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.

Event-Driven

<p>Harmonic Drive reported middling results as revenue got back on track, increasing 11.1% QoQ and the company revised guidance upwards from a -¥800 operating loss to a ¥1bn operating profit (revenue guidance was raised from ¥35bn to ¥37bn). Valuations point to overextended expectations for the stock, however, and with the news of Nabtesco selling its stake it will be interesting to watch the market’s reaction to relatively benign results. This is especially so given the 9% drop in Daifuku’s share price today despite results which, while slightly below consensus, were also middling.</p>

Harmonic Drive reported middling results as revenue got back on track, increasing 11.1% QoQ and the company revised guidance upwards from a -¥800 operating loss to a ¥1bn operating profit (revenue guidance was raised from ¥35bn to ¥37bn). Valuations point to overextended expectations for the stock, however, and with the news of Nabtesco selling its stake it will be interesting to watch the market’s reaction to relatively benign results. This is especially so given the 9% drop in Daifuku’s share price today despite results which, while slightly below consensus, were also middling.

Harmonic Drive – Recovery Coming Through but Will This Be Another Daifuku?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>Yesterday, reducing gear maker <a href="https://www.smartkarma.com/entities/nabtesco-corp" target="_blank" data-smartkarma-citation="entities:13176:1" rel="noopener">Nabtesco Corp (6268 JP)</a> announced that it would dissolve its cooperative relationship with the specialist maker of the <em>smallest</em> reducing gears <a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a> which it had formed in 2008. </p><p>This means they will dissolve their capital relationship too. Nabtesco has heretofore owned 19.03% since well over a decade ago, and also owns share options which were purchased in 2018 when harmonic Drive last issued shares. There is a <a href="https://www.nabtesco.com/pdf/39b194f5f075a6fc8bf15eb51036f2a6.pdf" target="_blank" rel="noopener">presentation</a>.</p><p>This ends the "hopes" of many that eventually Nabtesco would buy out Harmonic Drive Systems.</p><p>Nabtesco sold half their stake in the company to Nomura, will keep the other half to sell at a later date, will sell the options back to HDS, and due to the fact that HDS will no longer be an equity-method affiliate, Nabtesco will report a significant gain in Q1, currently estimated at ¥130.6bn, and approximately ¥100bn after tax, if the shares are sold at ¥8,000/share. Nabtesco will also sell its 49% ownership in a JV in the US with HDS' US subsidiary. </p><p>There are some details worth looking at here. More below the fold.</p>

Yesterday, reducing gear maker Nabtesco Corp (6268 JP) announced that it would dissolve its cooperative relationship with the specialist maker of the smallest reducing gears Harmonic Drive Systems (6324 JP) which it had formed in 2008. This means they will dissolve their capital relationship too. Nabtesco has heretofore owned 19.03% since well over a decade ago, and also owns share options which were purchased in 2018 when harmonic Drive last issued shares. There is a presentation.This ends the "hopes" of many that eventually Nabtesco would buy out Harmonic Drive Systems.Nabtesco sold half their stake in the company to Nomura, will keep the other half to sell at a later date, will sell the options back to HDS, and due to the fact that HDS will no longer be an equity-method affiliate, Nabtesco will report a significant gain in Q1, currently estimated at ¥130.6bn, and approximately ¥100bn after tax, if the shares are sold at ¥8,000/share. Nabtesco will also sell its 49% ownership in a JV in the US with HDS' US subsidiary. There are some details worth looking at here. More below the fold.

End of An Era: Nabtesco and Harmonic Drive Dissolve Their Alliance - Event Lost, Pressure On

Equity Bottom-Up

Harmonic Drive Systems / Equity Bottom-Up

<p>Harmonic Drive (HDS) posted 2Q sales (¥8,384m) barely below consensus and OP of -¥295 vs. consensus forecasts of ¥593m in OP. Consensus margin estimates were unrealistic and fail to account for HDS’ significantly weaker margins due to its investment burden in the form of depreciation. Unfortunately for HDS orders fell 22.1% QoQ taking the shine off the 10.3% QoQ expansion in 1Q.</p>

Harmonic Drive (HDS) posted 2Q sales (¥8,384m) barely below consensus and OP of -¥295 vs. consensus forecasts of ¥593m in OP. Consensus margin estimates were unrealistic and fail to account for HDS’ significantly weaker margins due to its investment burden in the form of depreciation. Unfortunately for HDS orders fell 22.1% QoQ taking the shine off the 10.3% QoQ expansion in 1Q.

Harmonic Drive – One Step Forward One Step Back

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.</p><p>The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.</p><p>These are the stocks that have been included and excluded from the index.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td colspan="2" style="text-align: center; width: 181pt;"><h3>Inclusions</h3></td>
<td colspan="2" style="text-align: center; width: 197pt;"><h3>Exclusions</h3></td>
</tr>
<tr>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
</tr>
<tr>
<td>1766.T</td>
<td>Token Corp</td>
<td>2124.T</td>
<td>Jac Recruitment Co Ltd</td>
</tr>
<tr>
<td>2222.T</td>
<td>Kotobuki Spirits Co Ltd</td>
<td>2206.T</td>
<td>Ezaki Glico Co Ltd</td>
</tr>
<tr>
<td>2264.T</td>
<td>Morinaga Milk Industry Co Ltd</td>
<td>2432.T</td>
<td>DeNA Co Ltd</td>
</tr>
<tr>
<td>2317.T</td>
<td>Systena Corp</td>
<td>3254.T</td>
<td>Pressance Corp</td>
</tr>
<tr>
<td>2593.T</td>
<td>Ito En Ltd</td>
<td>3668.T</td>
<td>Colopl Inc</td>
</tr>
<tr>
<td>2811.T</td>
<td>Kagome Co Ltd</td>
<td>4246.T</td>
<td>DaikyoNishikawa Corp</td>
</tr>
<tr>
<td>3563.T</td>
<td>Sushiro Global Holdings Ltd</td>
<td>4587.T</td>
<td>PeptiDream Inc</td>
</tr>
<tr>
<td>3635.T</td>
<td>Koei Tecmo Holdings Co Ltd</td>
<td>4681.T</td>
<td>Resorttrust Inc</td>
</tr>
<tr>
<td>4189.T</td>
<td>KH Neochem Co Ltd</td>
<td>4751.T</td>
<td>CyberAgent Inc</td>
</tr>
<tr>
<td>4348.T</td>
<td>Infocom Corp</td>
<td>4902.T</td>
<td>Konica Minolta Inc</td>
</tr>
<tr>
<td>4527.T</td>
<td>Rohto Pharmaceutical Co Ltd</td>
<td>5486.T</td>
<td>Hitachi Metals Ltd</td>
</tr>
<tr>
<td>4686.T</td>
<td>Justsystems Corp</td>
<td>5703.T</td>
<td>Nippon Light Metal Holdings Co Ltd</td>
</tr>
<tr>
<td>4816.T</td>
<td>Toei Animation Co Ltd</td>
<td>5714.T</td>
<td>DOWA Holdings Co Ltd</td>
</tr>
<tr>
<td>4921.T</td>
<td>Fancl Corp</td>
<td>5975.T</td>
<td>Topre Corp</td>
</tr>
<tr>
<td>5105.T</td>
<td>Toyo Tire Corp</td>
<td>6269.T</td>
<td>Modec Inc</td>
</tr>
<tr>
<td>5631.T</td>
<td>Japan Steel Works Ltd</td>
<td>6324.T</td>
<td>Harmonic Drive Systems Inc</td>
</tr>
<tr>
<td>5857.T</td>
<td>Asahi Holdings Inc</td>
<td>6463.T</td>
<td>TPR Co Ltd</td>
</tr>
<tr>
<td>6005.T</td>
<td>Miura Co Ltd</td>
<td>6473.T</td>
<td>Jtekt Corp</td>
</tr>
<tr>
<td>6035.T</td>
<td>IR Japan Holdings Ltd</td>
<td>6641.T</td>
<td>Nissin Electric Co Ltd</td>
</tr>
<tr>
<td>6134.T</td>
<td>Fuji Corp (Aichi)</td>
<td>6755.T</td>
<td>Fujitsu General Ltd</td>
</tr>
<tr>
<td>6465.T</td>
<td>Hoshizaki Corp</td>
<td>6806.T</td>
<td>Hirose Electric Co Ltd</td>
</tr>
<tr>
<td>6532.T</td>
<td>BayCurrent Consulting Inc</td>
<td>7012.T</td>
<td>Kawasaki Heavy Industries Ltd</td>
</tr>
<tr>
<td>6670.T</td>
<td>MCJ Co Ltd</td>
<td>7606.T</td>
<td>United Arrows Ltd</td>
</tr>
<tr>
<td>6753.T</td>
<td>Sharp Corp</td>
<td>7867.T</td>
<td>Tomy Co Ltd</td>
</tr>
<tr>
<td>6754.T</td>
<td>Anritsu Corp</td>
<td>8227.T</td>
<td>Shimamura Co Ltd</td>
</tr>
<tr>
<td>8354.T</td>
<td>Fukuoka Financial Group Inc</td>
<td>8628.T</td>
<td>Matsui Securities Co Ltd</td>
</tr>
<tr>
<td>8572.T</td>
<td>Acom Co Ltd</td>
<td>9404.T</td>
<td>Nippon Television Holdings Inc</td>
</tr>
<tr>
<td>9044.T</td>
<td>Nankai Electric Railway Co Ltd</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9142.T</td>
<td>Kyushu Railway Co</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9504.T</td>
<td>Chugoku Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9509.T</td>
<td>Hokkaido Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9603.T</td>
<td>H.I.S. Co Ltd</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.








Inclusions
Exclusions


Name
Code
Name
Code


1766.T
Token Corp
2124.T
Jac Recruitment Co Ltd


2222.T
Kotobuki Spirits Co Ltd
2206.T
Ezaki Glico Co Ltd


2264.T
Morinaga Milk Industry Co Ltd
2432.T
DeNA Co Ltd


2317.T
Systena Corp
3254.T
Pressance Corp


2593.T
Ito En Ltd
3668.T
Colopl Inc


2811.T
Kagome Co Ltd
4246.T
DaikyoNishikawa Corp


3563.T
Sushiro Global Holdings Ltd
4587.T
PeptiDream Inc


3635.T
Koei Tecmo Holdings Co Ltd
4681.T
Resorttrust Inc


4189.T
KH Neochem Co Ltd
4751.T
CyberAgent Inc


4348.T
Infocom Corp
4902.T
Konica Minolta Inc


4527.T
Rohto Pharmaceutical Co Ltd
5486.T
Hitachi Metals Ltd


4686.T
Justsystems Corp
5703.T
Nippon Light Metal Holdings Co Ltd


4816.T
Toei Animation Co Ltd
5714.T
DOWA Holdings Co Ltd


4921.T
Fancl Corp
5975.T
Topre Corp


5105.T
Toyo Tire Corp
6269.T
Modec Inc


5631.T
Japan Steel Works Ltd
6324.T
Harmonic Drive Systems Inc


5857.T
Asahi Holdings Inc
6463.T
TPR Co Ltd


6005.T
Miura Co Ltd
6473.T
Jtekt Corp


6035.T
IR Japan Holdings Ltd
6641.T
Nissin Electric Co Ltd


6134.T
Fuji Corp (Aichi)
6755.T
Fujitsu General Ltd


6465.T
Hoshizaki Corp
6806.T
Hirose Electric Co Ltd


6532.T
BayCurrent Consulting Inc
7012.T
Kawasaki Heavy Industries Ltd


6670.T
MCJ Co Ltd
7606.T
United Arrows Ltd


6753.T
Sharp Corp
7867.T
Tomy Co Ltd


6754.T
Anritsu Corp
8227.T
Shimamura Co Ltd


8354.T
Fukuoka Financial Group Inc
8628.T
Matsui Securities Co Ltd


8572.T
Acom Co Ltd
9404.T
Nippon Television Holdings Inc


9044.T
Nankai Electric Railway Co Ltd




9142.T
Kyushu Railway Co




9504.T
Chugoku Electric Power Co Inc




9509.T
Hokkaido Electric Power Co Inc




9603.T
H.I.S. Co Ltd






JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

<p>We have long been perplexed by multiples for Harmonic Drive which, even when earnings were growing depended on optimistic but potentially achievable growth in robots and cobots. With Chinese investment during 2017/2018 looking increasingly like a bubble such optimism no longer seems warranted, yet the stock continues to defy gravity. We examine some ETF flows to see whether this explains the stock’s performance.</p>

We have long been perplexed by multiples for Harmonic Drive which, even when earnings were growing depended on optimistic but potentially achievable growth in robots and cobots. With Chinese investment during 2017/2018 looking increasingly like a bubble such optimism no longer seems warranted, yet the stock continues to defy gravity. We examine some ETF flows to see whether this explains the stock’s performance.

Harmonic Drive – Overvaluation and the ROBO ETF

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 – Recovery Coming Through but Will This Be Another Daifuku?

Harmonic Drive posted reasonable results and revised up guidance to more reasonable levels, but the real driver for the stock could be the sale of...

Mio Kato

End of An Era: Nabtesco and Harmonic Drive Dissolve Their Alliance - Event Lost, Pressure On

Harmonic Drive and Nabtesco have decided to dissolve their partnership and Nabtesco will sell the 19% it owns in the market over time. This means...

Travis Lundy

Harmonic Drive – One Step Forward One Step Back

Harmonic Drive orders fell 22.1% QoQ marking a setback from what had looked like a promising improvement in 1Q. While guidance looks conservative...

Mio Kato

JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

There are 32 inclusions and 27 exclusions from the JPX Nikkei 400. The changes will be effective after the close of trading on 27 November and the...

Brian Freitas

Harmonic Drive – Overvaluation and the ROBO ETF

We have long been perplexed by multiples for Harmonic Drive which, even when earnings were growing depended on optimistic but potentially...

Mio Kato

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52-week Range

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