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.

Equity Bottom-Up

<p>Subaru Corp reported its 4QFY21 results on 11<sup>th</sup> May and posted revenue of ¥755bn (-11.8% QoQ, -12.1% YoY) and OP of ¥4.2bn (OPM of 0.6%) which is a 6.5% deterioration in operating margin YoY.</p><p>The reported revenue was 3.8% lower than consensus estimates while OP was significantly lower than consensus estimates (¥19bn).</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 43.96%;"><p><strong>In ¥bn</strong></p></td>
<td style="width: 18.68%;"><p style="text-align: center;"><strong>Revenue </strong></p></td>
<td style="width: 18.68%;"><p style="text-align: center;"><strong>OP</strong></p></td>
<td style="width: 18.68%;"><p style="text-align: center;"><strong>OPM</strong></p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Actual Results - 4QFY21</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">                    755</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">                     4.2</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">0.6%</p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Consensus - 4QFY21</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">785</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">23.2</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">2.9%</p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Surprise</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">-3.8%</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">-81.8%</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">-2.4% points</p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p> </p></td>
<td style="width: 18.68%;"><p style="text-align: right;"> </p></td>
<td style="width: 18.68%;"><p style="text-align: right;"> </p></td>
<td style="width: 18.68%;"><p style="text-align: right;"> </p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Actual - FY21</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">2,830</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">102</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">3.6%</p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Guidance - FY21</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">2,850</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">100</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">3.5%</p></td>
</tr>
<tr>
<td style="width: 43.96%;"><p>Surprise</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">-0.7%</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">2.5%</p></td>
<td style="width: 18.68%;"><p style="text-align: right;">0.1% points</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, CapIQ</em></div>

Subaru Corp reported its 4QFY21 results on 11th May and posted revenue of ¥755bn (-11.8% QoQ, -12.1% YoY) and OP of ¥4.2bn (OPM of 0.6%) which is a 6.5% deterioration in operating margin YoY.The reported revenue was 3.8% lower than consensus estimates while OP was significantly lower than consensus estimates (¥19bn).

In ¥bn
Revenue 
OP
OPM


Actual Results - 4QFY21
                    755
                     4.2
0.6%


Consensus - 4QFY21
785
23.2
2.9%


Surprise
-3.8%
-81.8%
-2.4% points


 
 
 
 


Actual - FY21
2,830
102
3.6%


Guidance - FY21
2,850
100
3.5%


Surprise
-0.7%
2.5%
0.1% points

Source: Company disclosures, CapIQ

Subaru – Below Book and Ready to Rebound

Semiconductors, Memory and SSDs Specialist, Objective Analysis

Jim Handy

Semiconductors, Memory and SSDs Specialist

Objective Analysis

Objective Analysis offers third-party independent market research and data for the semiconductor industry and investors in the semiconductor industry.

Semiconductors, Memory and SSDs

Thematic (Sector/Industry)

<p>After Japan's earthquake automobile makers had a lot to worry about, since they were already faced with critical semiconductor shortages.  Now unusually bad weather has hit much of the US, and has stopped chip production in three important fabs in Austin, Texas.  This Insight explores the winners and losers in this series of events.</p>

After Japan's earthquake automobile makers had a lot to worry about, since they were already faced with critical semiconductor shortages.  Now unusually bad weather has hit much of the US, and has stopped chip production in three important fabs in Austin, Texas.  This Insight explores the winners and losers in this series of events.

Texas Weather Deals Second Blow to Automotive Chip Supply Chain

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

<p style="text-align: center;"><strong>• THE POST-COVID ROTATION •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/193/original/2021-02-06_10-51-22.png?1612670102" class="editor-image img-responsive" data-smartkarma-image-id="187193"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/194/original/2021-02-06_10-51-43.png?1612670115" class="editor-image img-responsive" data-smartkarma-image-id="187194"></figure><div class="content-caption"> Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>THE 2021 ROTATION BEGINS</strong> -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the <strong>Technology Hardware</strong>, <strong>Electrical Equipment</strong>, <strong>Internet</strong>, and <strong>Healthcare</strong> Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 Inc (2413 JP)</a> +163%, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> +151%, <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO (3064 JP)</a> +108%, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a> +110%, and <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a> +97%. The only deep cyclical Sector that saw a significant recovery was <strong>Energy</strong>. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.</p><p></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/199/original/2021-02-06_10-52-30.png?1612678419" class="editor-image img-responsive" data-smartkarma-image-id="187199"></figure></section><p><strong>THE VALUE RENAISSANCE</strong> - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been <strong>Media</strong>,<strong> Telecommunications</strong>, <strong>Restaurants</strong>, <strong>Building Material</strong>s, and <strong>Consumer Services</strong>. The best-performing larger caps have included <a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan Railway (9021 JP)</a> +26%, <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu (4324 JP)</a> +25%, <a href="https://www.smartkarma.com/entities/create-restaurants-holdings-inc" target="_blank" data-smartkarma-citation="entities:11513:1" rel="noopener">create restaurants (3387 JP)</a> +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/216/original/2021-02-07_17-08-33.png?1612685331" class="editor-image img-responsive" data-smartkarma-image-id="187216"></figure></section><p><strong>RESULTS &amp; REVISION-DRIVEN</strong> - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as <strong>Metals</strong>, <strong>Media</strong>, <strong>Consumer Services</strong>, <strong>Wholesale</strong>, <strong>Transport</strong>, and<strong> Real Estate</strong> are 'outperforming' the market's average earnings momentum, while the I<strong>nternet</strong>, <strong>Healthcare</strong>,<strong> Commerical Services</strong>, and <strong>Energy</strong> are lagging.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/306/original/2021-02-08_05-28-53.png?1612729747" class="editor-image img-responsive" data-smartkarma-image-id="187306"></figure><p><strong>TRAILING &amp; FORECAST EARNINGS BOTTOM</strong><strong>OUT</strong> -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.</p></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/227/original/2021-02-06_12-20-31.png?1612688721" class="editor-image img-responsive" data-smartkarma-image-id="187227"></figure></section><p></p><div>
<hr>
<p style="text-align: center;"><strong>• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •</strong></p>
</div><div><p>Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.</p></div><div>
<p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p>
<p style="text-align: left;">Friday's 'best' pair of larger-cap companies is <a href="https://www.smartkarma.com/entities/agc-inc" target="_blank" data-smartkarma-citation="entities:2167:1" rel="noopener">AGC (5201 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-fudosan-co-ltd" target="_blank" data-smartkarma-citation="entities:565:1" rel="noopener">Mitsui Fudosan (8801 JP)</a>, while the worst two announcements came from <a href="https://www.smartkarma.com/entities/fuji-heavy-industries-ltd" target="_blank" data-smartkarma-citation="entities:5439:1" rel="noopener">Subaru (7270 JP)</a> and the overvalued and overbought <a href="https://www.smartkarma.com/entities/daifuku-co-ltd" target="_blank" data-smartkarma-citation="entities:10408:1" rel="noopener">Daifuku (6383 JP)</a>.   For more, see the <strong>DETAIL</strong> section below.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/304/original/2021-02-08_05-26-25.png?1612729598" class="editor-image img-responsive" data-smartkarma-image-id="187304"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/305/original/2021-02-08_05-27-07.png?1612729640" class="editor-image img-responsive" data-smartkarma-image-id="187305"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/307/original/2021-02-08_05-31-32.png?1612729905" class="editor-image img-responsive" data-smartkarma-image-id="187307"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/308/original/2021-02-08_05-32-44.png?1612729980" class="editor-image img-responsive" data-smartkarma-image-id="187308"></figure></section><p></p>
</div>

• THE POST-COVID ROTATION • Source for all charts &amp; tables: Japan AnalyticsTHE 2021 ROTATION BEGINS -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the Technology Hardware, Electrical Equipment, Internet, and Healthcare Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were M3 Inc (2413 JP) +163%, Lasertec (6920 JP) +151%, MonotaRO (3064 JP) +108%, GMO Payment Gateway (3769 JP) +110%, and Nidec (6594 JP) +97%. The only deep cyclical Sector that saw a significant recovery was Energy. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.THE VALUE RENAISSANCE - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been Media, Telecommunications, Restaurants, Building Materials, and Consumer Services. The best-performing larger caps have included West Japan Railway (9021 JP) +26%, Dentsu (4324 JP) +25%, create restaurants (3387 JP) +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. RESULTS &amp; REVISION-DRIVEN - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as Metals, Media, Consumer Services, Wholesale, Transport, and Real Estate are 'outperforming' the market's average earnings momentum, while the Internet, Healthcare, Commerical Services, and Energy are lagging.TRAILING &amp; FORECAST EARNINGS BOTTOMOUT -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.

• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •
Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.
• BEST &amp; WORST •
Friday's 'best' pair of larger-cap companies is AGC (5201 JP) and Mitsui Fudosan (8801 JP), while the worst two announcements came from Subaru (7270 JP) and the overvalued and overbought Daifuku (6383 JP).   For more, see the DETAIL section below.



🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

<p>Positive news flow regarding Toyota’s ZEV strategy has driven the stock up 10.5% in the last four days. We have always maintained that Japanese automakers, and the Toyota group in particular, possessed the fundamental technologies necessary to launch EVs when they felt the timing was right. As they start to do so and join other major OEMs such as VW and GM, we believe the narrative bubble surrounding pure EV manufacturers will burst and valuations will collapse. Nevertheless, as the pure EV names are narrative rather than fact driven, timing such a collapse remains difficult. A simpler way of expressing this trade is through a long in traditional automakers with strong ZEV technology who are entering the EV space, where they will take mass market volume away from pure EV manufacturers just as VW has already done to Tesla in Europe.</p>

Positive news flow regarding Toyota’s ZEV strategy has driven the stock up 10.5% in the last four days. We have always maintained that Japanese automakers, and the Toyota group in particular, possessed the fundamental technologies necessary to launch EVs when they felt the timing was right. As they start to do so and join other major OEMs such as VW and GM, we believe the narrative bubble surrounding pure EV manufacturers will burst and valuations will collapse. Nevertheless, as the pure EV names are narrative rather than fact driven, timing such a collapse remains difficult. A simpler way of expressing this trade is through a long in traditional automakers with strong ZEV technology who are entering the EV space, where they will take mass market volume away from pure EV manufacturers just as VW has already done to Tesla in Europe.

Toyota – Solid State Batteries and Long Toyota as a Safer Short on the EV Bubble

<p>Subaru posted strong 2Q results before lunch today and raised guidance above consensus at the revenue line and to the same level as consensus at the OP line. Nevertheless, we believe the OP projection is conservative and consensus is, as usual, late in picking up on how strong the recovery in earnings for the auto sector is likely to be.</p>

Subaru posted strong 2Q results before lunch today and raised guidance above consensus at the revenue line and to the same level as consensus at the OP line. Nevertheless, we believe the OP projection is conservative and consensus is, as usual, late in picking up on how strong the recovery in earnings for the auto sector is likely to be.

Subaru – Pointing the Way for Auto Sector Recovery

Japan

Subaru Corp manufactures passenger cars, buses, motor vehicle parts, and industrial machinery.  The Company also produces aircraft parts and supplies it to defense agency and Boeing Co.  The Company sells its passenger cars under the Subaru brand name.

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Subaru Corp (7270 JP)

Subaru – Below Book and Ready to Rebound

We had been harping on about Subaru being overrated between 2017 and 2019 as the stock price fell on collapsing earnings, but the name is now below...

Mio Kato

Texas Weather Deals Second Blow to Automotive Chip Supply Chain

A chip shortage is preventing the automotive industry from returning to full volume. Meanwhile Japan's earthquake and bad weather in Texas are...

Jim Handy

🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

THE 2021 ROTATION BEGINS - For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth...

Campbell Gunn

Toyota – Solid State Batteries and Long Toyota as a Safer Short on the EV Bubble

A simpler and safer way of expressing a short trade on the EV bubble is a long trade in traditional automakers with the technology to transition to...

Mio Kato

Subaru – Pointing the Way for Auto Sector Recovery

We expect a strong 2H recovery in earnings for the auto sector and Subaru, as an early reporter, appears to be confirming this view.

Mio Kato

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