'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/019/original/2020-04-22_06-23-27.png?1587504229" class="editor-image img-responsive" data-smartkarma-image-id="129019"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/021/original/2020-04-22_06-24-35.png?1587504305" class="editor-image img-responsive" data-smartkarma-image-id="129021"></figure><div class="content-caption">Source • Financial Times</div>CATCHING UP - Japan has now surpassed South Korea in terms of both the number of confirmed cases of COVID-19 (11,431) and the cumulative number of deaths (275). Although the daily number of new cases has peaked, the number of daily death will increase for the rest of this month which will likely require an extension of the nationwide 'state of emergency' beyond the end of the Golden Week holidays on March 6th. Such a prolongation is not yet discounted in the equity market. A recent YouGov survey suggests that only 18% of Japan people have stopped going to work, the lowest level amongst the 26 countries covered.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/022/original/2020-04-22_06-48-21.png?1587505730" class="editor-image img-responsive" data-smartkarma-image-id="129022"></figure><div class="content-caption">Source • Japan Analytics</div>DAIRY DEFICIENCY - With schools and many restaurants and hotels closed, the consumption of dairy products in Japan has declined to the point that the food ministry (MAFF) is requesting those at home to drink milk to save farms and livestock. Please see our recent bearish <a href="https://www.smartkarma.com/insights/quantamental-analysis-shows-meiji-s-perception-as-a-defensive-stock-could-be-a-delusion" target="_blank" data-smartkarma-citation="insights:38288" rel="noopener">Insight</a> on <a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji Holdings (2269 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/024/original/2020-04-22_06-53-01.png?1587506077" class="editor-image img-responsive" data-smartkarma-image-id="129024"></figure><div class="content-caption">Source • Japan Analytics</div>TAXI FARE - The are now hordes of empty taxis roaming the streets plying for non-existent fares.  The transport ministry (MLITT) has decided to loosen its taxi regulations to allow taxis to engage in food delivery. While a negative for <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>'s Uber Eats in Japan, this news seems to have prompted a 'pop' in the shares of Japan's only listed, and normally uninvestable, taxi company - <a href="https://www.smartkarma.com/entities/daiwa-motor-transportation" target="_blank" data-smartkarma-citation="entities:11886:1" rel="noopener">Daiwa Motor Transportation (9082 JP)</a>. In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the seven results was 2:2:3; and for the 13 revisions/forecasts, the split was 3:1:9. Of the six companies reporting annual results, only one made a forecast for the current year. Three companies withdrew annual forecasts, of which one also cancelled its dividend, while one REIT, <a href="https://www.smartkarma.com/entities/mirai-corp" target="_blank" data-smartkarma-citation="entities:27741:1" rel="noopener">Mirai (3476 JP)</a>, cut its dividend.

Source • Financial TimesCATCHING UP - Japan has now surpassed South Korea in terms of both the number of confirmed cases of COVID-19 (11,431) and the cumulative number of deaths (275). Although the daily number of new cases has peaked, the number of daily death will increase for the rest of this month which will likely require an extension of the nationwide 'state of emergency' beyond the end of the Golden Week holidays on March 6th. Such a prolongation is not yet discounted in the equity market. A recent YouGov survey suggests that only 18% of Japan people have stopped going to work, the lowest level amongst the 26 countries covered.Source • Japan AnalyticsDAIRY DEFICIENCY - With schools and many restaurants and hotels closed, the consumption of dairy products in Japan has declined to the point that the food ministry (MAFF) is requesting those at home to drink milk to save farms and livestock. Please see our recent bearish Insight on Meiji Holdings (2269 JP).Source • Japan AnalyticsTAXI FARE - The are now hordes of empty taxis roaming the streets plying for non-existent fares.  The transport ministry (MLITT) has decided to loosen its taxi regulations to allow taxis to engage in food delivery. While a negative for Softbank Group (9984 JP)'s Uber Eats in Japan, this news seems to have prompted a 'pop' in the shares of Japan's only listed, and normally uninvestable, taxi company - Daiwa Motor Transportation (9082 JP). In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the seven results was 2:2:3; and for the 13 revisions/forecasts, the split was 3:1:9. Of the six companies reporting annual results, only one made a forecast for the current year. Three companies withdrew annual forecasts, of which one also cancelled its dividend, while one REIT, Mirai (3476 JP), cut its dividend. 

🇯🇵 JAPAN • Revisions & Results 21st April - Catching Up : Revising Down

Global energy equity and oil & gas macro analyst

Anish Kapadia

Akap Energy

There have been a few major deals announced in the last few days involving the sell down of stakes in large refining companies, which is positive for the refining sector in general, as it shows the appetite for refining assets ahead of the new low sulphur regulations (IMO 2020) coming in to force at the beginning of next year. In particular Saudi Aramco has been an aggressive buyer of refining assets over the last couple of years, especially in Asia but it is notable to see a couple of integrated oil companies also looking for more refining capacity. 
We see this as a positive signal for the complex refiners such <a href="https://www.smartkarma.com/entities/12530" target="_blank" data-smartkarma-citation="entities:12530:1">Valero Energy (VLO US)</a> , <a href="https://www.smartkarma.com/entities/198" target="_blank" data-smartkarma-citation="entities:198:1">Reliance Industries (RIL IN)</a>, <a href="https://www.smartkarma.com/entities/109" target="_blank" data-smartkarma-citation="entities:109:1">Idemitsu Kosan (5019 JP)</a> and S-Oil. Despite negative gasoline margins at present, we see the refining sector as attractive in the medium-term, as current weak refining margins are likely to rise sharply in H2'19 ahead of IMO 2020. We would view underperformance through reporting season as a buying opportunity for the refining sector.  
In the UAE, ADNOC is selling down 20% and 15% stakes in its refining business to <a href="https://www.smartkarma.com/entities/21185" target="_blank" data-smartkarma-citation="entities:21185:1">Eni SpA (ENI IM)</a> and <a href="https://www.smartkarma.com/entities/22553" target="_blank" data-smartkarma-citation="entities:22553:1">OMV AG (OMV AV)</a> respectively with an implied gross valuation on the refining business of US$19.5bn on an EV basis, making it one of the biggest ever refining deals announced. In Korea, <a href="https://www.smartkarma.com/entities/27317" target="_blank" data-smartkarma-citation="entities:27317:1">Saudi ARAMCO (131861Z AB)</a> has made yet another downstream acquisition taking a 20% stake in <a href="https://www.smartkarma.com/entities/27039" target="_blank" data-smartkarma-citation="entities:27039:1">Hyundai Oilbank Co Ltd (1082Z KS)</a> for US$1.6bn implying a gross EV for Hyundai Oilbank of US$10.7bn. There has also been a <a href="https://www.reuters.com/article/us-petrobras-divestiture-chevron-exclusi-idUSKCN1PM2LG" target="_blank">press report</a> that <a href="https://www.smartkarma.com/entities/11091" target="_blank" data-smartkarma-citation="entities:11091:1">Chevron Corp (CVX US)</a> will shortly announce the purchase of <a href="https://www.smartkarma.com/entities/22692" target="_blank" data-smartkarma-citation="entities:22692:1">Petrobras Sa (Adr) (PRB US)</a>'s 112kbbl/d Pasadena refinery in Texas.

There have been a few major deals announced in the last few days involving the sell down of stakes in large refining companies, which is positive for the refining sector in general, as it shows the appetite for refining assets ahead of the new low sulphur regulations (IMO 2020) coming in to force at the beginning of next year. In particular Saudi Aramco has been an aggressive buyer of refining assets over the last couple of years, especially in Asia but it is notable to see a couple of integrated oil companies also looking for more refining capacity. 
We see this as a positive signal for the complex refiners such Valero Energy (VLO US) , Reliance Industries (RIL IN), Idemitsu Kosan (5019 JP) and S-Oil. Despite negative gasoline margins at present, we see the refining sector as attractive in the medium-term, as current weak refining margins are likely to rise sharply in H2'19 ahead of IMO 2020. We would view underperformance through reporting season as a buying opportunity for the refining sector.  
In the UAE, ADNOC is selling down 20% and 15% stakes in its refining business to Eni SpA (ENI IM) and OMV AG (OMV AV) respectively with an implied gross valuation on the refining business of US$19.5bn on an EV basis, making it one of the biggest ever refining deals announced. In Korea, Saudi ARAMCO (131861Z AB) has made yet another downstream acquisition taking a 20% stake in Hyundai Oilbank Co Ltd (1082Z KS) for US$1.6bn implying a gross EV for Hyundai Oilbank of US$10.7bn. There has also been a press report that Chevron Corp (CVX US) will shortly announce the purchase of Petrobras Sa (Adr) (PRB US)'s 112kbbl/d Pasadena refinery in Texas. 

Two Major Refinery Deals Announced in UAE and South Korea: Positive for Refining Stocks

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. 

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies reviews the best and worst performing companies by RPS over the last month and makes some specific long and short stock recommendations.COMPANY RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold. We have excluded the first twelve months of trading for newly-listed companies to remove the distortion created by the initial over-pricing of most public offerings in Japan of which <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> is the latest example. Currently, 123 companies are 'overbought', and 116 are 'oversold' - 3.3% and 3.2% of the 3,672 listed companies for which monthly data is available.  The current numbers and percentages are the largest in many years. Overbought and oversold states account for 0.7% and 1.2%, respectively of the 837,586 months of data covered since October 1990. The average 'overbought persistence' is four months with <a href="https://www.smartkarma.com/entities/16576" target="_blank" data-smartkarma-citation="entities:16576:1">Lion (4912 JP)</a> holding the record for the longest period at 24 months from September 2016 to date. The average 'oversold persistence' is 7.5 months with <a href="https://www.smartkarma.com/entities/9013" target="_blank" data-smartkarma-citation="entities:9013:1">Nippon Sheet Glass (5202 JP)</a> holding the record having been in that state for the 45 months since January 2015. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/063/937/original/2018-09-15_16-41-44.png?1536997320" class="editor-image img-responsive" data-smartkarma-image-id="63937"></figure><div class="content-caption">Source: Japan Analytics</div>OUTLIER EXTREMES - Currently, the percentage of companies that are positive outliers (&gt;4) it is a 26-year high, while the percentage of negative outliers (&lt;-2) is at a 17-year high. In the past and unsurprisingly, increases in the ratio of positive and negative outliers have been bullish and bearish, respectively. It is highly unusual for both positive and negative outliers to be rising sharply at the same time. The only similar period in the last thirty years was during the 'tech bubble'. In February 2000 the overbought and oversold percentages peaked at 2.4% and 20.5%, respectively. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/123/original/2018-09-18_11-05-49.png?1537236390" class="editor-image img-responsive" data-smartkarma-image-id="64123"></figure><div class="content-caption">Source: Japan Analytics</div>MARKET TIMING TEMPTATION - It is always appealing to attempt to derive trading strategies from such data - a temptation we shall resist except for the observations that the oversold ratio rises into market peaks but that a decline in the overbought ratio of at least one percentage point is required to confirm a peak. At present, only the former condition is fulfilled.  COMPANY RECOMMENDATIONS - Recommendations and comments are provided below on <a href="https://www.smartkarma.com/entities/5718" target="_blank" data-smartkarma-citation="entities:5718:1">Shiseido (4911 JP)</a>, <a href="https://www.smartkarma.com/entities/4126" target="_blank" data-smartkarma-citation="entities:4126:1">Lasertec (6920 JP)</a>, <a href="https://www.smartkarma.com/entities/10020" target="_blank" data-smartkarma-citation="entities:10020:1">Sakai Moving Service (9039 JP)</a>, <a href="https://www.smartkarma.com/entities/8029" target="_blank" data-smartkarma-citation="entities:8029:1">Milbon (4919 JP)</a> and <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a> as well as new entrants and potential additions to the long and short Relative Price Score Portfolios.

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies reviews the best and worst performing companies by RPS over the last month and makes some specific long and short stock recommendations.COMPANY RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold. We have excluded the first twelve months of trading for newly-listed companies to remove the distortion created by the initial over-pricing of most public offerings in Japan of which Mercari (4385 JP) is the latest example. Currently, 123 companies are 'overbought', and 116 are 'oversold' - 3.3% and 3.2% of the 3,672 listed companies for which monthly data is available.  The current numbers and percentages are the largest in many years. Overbought and oversold states account for 0.7% and 1.2%, respectively of the 837,586 months of data covered since October 1990. The average 'overbought persistence' is four months with Lion (4912 JP) holding the record for the longest period at 24 months from September 2016 to date. The average 'oversold persistence' is 7.5 months with Nippon Sheet Glass (5202 JP) holding the record having been in that state for the 45 months since January 2015. Source: Japan AnalyticsOUTLIER EXTREMES - Currently, the percentage of companies that are positive outliers (&gt;4) it is a 26-year high, while the percentage of negative outliers (&lt;-2) is at a 17-year high. In the past and unsurprisingly, increases in the ratio of positive and negative outliers have been bullish and bearish, respectively. It is highly unusual for both positive and negative outliers to be rising sharply at the same time. The only similar period in the last thirty years was during the 'tech bubble'. In February 2000 the overbought and oversold percentages peaked at 2.4% and 20.5%, respectively. Source: Japan AnalyticsMARKET TIMING TEMPTATION - It is always appealing to attempt to derive trading strategies from such data - a temptation we shall resist except for the observations that the oversold ratio rises into market peaks but that a decline in the overbought ratio of at least one percentage point is required to confirm a peak. At present, only the former condition is fulfilled.  COMPANY RECOMMENDATIONS - Recommendations and comments are provided below on Shiseido (4911 JP), Lasertec (6920 JP), Sakai Moving Service (9039 JP), Milbon (4919 JP) and Workman (7564 JP) as well as new entrants and potential additions to the long and short Relative Price Score Portfolios.

Japan: Most Overbought and Oversold - Relative Price Score Update - Companies

TURNING POINT - Despite the last four trading days being 'up', the Japanese equity market composite fell by 0.6% over the last two weeks. New 52-week lows outnumbered new highs by 6.7:1 and new lows have exceeded new highs for the last sixteen days. This post-results 'malaise' is most noticeable in the lack of market activity.  Four of the last six trading days have seen the Value Traded/Total Market Value ratio fall below 30 basis points.  Other than at the turn of the year, such levels of trading 'apathy' (marked▲on the chart below) usually coincide with changes in market direction which, in current circumstances would suggest some upside from current levels.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/735/original/2018-08-25_21-33-47.png?1535271873" class="editor-image img-responsive" data-smartkarma-image-id="61735"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR TRENDS - Only seven sectors rose by more than 1% in the last two weeks, led by Commercial Services, Multi-Industry, Media and Information Technology and only eight are up over three months. Overall the market composite has fallen by 2.9% since the end of May.  Twelve sectors have decreased by more than 1% since 10th August with Metals, Telecommunications, Autos and Consumer Services all down by more than 2%. Over both periods, and in all regards, the Energy sector is the outlier and remains attractively priced at below book value and on 8x TTM Net Income. RESULTS &amp; REVISIONS - Only 213 results and revision announcements occurred in the last two weeks, with <a href="https://www.smartkarma.com/entities/109" target="_blank" data-smartkarma-citation="entities:109:1">Idemitsu Kosan (5019 JP)</a>, <a href="https://www.smartkarma.com/entities/4909" target="_blank" data-smartkarma-citation="entities:4909:1">Hikari Tsushin (9435 JP)</a>, <a href="https://www.smartkarma.com/entities/14750" target="_blank" data-smartkarma-citation="entities:14750:1">Rizap (2928 JP)</a>, <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> <a href="https://www.smartkarma.com/entities/20495" target="_blank" data-smartkarma-citation="entities:20495:1">Amuse (4301 JP)</a> and <a href="https://www.smartkarma.com/entities/19550" target="_blank" data-smartkarma-citation="entities:19550:1">Open House (3288 JP)</a> being the most impactful in terms of changes in scoring.PRICE SCORE &amp; VALUATION - Banks continue to be 'Oversold' and 'Deep Value', while Commercial and Consumer Services are both 'Overbought' and 'Fully Priced'. Information Technology, a preferred sector, is now 'Fully Priced' and is close to being 'Overbought' but we would hold current positions for the time being. OUTLOOK - If the market were to see a rebound, the catalyst could be a weaker currency or a new post-re-election policy platform from PM Abe. Indeed, last week's statement by Chief Cabinet Secretary Suga that mobile phone charges need to fall by 40% suggests a more pro-active and populist third term. In any event, some mean reversion in current sector trends is likely.

TURNING POINT - Despite the last four trading days being 'up', the Japanese equity market composite fell by 0.6% over the last two weeks. New 52-week lows outnumbered new highs by 6.7:1 and new lows have exceeded new highs for the last sixteen days. This post-results 'malaise' is most noticeable in the lack of market activity.  Four of the last six trading days have seen the Value Traded/Total Market Value ratio fall below 30 basis points.  Other than at the turn of the year, such levels of trading 'apathy' (marked▲on the chart below) usually coincide with changes in market direction which, in current circumstances would suggest some upside from current levels.Source: Japan AnalyticsSECTOR TRENDS - Only seven sectors rose by more than 1% in the last two weeks, led by Commercial Services, Multi-Industry, Media and Information Technology and only eight are up over three months. Overall the market composite has fallen by 2.9% since the end of May.  Twelve sectors have decreased by more than 1% since 10th August with Metals, Telecommunications, Autos and Consumer Services all down by more than 2%. Over both periods, and in all regards, the Energy sector is the outlier and remains attractively priced at below book value and on 8x TTM Net Income. RESULTS &amp; REVISIONS - Only 213 results and revision announcements occurred in the last two weeks, with Idemitsu Kosan (5019 JP), Hikari Tsushin (9435 JP), Rizap (2928 JP), SanBio (4592 JP) Amuse (4301 JP) and Open House (3288 JP) being the most impactful in terms of changes in scoring.PRICE SCORE &amp; VALUATION - Banks continue to be 'Oversold' and 'Deep Value', while Commercial and Consumer Services are both 'Overbought' and 'Fully Priced'. Information Technology, a preferred sector, is now 'Fully Priced' and is close to being 'Overbought' but we would hold current positions for the time being. OUTLOOK - If the market were to see a rebound, the catalyst could be a weaker currency or a new post-re-election policy platform from PM Abe. Indeed, last week's statement by Chief Cabinet Secretary Suga that mobile phone charges need to fall by 40% suggests a more pro-active and populist third term. In any event, some mean reversion in current sector trends is likely. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/034/original/2018-08-16_19-07-34.png?1534672507" class="editor-image img-responsive" data-smartkarma-image-id="61034"></figure><div class="content-caption">Source: Japan Analytics</div>A GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our '<a href="https://www.smartkarma.com/insights/japan-most-overbought-most-oversold-the-relative-price-score" target="_blank" data-smartkarma-citation="insights:21149">Nifty 50</a>' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.<div class="content-highlight">MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.</div>SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post [6178 JP</a>]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.<div class="content-highlight">
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
</div>SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.<div class="content-highlight">
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
</div>TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/038/original/2018-08-19_19-33-03.png?1534674804" class="editor-image img-responsive" data-smartkarma-image-id="61038"></figure>

Source: Japan AnalyticsA GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our 'Nifty 50' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is Japan Post [6178 JP]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.

Japan: Results & Revision Scores Summer 2018 Update - Market Composite, Sectors & Peer Groups

Japan

Idemitsu Kosan Co., Ltd. explores, imports, refines, and distributes petroleum and its related products.  The Company also manufactures and sells petrochemical products.

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Idemitsu Kosan (5019 JP)

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