'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

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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/407/original/2019-03-09_14-25-50.png?1552109168" class="editor-image img-responsive" data-smartkarma-image-id="81407"></figure>
Source: Japan Analytics
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JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous <a href="https://www.smartkarma.com/insights/japan-the-2018-q3-cash-flow-stakes-runners-riders-red-flags" target="_blank" data-smartkarma-citation="insights:26816">Insight</a> with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -
<ul>
<li>Operating Cash Flow</li>
<li>
Investing Cash Flow (which includes Inventory Cash Flow) 
<ul>
<li>Free Cash Flow (Operating Cash Flow less Investing Cash Flow)</li>
</ul>
</li>
<li>Financing Cash Flow</li>
<li>Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) </li>
</ul>
     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a> and <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Pan Pacific International (7532 JP)</a>,  <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson (2651 JP)</a>, and <a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">I</a><a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">DOM (7599 JP)</a>



Source: Japan Analytics

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -

Operating Cash Flow

Investing Cash Flow (which includes Inventory Cash Flow) 

Free Cash Flow (Operating Cash Flow less Investing Cash Flow)


Financing Cash Flow
Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) 

     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. Softbank Group (9984 JP), NTT Docomo (9437 JP) and Fast Retailing (9983 JP) together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including Toyota Motor (7203 JP), Softbank Group (9984 JP), Pan Pacific International (7532 JP),  Lawson (2651 JP), and IDOM (7599 JP)

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/2765" target="_blank" data-smartkarma-citation="entities:2765:1">Ryohin Keikaku (7453 JP)</a> has downgraded full-year forecasts for its Muji retail chain but still expects record sales and solid profit growth in FY2018.
Overseas sales have been going from strength to strength, but previously stellar results at home have weakened, particularly in the home and accessories category which is under pressure from competitors, including even <a href="https://www.smartkarma.com/entities/20386" target="_blank" data-smartkarma-citation="entities:20386:1">Nitori (9843 JP)</a>.
Muji is responding and also has big plans to grow food retailing, a big potential market.

Ryohin Keikaku (7453 JP) has downgraded full-year forecasts for its Muji retail chain but still expects record sales and solid profit growth in FY2018.
Overseas sales have been going from strength to strength, but previously stellar results at home have weakened, particularly in the home and accessories category which is under pressure from competitors, including even Nitori (9843 JP).
Muji is responding and also has big plans to grow food retailing, a big potential market.

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.

Pan Pacific International Holdings / Equity Bottom-Up

Newly and somewhat boringly renamed  <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Pan Pacific International Holdings (7532 JP; PPI)</a> (formerly the much more evocative Don Quijote or Donki) announced results yesterday after the close, seeing 11% YoY sales growth for the first half and 14% YoY current profit growth. With the inclusion of the expected contribution from a consolidated Uny Holdings, the company also boosted its FY outlook by 46% at the revenue line and 32% at the NP line.Results at the 6 converted Uny stores continue to trend well and the company announced its intention to convert a further 19 stores by the end of the calendar year. <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a> had been projecting about ¥25bn in OP for Uny and its subsidiary UCS, which combined with PPI's previous forecast for FY06/19 of ¥53bn would sum to about ¥78bn in OP, in line with consensus for PPI's FY06/20 OP. Given the store conversions, growth overseas and some modest growth domestically for the mainline Donki stores, the prospects for a significant beat of consensus next year seem good.

Newly and somewhat boringly renamed  Pan Pacific International Holdings (7532 JP; PPI) (formerly the much more evocative Don Quijote or Donki) announced results yesterday after the close, seeing 11% YoY sales growth for the first half and 14% YoY current profit growth. With the inclusion of the expected contribution from a consolidated Uny Holdings, the company also boosted its FY outlook by 46% at the revenue line and 32% at the NP line.Results at the 6 converted Uny stores continue to trend well and the company announced its intention to convert a further 19 stores by the end of the calendar year. Familymart Uny Holdings (8028 JP) had been projecting about ¥25bn in OP for Uny and its subsidiary UCS, which combined with PPI's previous forecast for FY06/19 of ¥53bn would sum to about ¥78bn in OP, in line with consensus for PPI's FY06/20 OP. Given the store conversions, growth overseas and some modest growth domestically for the mainline Donki stores, the prospects for a significant beat of consensus next year seem good.

Pan Pacific International: UNY Acquisition the Bright Spot as SSS and Inbound Decelerate

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

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.

Event-Driven

Next week promises to be a large catalyst driven week, with <a href="https://www.smartkarma.com/entities/666" target="_blank" data-smartkarma-citation="entities:666:1">Apple Inc (AAPL US)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a> and <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> expected to report results, among others. We have provided a list below of the key equity catalysts for next week as well as potential drivers for M&amp;A deals and stubs. If you are interested in importing this directly into Outlook or have any further requests, please let us know. Kind regards, Rickin Arun and Venkat

Next week promises to be a large catalyst driven week, with Apple Inc (AAPL US), NTT Docomo Inc (9437 JP) and Tesla Motors (TSLA US) expected to report results, among others. We have provided a list below of the key equity catalysts for next week as well as potential drivers for M&amp;A deals and stubs. If you are interested in importing this directly into Outlook or have any further requests, please let us know. Kind regards, Rickin Arun and Venkat

GER Upcoming EVENTS and Earnings Calendar

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

We have raised our fair value estimate for <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Don Quijote Holdings (7532 JP)</a> to JPY 6,500 from JPY 5,600 after revising up our profit forecasts of <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart Uny Holdings (8028 JP)</a>. The discussion with management clarifies the profit contribution of Uny’s rental income and retail sales, and has convinced us that there is upside to boost Uny’s retail profits through store conversion to Mega Donki format and a slash in headquarter expenses. It appears that Uny’s retail business is in the red and profits are contributed by the rental income. The conversion of the 100 underperforming stores will allow Uny’s retail business to break even, which will lift profit margins to a level above 6% compared with our previous estimate of 3.5% after taking the rental and financial income into consideration.Analyst: Jeanie Chen

We have raised our fair value estimate for Don Quijote Holdings (7532 JP) to JPY 6,500 from JPY 5,600 after revising up our profit forecasts of Familymart Uny Holdings (8028 JP). The discussion with management clarifies the profit contribution of Uny’s rental income and retail sales, and has convinced us that there is upside to boost Uny’s retail profits through store conversion to Mega Donki format and a slash in headquarter expenses. It appears that Uny’s retail business is in the red and profits are contributed by the rental income. The conversion of the 100 underperforming stores will allow Uny’s retail business to break even, which will lift profit margins to a level above 6% compared with our previous estimate of 3.5% after taking the rental and financial income into consideration.Analyst: Jeanie Chen

Raising Don Quijote's FVE on the Upside to Lift Profitability of Uny’s Retail Business

Japan

FamilyMart Co., Ltd. operates convenience store chains. The Company provides rice balls, hot snacks, stews, beverages, and other products. FamilyMart conducts businesses in China, Taiwan, South Korea, Thailand, and other countries and regions.

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FamilyMart Co Ltd (8028 JP)

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market...

Campbell Gunn

What’s Down with Muji (7453 JP)?

Ryohin Keikaku (7453 JP) has downgraded full-year forecasts for its Muji retail chain but still expects record sales and solid profit growth in...

Michael Causton

Pan Pacific International: UNY Acquisition the Bright Spot as SSS and Inbound Decelerate

Newly and somewhat boringly renamed Pan Pacific International Holdings (7532 JP; PPI) (formerly the much more evocative Don Quijote or Donki)...

Mio Kato

GER Upcoming EVENTS and Earnings Calendar

Next week promises to be a large catalyst driven week, with Apple Inc (AAPL US), NTT Docomo Inc (9437 JP) and Tesla Motors (TSLA US) expected to...

Rickin Thakrar

Raising Don Quijote's FVE on the Upside to Lift Profitability of Uny’s Retail Business

We have raised our fair value estimate for Don Quijote Holdings (7532 JP) to JPY 6,500 from JPY 5,600 after revising up our profit forecasts of...

Morningstar, Inc.

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