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

Harmonic Drive Systems / Equity Bottom-Up

<ul>
<li>Harmonic Drive posted relatively good numbers in 3Q on account of strong SG&amp;A controls but neglected to raise guidance. </li>
<li>That looks conservative and backlog hit a new high, but valuations remain stretched. </li>
<li>Ultimately we still see significant risk for next FY and expect guidance to be significantly weaker than consensus expects.</li>
</ul>


Harmonic Drive posted relatively good numbers in 3Q on account of strong SG&amp;A controls but neglected to raise guidance. 
That looks conservative and backlog hit a new high, but valuations remain stretched. 
Ultimately we still see significant risk for next FY and expect guidance to be significantly weaker than consensus expects.


Harmonic Drive – Good 3Q But No Guidance Revision

Event-Driven

<ul>
<li>After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off.</li>
<li>It did so slowly, however and was outperforming Nikkei when last we checked despite being down slightly. </li>
<li>Thankfully, a lot of the idiosyncratic volatility hurting the skew trade has reversed now and it is positive and outperforming Nikkei consistently.</li>
</ul>


After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off.
It did so slowly, however and was outperforming Nikkei when last we checked despite being down slightly. 
Thankfully, a lot of the idiosyncratic volatility hurting the skew trade has reversed now and it is positive and outperforming Nikkei consistently.


TOPIX-Nikkei Skew Trade Starting to Work Nicely

<ul>
<li>HDS revised FY guidance down by 2.6% at the revenue line and 13.7% at the OP line.</li>
<li>The stock was already hit on Friday as a surprise MSCI deletion drove a 7.3% fall.</li>
<li>This is the second surprise downgrade in the sector and we are increasingly confident that we are passing through the cyclical turning point.  </li>
</ul>


HDS revised FY guidance down by 2.6% at the revenue line and 13.7% at the OP line.
The stock was already hit on Friday as a surprise MSCI deletion drove a 7.3% fall.
This is the second surprise downgrade in the sector and we are increasingly confident that we are passing through the cyclical turning point.  


<ul>
<li>SMC reported its 2QFY22 results beating revenue and OP guidance by 5.5% and 18.0% respectively.</li>
<li>A weak yen and strong SG&amp;A control are helping boost margins to unusually high levels as well.</li>
<li>However, cyclical patterns suggest a revenue downturn is incoming at a time when valuations are extremely stretched.</li>
</ul>


SMC reported its 2QFY22 results beating revenue and OP guidance by 5.5% and 18.0% respectively.
A weak yen and strong SG&amp;A control are helping boost margins to unusually high levels as well.
However, cyclical patterns suggest a revenue downturn is incoming at a time when valuations are extremely stretched.


SMC – OP Beat Incoming but so Is the Downcycle

<p>Keyence has been our boring top pick within the factory automation sector for some time and has boringly and consistently outperformed peers. We still consider it the highest quality name within the sector but given valuations, we are reluctantly disembarking here.</p>

Keyence has been our boring top pick within the factory automation sector for some time and has boringly and consistently outperformed peers. We still consider it the highest quality name within the sector but given valuations, we are reluctantly disembarking here.

Keyence – Time to Step Off and Some Warning Signs for Markets

Japan

Harmonic Drive Systems Inc. manufactures speed reducers used in industrial robots, semiconductor manufacturing equipment, and other precision instruments. The Company offers cup type, hollow-shaft type, and rotary type speed reducers. Harmonic Drive Systems also produces gear heads and harmonic drive actuators.

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Harmonic Drive Systems (6324 JP)

Harmonic Drive – Good 3Q But No Guidance Revision

Harmonic Drive posted relatively good numbers in 3Q on account of strong SG&A controls but neglected to raise guidance. We still see significant...

Mio Kato

TOPIX-Nikkei Skew Trade Starting to Work Nicely

After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off. It is now...

Mio Kato

Harmonic Drive – Surprise Downward

HDS was already hit on Friday as a surprise MSCI deletion drove a 7.3% fall but with a surprising downward revision and stretched valuations we...

Mio Kato

SMC – OP Beat Incoming but so Is the Downcycle

SMC's 2Q was a nice beat but cyclical patterns suggest a revenue downturn is incoming at a time when valuations are extremely stretched.

Mio Kato

Keyence – Time to Step Off and Some Warning Signs for Markets

Keyence has been our top pick in the FA sector and has outperformed peers consistently but while we still consider it the highest quality name...

Mio Kato

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