'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>
<p></p>
Source: Japan Analytics</div>
<p style="text-align: left;"><strong>CURRENCY DRIVER</strong> - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>¥ &lt; 100</strong> - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>EARNINGS DRIVER</strong> - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>CURRENCY CORRELATIONS</strong> - In the <strong>DETAIL</strong> below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT </strong>- We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.</p>




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">Dena Co Ltd (2432 JP)</a> used to be the GO-GO internet stock for both retail and institutional investors in Japan during the previous bull run before 2008 and trading at 40-50x PER. The multiples have since then collapsed to 10-20x PER although the business prospect remains solid if not better. Benefiting from the increasing regulation in China, DeNA signed an agreement with <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings (700 HK)</a> to distribute Arena of Valor in Japan which will boost revenue and improve margin. At 14x PER and 1.2x PBR, DeNA looks attractive. </p>

Dena Co Ltd (2432 JP) used to be the GO-GO internet stock for both retail and institutional investors in Japan during the previous bull run before 2008 and trading at 40-50x PER. The multiples have since then collapsed to 10-20x PER although the business prospect remains solid if not better. Benefiting from the increasing regulation in China, DeNA signed an agreement with Tencent Holdings (700 HK) to distribute Arena of Valor in Japan which will boost revenue and improve margin. At 14x PER and 1.2x PBR, DeNA looks attractive. 

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

<p>The market has assumed that Mixi not only can't replicate the success of Monster Strike but will continue to waste the proceeds trying. That no longer appears to be the case, with the result that Mixi looks to be one of the bigger bargains in the bargain-rich Japanese stock market right now.</p>

The market has assumed that Mixi not only can't replicate the success of Monster Strike but will continue to waste the proceeds trying. That no longer appears to be the case, with the result that Mixi looks to be one of the bigger bargains in the bargain-rich Japanese stock market right now.

Mixi (2121 JP) - When You've Got a Golden Goose...

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

iDreamSky Technology / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/5570" target="_blank" data-smartkarma-citation="entities:5570:1">iDreamsky Technology Limited (1119 HK)</a> is an independent game publisher and developer in China, backed by <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings (700 HK)</a> which a 21% shareholder. iDreamSky is being marketed at a price range of HK$6.0-HK$7.8 ($0.77-$1.00), giving it a potential valuation of $1.3 billion.</p><div class="content-highlight"><p>We had previously noted that iDreamSky recently pulled off a game-changing acquisition of Huohan to make the IPO a whole lot more palatable. Based on our estimates, iDreamSky is attractive at the low-end of the proposed IPO price range.</p></div>

iDreamsky Technology Limited (1119 HK) is an independent game publisher and developer in China, backed by Tencent Holdings (700 HK) which a 21% shareholder. iDreamSky is being marketed at a price range of HK$6.0-HK$7.8 ($0.77-$1.00), giving it a potential valuation of $1.3 billion.We had previously noted that iDreamSky recently pulled off a game-changing acquisition of Huohan to make the IPO a whole lot more palatable. Based on our estimates, iDreamSky is attractive at the low-end of the proposed IPO price range.

IDreamSky IPO Valuation: Ready Player One

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

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.

<p><a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent Inc (4751 JP)</a> reported FY09/18 financial results last Thursday (25<sup>th</sup> October). CyberAgent reported revenue of JPY420bn (+13%YoY) and OP of JPY30bn (-2%YoY) for FY09/18. OP was in line with the company’s guidance but below our previous estimate (JPY40bn) and consensus (JPY34bn). This was mostly due to higher investments into its passive TV business, “AbemaTV”, and a delay in the release of its new game title, “Dragalia Lost”, than we had anticipated.</p><p>CyberAgent’s share price closed at JPY4,520 on Monday (29<sup>th</sup> October), down 18% from last Wednesday’s close (JPY5,500). CyberAgent’s share price has been on a bearish trend for the last quarter, down 34% from an all-time high of JPY6,800 in July.</p><p>Our SOTP valuation for CyberAgent gives a FY1 target price of JPY5,690 which implies a 26% upside to the current market price. Our longer-term target for CyberAgent is in the range of JPY7,500-8,000 driven by the prospects of its passive TV business (see <a href="https://www.smartkarma.com/profiles/713" target="_blank" data-smartkarma-citation="accounts:713">Mio Kato</a>'s previous note on this <a href="https://www.smartkarma.com/insights/cyberagent-aggressive-plans-for-passive-tv" target="_blank" data-smartkarma-citation="insights:24455">Cyberagent: Aggressive Plans for Passive TV</a>).</p><p>For details on Cyberagent's business model please see our previous notes <a href="https://www.smartkarma.com/insights/cyberagent-hot-internet-media-stock-up-50-ytd-part-1" target="_blank" data-smartkarma-citation="insights:21690">CyberAgent: Hot Internet Media Stock Up ~50% YTD (Part 1)</a> and <a href="https://www.smartkarma.com/insights/cyberagent-part-ii-medium-term-prospects-are-priced-in-positive-long-term-outlook" target="_blank" data-smartkarma-citation="insights:22016">CyberAgent (Part II): Medium-Term Prospects Are Priced In; Positive Long-Term Outlook</a> .</p>

Cyberagent Inc (4751 JP) reported FY09/18 financial results last Thursday (25th October). CyberAgent reported revenue of JPY420bn (+13%YoY) and OP of JPY30bn (-2%YoY) for FY09/18. OP was in line with the company’s guidance but below our previous estimate (JPY40bn) and consensus (JPY34bn). This was mostly due to higher investments into its passive TV business, “AbemaTV”, and a delay in the release of its new game title, “Dragalia Lost”, than we had anticipated.CyberAgent’s share price closed at JPY4,520 on Monday (29th October), down 18% from last Wednesday’s close (JPY5,500). CyberAgent’s share price has been on a bearish trend for the last quarter, down 34% from an all-time high of JPY6,800 in July.Our SOTP valuation for CyberAgent gives a FY1 target price of JPY5,690 which implies a 26% upside to the current market price. Our longer-term target for CyberAgent is in the range of JPY7,500-8,000 driven by the prospects of its passive TV business (see Mio Kato's previous note on this Cyberagent: Aggressive Plans for Passive TV).For details on Cyberagent's business model please see our previous notes CyberAgent: Hot Internet Media Stock Up ~50% YTD (Part 1) and CyberAgent (Part II): Medium-Term Prospects Are Priced In; Positive Long-Term Outlook .

CyberAgent Down 18% After FY09/18 Earnings; We Are Still Bullish

Japan

DeNA Co., Ltd. operates social media site, auction and shopping web site such as Mobage-town and Bidders.  DeNA also provides mobile-related services such as mobile game and community site.

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DeNA (2432 JP)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

DeNA (2432): Undervalued Internet Stock

Dena Co Ltd (2432 JP) used to be the GO-GO internet stock for both retail and institutional investors in Japan during the previous bull run before...

Henry Soediarko

Mixi (2121 JP) - When You've Got a Golden Goose...

The market has assumed that Mixi not only can't replicate the success of Monster Strike but will continue to waste the proceeds trying. That no...

Pelham Smithers Associates

IDreamSky IPO Valuation: Ready Player One

iDreamsky Technology Limited (1119 HK) is an independent game publisher and developer in China, backed by Tencent Holdings (700 HK) which a 21%...

Arun George

CyberAgent Down 18% After FY09/18 Earnings; We Are Still Bullish

Cyberagent Inc (4751 JP) reported FY09/18 financial results last Thursday (25th October). CyberAgent reported revenue of JPY420bn (+13%YoY) and OP...

Supun Walpola

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