <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/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>, and <a href="https://www.smartkarma.com/entities/daikin-industries-ltd" target="_blank" data-smartkarma-citation="entities:16696:1" rel="noopener">Daikin (6367 JP)</a>.</li>
<li>Monday's 'best' and 'worst' scoring results were from  <a href="https://www.smartkarma.com/entities/nissin-foods-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:12548:1" rel="noopener">Nissin Foods (2897 JP)</a>  and amusement centre operator <a href="https://www.smartkarma.com/entities/round-one-corp" target="_blank" data-smartkarma-citation="entities:7057:1" rel="noopener">Round One (4680 JP)</a>, respectively. </li>
</ul>

Source • Japan AnalyticsNEW INTERIM LOW - As we have noted in earlier Insights in this series, only half of the companies with March year-ends are issuing forecasts for the current year. Of those that do, two-thirds are also providing forecasts for the six months to September 2020. As was the case in 2019, our Interim data series is a clear signal of the depth of this recession.Source • Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies yesterday:-
The balance between positive/neutral/negative of the 238 results announcements was 103:17:118. The average change in Results Score was -0.8.
For the 137 revisions/initial forecasts, the split was 46:12:79, and the average Revision Score was -5.4. Of the 183 companies declaring full-year results, 52% made forecasts for the current year.
263 will announce on Monday, the largest of which by market capitalisation will be Toyota Motor (7203 JP), Honda Motor (7267 JP), and Daikin (6367 JP).
Monday's 'best' and 'worst' scoring results were from  Nissin Foods (2897 JP)  and amusement centre operator Round One (4680 JP), respectively. 


🇯🇵 JAPAN • Results & Revisions 11th May - Nissin, Seria, Mitsubishi Electric, Asahi Group

Japan

DAIKIN INDUSTRIES, LTD. manufactures air conditioning equipment for household and commercial use.  The Company also produces fluorine chemical products such as fluorinated hydrocarbon gas and shells and warheads for defense industry.

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Daikin Industries (6367 JP)

Fujitsu General – 36% Above December Levels, What’s the Trade Now?

Our original take on Fujitsu General was that the company was not fulfilling its potential due to a lack of scale but was excessively cheap and...

Mio Kato

🇯🇵 JAPAN • Daikin (6367 JP) - Perfect Pricing

GLOBAL LEADER - Daikin is one of Japan's few g

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 4th August - Sony, CTC, Kakaku.com, Daikin, Yamaha, Tokai Carbon

•BEST & WORST 4th AUGUST • The 'best' and 'worst' from yesterday's large-cap announcements came from Itochu Techno Solutions (4739 JP) and NOK...

Campbell Gunn

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 11th May - Nissin, Seria, Mitsubishi Electric, Asahi Group

NEW INTERIM LOW - As we have noted in earlier Insights in this series, only half of the companies with March year-ends are issuing forecasts for...

Campbell Gunn

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