Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

Hitachi Ltd.'s restructuring continues with the acquisition of Kyoto Robotics and the planned sale of Hitachi Metals. We regard both developments as positive. <ul><li>On April 8, the Nikkei reported that Hitachi Ltd. had given preferential negotiating rights for the sale of its 53.6% stake in Hitachi Metals metals to a consortium led by Bain Capital. The price was estimated at ¥800 billion (¥7.3 billion) or more, which could pay for most of Hitachi Ltd.'s recently announced purchase of GlobalLogic for $9.6 billion.</li></ul><ul><li>Also on April 8, Hitachi Ltd. announced that it had purchased 96% of Kyoto Robotics, a designer and producer of three-dimensional machine vision and AI control systems for handling robots. This gives Hitachi advanced robotics technology and expertise, enhancing its ability to provide integrated systems for logistics and factory automation.</li></ul>The removal of Hitachi Metals (5486 JP) from Hitachi Ltd.'s consolidated accounts would reduce total revenues by 9% compared with FY Mar-21 guidance but have a small but positive short-term impact on operating profit.

Hitachi Ltd.'s restructuring continues with the acquisition of Kyoto Robotics and the planned sale of Hitachi Metals. We regard both developments as positive. On April 8, the Nikkei reported that Hitachi Ltd. had given preferential negotiating rights for the sale of its 53.6% stake in Hitachi Metals metals to a consortium led by Bain Capital. The price was estimated at ¥800 billion (¥7.3 billion) or more, which could pay for most of Hitachi Ltd.'s recently announced purchase of GlobalLogic for $9.6 billion.Also on April 8, Hitachi Ltd. announced that it had purchased 96% of Kyoto Robotics, a designer and producer of three-dimensional machine vision and AI control systems for handling robots. This gives Hitachi advanced robotics technology and expertise, enhancing its ability to provide integrated systems for logistics and factory automation.The removal of Hitachi Metals (5486 JP) from Hitachi Ltd.'s consolidated accounts would reduce total revenues by 9% compared with FY Mar-21 guidance but have a small but positive short-term impact on operating profit.

Hitachi Ltd. (6501 JP): Buys Kyoto Robotics, Plans to Sell Hitachi Metals

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Event-Driven

The Nikkei reported today that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi. The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As we said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets.

The Nikkei reported today that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi. The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As we said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets.

Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas

Hitachi Ltd. dropped 7.3% yesterday, the market taking a dim view of the price management plans to pay for GlobalLogic: 8x revenues and more than 35x EBITDA on what looks like an optimistic forecast for FY Mar-22.But while the price is high, the acquisition should increase Hitachi's profits and profit margins, accelerate the digital transformation of its infrastructure and other businesses, and greatly expand its staff of IT professionals and global client base.The impact on Hitachi's balance sheet is manageable, in our estimation. We recommend buying into the sell-off.

Hitachi Ltd. dropped 7.3% yesterday, the market taking a dim view of the price management plans to pay for GlobalLogic: 8x revenues and more than 35x EBITDA on what looks like an optimistic forecast for FY Mar-22.But while the price is high, the acquisition should increase Hitachi's profits and profit margins, accelerate the digital transformation of its infrastructure and other businesses, and greatly expand its staff of IT professionals and global client base.The impact on Hitachi's balance sheet is manageable, in our estimation. We recommend buying into the sell-off. 

Hitachi Ltd. (6501): GlobalLogic Acquisition Expensive but Accretive

With Hitachi restructuring its listed holdings, the fate of Hitachi Metals has been speculated on for some time. Our own take on it has been that the unit would be sold and probably to a fund rather than a strategic buyer. This has implications for the potential valuation and we would reiterate our stance that current valuations may not offer much upside in the event of a purchase.

With Hitachi restructuring its listed holdings, the fate of Hitachi Metals has been speculated on for some time. Our own take on it has been that the unit would be sold and probably to a fund rather than a strategic buyer. This has implications for the potential valuation and we would reiterate our stance that current valuations may not offer much upside in the event of a purchase.

Hitachi Metals – If You Still Own This It May Be Worth Selling Prior to an Acquisition Announcement

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

GAMING PAYABLES - As part of the fallout from Greensill Capital's collapse, much has been made of the risks involved in supply chain finance and the accounting treatment of payables that can be used to 'flatter' balance sheets that are often overloaded with debt. As @matt_levineobserved yesterday:-<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/505/original/2021-03-11_10-33-14.png?1615426510" class="editor-image img-responsive" data-smartkarma-image-id="193505"></figure></section>APPLYING THE 'DUMB RULE OF THUMB' TO JAPAN - Accordingly, we have applied a simple screen to our universe of 3,689 Japanse companies with the following criteria:<ol>
<li>Market Cap, ex Treasury Stock,&gt; ¥100 billion (672 companies)</li>
<li> Last Quarter Payable Days &gt; -100 (93 companies)</li>
<li>1-Year change in Average Days Payable &gt; -25 (7 companies)</li>
</ol>We have excluded <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, and <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a> from the screening due to their consolidation of financial subsidiaries. The results are in the DETAIL section below; however, the TTM Working Capital Day chart for the largest of the seven by market cap is below. It's 'owner' should be no surprise to followers of the Greensill saga.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/508/original/2021-03-11_11-04-24.png?1615428279" class="editor-image img-responsive" data-smartkarma-image-id="193508"></figure></section><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>

GAMING PAYABLES - As part of the fallout from Greensill Capital's collapse, much has been made of the risks involved in supply chain finance and the accounting treatment of payables that can be used to 'flatter' balance sheets that are often overloaded with debt. As @matt_levineobserved yesterday:-APPLYING THE 'DUMB RULE OF THUMB' TO JAPAN - Accordingly, we have applied a simple screen to our universe of 3,689 Japanse companies with the following criteria:
Market Cap, ex Treasury Stock,&gt; ¥100 billion (672 companies)
 Last Quarter Payable Days &gt; -100 (93 companies)
1-Year change in Average Days Payable &gt; -25 (7 companies)
We have excluded Sony (6758 JP), Z Holdings (4689 JP), Rakuten (4755 JP), and Japan Post (6178 JP) from the screening due to their consolidation of financial subsidiaries. The results are in the DETAIL section below; however, the TTM Working Capital Day chart for the largest of the seven by market cap is below. It's 'owner' should be no surprise to followers of the Greensill saga.Source for all charts &amp; tables: Japan Analytics

🇯🇵 JAPAN • Greensill, Gaming Payables & The Seven Samurai of Supply Chain Finance

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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Hitachi Ltd (6501 JP)