'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.

Thematic (Sector/Industry)

<div style="text-align: center;"><strong>• NET GAIN • </strong></div><div><div class="content-caption">
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/590/original/2021-02-19_07-20-52.png?1613686864" class="editor-image img-responsive" data-smartkarma-image-id="189590"></figure><p></p></section> Source for all charts &amp; tables: Japan Analytics</div></div><div>
<p><strong>NET GAIN</strong> - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/591/original/2021-02-19_07-29-59.png?1613687413" class="editor-image img-responsive" data-smartkarma-image-id="189591"></figure></section><p><strong>TRAILING TWELVE MONTHS (TTM)</strong> - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/595/original/2021-02-19_07-38-34.png?1613687927" class="editor-image img-responsive" data-smartkarma-image-id="189595"></figure></section><p><strong>FORECASTS</strong> - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. </p>
</div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/596/original/2021-02-19_07-40-09.png?1613688021" class="editor-image img-responsive" data-smartkarma-image-id="189596"></figure><hr></section><p><strong>POSITIVE MOMENTUM</strong> - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   </p></section><div></div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/597/original/2021-02-19_08-02-24.png?1613689355" class="editor-image img-responsive" data-smartkarma-image-id="189597"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/694/original/2021-02-19_16-02-06.png?1613718138" class="editor-image img-responsive" data-smartkarma-image-id="189694"></figure><hr></section><p><strong>SECTOR BREAKDOWN</strong> - The leading sectors in terms of one-month change in Results &amp; Revision Score are <strong>Other Commercial Products</strong>, <strong>Autos</strong>,<strong> Other Consumer Products</strong>, <strong>Metals</strong>, and <strong>Building Materials.</strong> The RRS 'losers' are <strong>Utilities</strong>, <strong>Internet Content &amp; Services</strong>, <strong>Food, Beverages &amp; Tobacco,</strong><strong>Retail</strong>, and <strong>Healthcare</strong>.  </p>
</div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/700/original/2021-02-19_16-05-32.png?1613718344" class="editor-image img-responsive" data-smartkarma-image-id="189700"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/701/original/2021-02-19_16-06-12.png?1613718383" class="editor-image img-responsive" data-smartkarma-image-id="189701"></figure></section><hr>
</div><section></section><div><div>
<p>In the <strong>DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.</p>
<hr>
<p></p>
</div></div>

• NET GAIN • 
 Source for all charts &amp; tables: Japan Analytics
NET GAIN - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.
TRAILING TWELVE MONTHS (TTM) - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.
FORECASTS - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. 
POSITIVE MOMENTUM - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   
SECTOR BREAKDOWN - The leading sectors in terms of one-month change in Results &amp; Revision Score are Other Commercial Products, Autos, Other Consumer Products, Metals, and Building Materials. The RRS 'losers' are Utilities, Internet Content &amp; Services, Food, Beverages &amp; Tobacco,Retail, and Healthcare.  



In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.




🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>, <a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK)</a> and <a href="https://www.smartkarma.com/entities/jinxin-fertility-group-ltd" target="_blank" data-smartkarma-citation="entities:28003:1" rel="noopener">Jinxin Fertility Co Ltd (1951 HK)</a>while there was short covering on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>. Shorts increased on Financials, while decreasing on Communication Services, Health Care, Financials and Energy, while shorts decreased on Consumer Discretionary, Real Estate and Information Technology.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/ryohin-keikaku-co-ltd" target="_blank" data-smartkarma-citation="entities:2765:1" rel="noopener">Ryohin Keikaku (7453 JP)</a>, <a href="https://www.smartkarma.com/entities/nomura-real-estate-master-fu" target="_blank" data-smartkarma-citation="entities:22930:1" rel="noopener">Nomura Real Estate Master Fund, (3462 JP)</a>, <a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a> and <a href="https://www.smartkarma.com/entities/orix-jreit-inc" target="_blank" data-smartkarma-citation="entities:314:1" rel="noopener">Orix JREIT Inc (8954 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/trend-micro-inc" target="_blank" data-smartkarma-citation="entities:13172:1" rel="noopener">Trend Micro Inc (4704 JP)</a>, <a href="https://www.smartkarma.com/entities/dmg-mori-co-ltd" target="_blank" data-smartkarma-citation="entities:11125:1" rel="noopener">Dmg Mori Co Ltd (6141 JP)</a> and <a href="https://www.smartkarma.com/entities/pharma-foods-international" target="_blank" data-smartkarma-citation="entities:10530:1" rel="noopener">Pharma Foods International (2929 JP)</a>. Sectorally, shorts increased in Real Estate and decreased in Industrials.</p></div><div>
<p>In Korea, there was large short covering in <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/pearl-abyss-corp" target="_blank" data-smartkarma-citation="entities:24391:1" rel="noopener">Pearl Abyss (263750 KS)</a>, <a href="https://www.smartkarma.com/entities/lotte-chemical-corp" target="_blank" data-smartkarma-citation="entities:8757:1" rel="noopener">Lotte Chemical (011170 KS)</a> and <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>. </p>
<p>Taiwan was closed for the week due to the Lunar New Year.</p>
</div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Wuxi Biologics (2269 HK), Tencent Holdings (700 HK), Postal Savings Bank of China (1658 HK), Innovent Biologics Inc (1801 HK) and Jinxin Fertility Co Ltd (1951 HK)while there was short covering on Alibaba Group (9988 HK), Ping An Insurance (H) (2318 HK), Xiaomi Corp (1810 HK), Meituan (3690 HK) and BYD (1211 HK). Shorts increased on Financials, while decreasing on Communication Services, Health Care, Financials and Energy, while shorts decreased on Consumer Discretionary, Real Estate and Information Technology.In Japan, stocks that saw the most shorts were Ryohin Keikaku (7453 JP), Nomura Real Estate Master Fund, (3462 JP), freee (4478 JP) and Orix JREIT Inc (8954 JP) while shorts decreased on Itochu Corp (8001 JP), Trend Micro Inc (4704 JP), Dmg Mori Co Ltd (6141 JP) and Pharma Foods International (2929 JP). Sectorally, shorts increased in Real Estate and decreased in Industrials.
In Korea, there was large short covering in Samsung Electronics (005930 KS), Pearl Abyss (263750 KS), Lotte Chemical (011170 KS) and Kakao Corp (035720 KS). 
Taiwan was closed for the week due to the Lunar New Year.


Asia Short Interest: WuXi Bio, PSBC, Jinxin Fertility, BYD, Ryohin, Freee, Itochu, Pearl Abyss

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

<p>Nikon is likely to hit rock-bottom this quarter due to weak sales and losses caused by COVID-19 and costs related to restructuring. Depending on choices made regarding cuts to SG&amp;A and R&amp;D expenses, the company could lose another 6% of its equity. In FY Mar-20, equity declined by 12%.</p><p>At ¥924 (June 25 close), the share price has dropped 34% since January and is down more than 60% from its January 2018 peak. This is 0.6x book value at the end of Mar-20, suggesting that further losses of this magnitude have been discounted. But given the degree of economic uncertainty, the March 13 low of ¥845 could be retested.</p><p>As Campbell Gunn pointed out in <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-2-operating-cash-flow-accruals" target="_blank" data-smartkarma-citation="insights:40321" rel="noopener">🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow &amp; Accruals</a>, Nikon's Relative Price Score as calculated by Japan Analytics has yet to enter Oversold territory. But since 1993, it never has. That having been said, <em>t</em>he growth drivers that supported the company in the past - cameras, lenses and lithography equipment - now appear to have little long-term growth potential beyond a rebound from COVID-19.</p><p>That leaves Industrial Products and Healthcare, which account for only 22% of sales and are just getting off the ground in terms of new products and technologies.  Industrial products are at the bottom of the demand cycle. Healthcare has yet to turn a profit. The emergence of a "New Nikon" led by optics-based materials processing and bioscience is a long-term proposition.</p><p>On the positive side, a considerable amount of restructuring has already been done. Personnel and other expenses have been reduced, asset values written down and the share count reduced. As sales and profits recover from the current debacle, the operating margin and ROE should head back toward 10%.</p><p>Projected valuations 2 -3 years out (less than 10x earnings and 5x cash flow) look attractive enough to justify a 50% rebound in the share price. </p>

Nikon is likely to hit rock-bottom this quarter due to weak sales and losses caused by COVID-19 and costs related to restructuring. Depending on choices made regarding cuts to SG&amp;A and R&amp;D expenses, the company could lose another 6% of its equity. In FY Mar-20, equity declined by 12%.At ¥924 (June 25 close), the share price has dropped 34% since January and is down more than 60% from its January 2018 peak. This is 0.6x book value at the end of Mar-20, suggesting that further losses of this magnitude have been discounted. But given the degree of economic uncertainty, the March 13 low of ¥845 could be retested.As Campbell Gunn pointed out in 🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow &amp; Accruals, Nikon's Relative Price Score as calculated by Japan Analytics has yet to enter Oversold territory. But since 1993, it never has. That having been said, the growth drivers that supported the company in the past - cameras, lenses and lithography equipment - now appear to have little long-term growth potential beyond a rebound from COVID-19.That leaves Industrial Products and Healthcare, which account for only 22% of sales and are just getting off the ground in terms of new products and technologies.  Industrial products are at the bottom of the demand cycle. Healthcare has yet to turn a profit. The emergence of a "New Nikon" led by optics-based materials processing and bioscience is a long-term proposition.On the positive side, a considerable amount of restructuring has already been done. Personnel and other expenses have been reduced, asset values written down and the share count reduced. As sales and profits recover from the current debacle, the operating margin and ROE should head back toward 10%.Projected valuations 2 -3 years out (less than 10x earnings and 5x cash flow) look attractive enough to justify a 50% rebound in the share price. 

Nikon (7731 JP): 50% Upside from Rock Bottom

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Event-Driven

<p>This is to address some of the points raised by <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> in <a href="https://www.smartkarma.com/insights/toshiba-machine-taking-the-other-side" target="_blank" data-smartkarma-citation="insights:37985" rel="noopener">Toshiba Machine - Taking the Other Side</a>. While we agree with Shibaura Machine shareholders, Travis contends that shareholders voted against their own interests and that management’s new MTP looks iffy. While we usually see eye to eye with Travis on most things Japan, in this case we disagree quite broadly and explain why below.</p>

This is to address some of the points raised by Travis Lundy in Toshiba Machine - Taking the Other Side. While we agree with Shibaura Machine shareholders, Travis contends that shareholders voted against their own interests and that management’s new MTP looks iffy. While we usually see eye to eye with Travis on most things Japan, in this case we disagree quite broadly and explain why below.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>Today after the close, the Nikkei Inc announced its "<a href="https://indexes.nikkei.co.jp/en/nkave/archives/news/20190710E_1.pdf" target="_blank" rel="noopener">Changes to the Nikkei Indices</a>" which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" data-smartkarma-citation="entities:6232:1" rel="noopener">Chiyoda Corp (6366 JP)</a>'s yuho (Annual Securities Report) had shows the company had a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. </p>
<p>The Announcement surprised people. </p>
<p>As expected, <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" data-smartkarma-citation="entities:6232:1" rel="noopener">Chiyoda Corp (6366 JP)</a> is out. Unexpectedly, <a href="https://www.smartkarma.com/entities/bandai-namco-holdings-inc" target="_blank" data-smartkarma-citation="entities:13435:1" rel="noopener">Bandai Namco Holdings (7832 JP)</a> is the replacement. </p>
<p>From what I can gather, Bandai Namco was not on any analysts' lists to replace Chiyoda in the Capital Goods sector. Today will be interesting.</p>

Today after the close, the Nikkei Inc announced its "Changes to the Nikkei Indices" which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)'s yuho (Annual Securities Report) had shows the company had a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. 
The Announcement surprised people. 
As expected, Chiyoda Corp (6366 JP) is out. Unexpectedly, Bandai Namco Holdings (7832 JP) is the replacement. 
From what I can gather, Bandai Namco was not on any analysts' lists to replace Chiyoda in the Capital Goods sector. Today will be interesting.

Nikkei 225 - Bandai Namco IN, Chiyoda OUT

Japan

DMG MORI CO., LTD. manufactures and markets machine tools and related products. The Company's product line includes numerical control (NC) and high-speed precision lathes, horizontal and vertical machining centers (MCs), and other stationary machine tools capable of performing various tasks.

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Dmg Mori Co Ltd (6141 JP)

🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

NET GAIN - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter 23.8% higher than three months ago - an...

Campbell Gunn

Asia Short Interest: WuXi Bio, PSBC, Jinxin Fertility, BYD, Ryohin, Freee, Itochu, Pearl Abyss

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

Nikon (7731 JP): 50% Upside from Rock Bottom

Nikon is likely to hit rock-bottom this quarter due to weak sales and losses caused by COVID-19 and costs related to restructuring. Depending on...

Scott Foster

Shibaura Machine – A Response

This is to address some of the points raised by Travis Lundy in Toshiba Machine - Taking the Other Side. While we agree with Shibaura Machine...

Mio Kato

Nikkei 225 - Bandai Namco IN, Chiyoda OUT

Today after the close, the Nikkei Inc announced its "Changes to the Nikkei Indices" which became inevitable when the Tokyo Stock Exchange announced...

Travis Lundy

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