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

<div>Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every time an agreement has been "<strong>reached</strong>" either China or the US had gone back on their words, causing the said agreement to falter, again. Midea's valuation has increased proportionately to the earnings growth with the exception of August this year but it has since caught up. </div>
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<div class="content-caption">source: Capital IQ</div>
<div>Post-acquisition of Toshiba Appliances, <a href="https://www.smartkarma.com/entities/midea-group-co-ltd-a" target="_blank" data-smartkarma-citation="entities:16185:1" rel="noopener">Midea Group Co Ltd A (000333 CH)</a> enjoyed a strong revenue growth and caused the PEG ratio to be below 1, indicating undervaluation for a growth stock. Meanwhile, there has been no notable improvement in the margins and debt to equity level remains the same. </div>
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<p><em><strong>For Growth Investors: </strong></em>it has performed much better than many other stocks in light of the volatilities and now the hope for trade deal has been more realistic thus the aggressive buying should soon fade out. Recently, the PEG ratio has hit 1 and with the modest growth prospect, the PEG ratio will be higher thus it will be considered expensive for growth investors. </p>
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<strong>Lock in the +90%</strong> return while possible and wait for the contribution from the Robotics division to be sizeable enough before rushing to own Midea stock again. </div>
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<strong><em>For Value Investors: </em></strong>the stock is unlikely to experience such a massive sell-off given it is still one of the largest household appliances globally and its five year PBR ratio ranged from 2.5x to 5.5x at the highest. In the event that the share price falls hard and Midea trades at below book value, value investors should rush to seek ownership in Midea. Currently, the stock is trading at 3.89 PBR. </div>
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Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every time an agreement has been "reached" either China or the US had gone back on their words, causing the said agreement to falter, again. Midea's valuation has increased proportionately to the earnings growth with the exception of August this year but it has since caught up. 




source: Capital IQ
Post-acquisition of Toshiba Appliances, Midea Group Co Ltd A (000333 CH) enjoyed a strong revenue growth and caused the PEG ratio to be below 1, indicating undervaluation for a growth stock. Meanwhile, there has been no notable improvement in the margins and debt to equity level remains the same. 


For Growth Investors: it has performed much better than many other stocks in light of the volatilities and now the hope for trade deal has been more realistic thus the aggressive buying should soon fade out. Recently, the PEG ratio has hit 1 and with the modest growth prospect, the PEG ratio will be higher thus it will be considered expensive for growth investors. 


Lock in the +90% return while possible and wait for the contribution from the Robotics division to be sizeable enough before rushing to own Midea stock again. 



For Value Investors: the stock is unlikely to experience such a massive sell-off given it is still one of the largest household appliances globally and its five year PBR ratio ranged from 2.5x to 5.5x at the highest. In the event that the share price falls hard and Midea trades at below book value, value investors should rush to seek ownership in Midea. Currently, the stock is trading at 3.89 PBR. 


Midea (000333): Sell and Wait for the Robot

'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/205/original/2019-11-03_13-09-55.png?1572754223" class="editor-image img-responsive" data-smartkarma-image-id="104205"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>FIRST WAVE</strong> - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In the last two weeks, there have been 967 results announcements, 426 annual forecasts or revisions and 263 interim forecasts or revisions. This Insight will review the Market Aggregate, Sector and Peer Group results and revisions using actual data and our earnings momentum-based scoring methodology as well as looking at individual company 'winners' and 'losers' and those with the most significant discrepancies between Relative Price and Results &amp; Revision Score. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/206/original/2019-11-03_13-33-51.png?1572755646" class="editor-image img-responsive" data-smartkarma-image-id="104206"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/207/original/2019-11-03_13-44-57.png?1572756308" class="editor-image img-responsive" data-smartkarma-image-id="104207"></figure><p>Source: Japan Analytics</p>
</div><p><strong>CALLING A BOTTOM?</strong> - The market aggregate (excluding REITs) capitalisation is at a new one-year high, despite the continuing downward drift in actual and forecast earnings, resulting in new eighteen-month high price-earnings ratios of 16.0 (TTM) and 15.5 (Forecast). Operating Profits are 5.3% below the peak of December 2018, while Net Income has declined by 15.5% Forecasts for both are falling sharply, but are still 1.1% and 3.4% above TTM, respectively. Operating and Net margins have declined 64 bps and 102 bps - both new two-year lows. The 11% rally in the aggregate market capitalisation since 29th August suggests that 'Mr Market' believes the low-point in the earnings cycle could be reached in the current or next quarter.  With only 8.6% and 13.1% upside to the 2018 and 2017 'highs', this is a bold call.  In the <strong>DETAIL</strong> section below, we shall examine just how bold a call this is and the potential for further upside.</p><p><strong>Among the stocks mentioned below are <a href="https://www.smartkarma.com/entities/autobacs-seven-co-ltd" target="_blank" data-smartkarma-citation="entities:2142:1" rel="noopener">Autobacs Seven (9832 JP)</a>, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1" rel="noopener">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex (8698 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/fujitsu-ltd" target="_blank" data-smartkarma-citation="entities:16968:1" rel="noopener">Fujitsu (6702 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-tec-corp" target="_blank" data-smartkarma-citation="entities:17697:1" rel="noopener">Toshiba Tec (6588 JP)</a>, and <a href="https://www.smartkarma.com/entities/m-a-capital-partners-co-ltd" target="_blank" data-smartkarma-citation="entities:10401:1" rel="noopener">M&amp;A Capital Partners (6080 JP)</a>. </strong></p>

Source: Japan AnalyticsFIRST WAVE - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In the last two weeks, there have been 967 results announcements, 426 annual forecasts or revisions and 263 interim forecasts or revisions. This Insight will review the Market Aggregate, Sector and Peer Group results and revisions using actual data and our earnings momentum-based scoring methodology as well as looking at individual company 'winners' and 'losers' and those with the most significant discrepancies between Relative Price and Results &amp; Revision Score. 
Source: Japan Analytics
CALLING A BOTTOM? - The market aggregate (excluding REITs) capitalisation is at a new one-year high, despite the continuing downward drift in actual and forecast earnings, resulting in new eighteen-month high price-earnings ratios of 16.0 (TTM) and 15.5 (Forecast). Operating Profits are 5.3% below the peak of December 2018, while Net Income has declined by 15.5% Forecasts for both are falling sharply, but are still 1.1% and 3.4% above TTM, respectively. Operating and Net margins have declined 64 bps and 102 bps - both new two-year lows. The 11% rally in the aggregate market capitalisation since 29th August suggests that 'Mr Market' believes the low-point in the earnings cycle could be reached in the current or next quarter.  With only 8.6% and 13.1% upside to the 2018 and 2017 'highs', this is a bold call.  In the DETAIL section below, we shall examine just how bold a call this is and the potential for further upside.Among the stocks mentioned below are Autobacs Seven (9832 JP), Nomura Holdings (8604 JP), Monex (8698 JP), Keyence (6861 JP), Fujitsu (6702 JP), Toshiba Tec (6588 JP), and M&amp;A Capital Partners (6080 JP). 

🇯🇵 Japan • Results & Revisions Roundup Part 1 - Mr Market Calls a Bottom

Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Forensic Accounting

<p>In Q3, <a href="https://www.smartkarma.com/entities/13359" target="_blank" data-smartkarma-citation="entities:13359:1">Lenovo (992 HK)</a> reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us - and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the <a href="https://www.smartkarma.com/entities/16968" target="_blank" data-smartkarma-citation="entities:16968:1">Fujitsu Ltd (6702 JP)</a> acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.</p>

In Q3, Lenovo (992 HK) reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us - and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the Fujitsu Ltd (6702 JP) acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.

Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

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 Capital Markets

<p>Coverage of <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank Corp (9434 JP)</a>'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take has been relatively subdued, leaning to the bearish side but only significantly so in the event that Docomo follows through with its announced price cuts and Rakuten's entry as a full-fledged MNO is particularly aggressive.</p><p>By and large we consider the issue to be overvalued but felt that significant downside risk only existed if the dividend were to be cut, which we consider a distinct possibility but by no means a sure thing. This long -term view has not changed, however, we now consider some modest downside to be likely in the short term.</p>

Coverage of Softbank Corp (9434 JP)'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take has been relatively subdued, leaning to the bearish side but only significantly so in the event that Docomo follows through with its announced price cuts and Rakuten's entry as a full-fledged MNO is particularly aggressive.By and large we consider the issue to be overvalued but felt that significant downside risk only existed if the dividend were to be cut, which we consider a distinct possibility but by no means a sure thing. This long -term view has not changed, however, we now consider some modest downside to be likely in the short term.

Softbank IPO: Signs Point to Risk of Early IPO Price Break

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure><p>Source: Japan Analytics</p>
<p>NB: companies are colour-coded by sector</p>
</div><p style="text-align: left;"><strong>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP</strong> - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.</p><p><strong>METHODOLOGY</strong> - Our comments follow in the detail below, but first a few notes:-</p><ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul><p><strong>THE 2050 RANKING?</strong>- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>. </p>


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

Japan

Fujitsu Ltd manufactures semiconductor, computer, and communication equipment. The Company provides comprehensive information technology, network and telecommunication solutions, and Internet services.

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Fujitsu Ltd (6702 JP)

Midea (000333): Sell and Wait for the Robot

Investors are hopeful that the US-China Trade issues will be resolved soon, driving the share price up by almost 100% YTD when in reality, every...

Henry Soediarko

🇯🇵 Japan • Results & Revisions Roundup Part 1 - Mr Market Calls a Bottom

FIRST WAVE - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In...

Campbell Gunn

Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

In Q3, Lenovo (992 HK) reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow. This was a...

Bucephalus Research Partnership

Softbank IPO: Signs Point to Risk of Early IPO Price Break

Coverage of Softbank Corp (9434 JP)'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take...

Mio Kato

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

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