Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/180" target="_blank" data-smartkarma-citation="entities:180:1">Ctrip.Com International (Adr) (CTRP US)</a> reported Q318 earnings results after hours on Wednesday, November 7th that include a mix of good and bad.On the positive side, it appears top-line growth bottomed earlier in 2018. Net Revenue increased by 15.2% Y/Y in Q318, a bit faster than in Q218 (+13.3% Y/Y), and management guided to a further improvement in Q418 (+15-20%). The company's accommodation booking, package tours, and corporate travel segments all grew by at least 20% Y/Y, substantially faster than tourism market growth of about 15%. Despite continued weak growth of its transportation ticketing revenue (due to declining commissions), it appears revenue growth has bottomed.Unfortunately, the beginnings of a recovery in revenue growth are being obliterated by downward pressure on margins. Gross and operating margin in Q318 fell by 420 and 360 bps Y/Y, respectively, and during the conference call management guided to another sharp decline in core margins in Q418. Despite the improvement in top-line growth in Q318, GAAP operating profit declined by over 6% Y/Y in the quarter and management hinted on the call that lower margins could last for a couple more quarters.We've been negative on Ctrip since early 2016 owing to increasing competitive pressures from new entrants like <a href="https://www.smartkarma.com/entities/26970" target="_blank" data-smartkarma-citation="entities:26970:1">Meituan Dianping (3690 HK)</a> as well as established players like large hotel chains and airlines, who today have their own marketing channels. Although Ctrip has been beaten down below our long-held target price of US$36 per ADS, Q318 results suggest investors should continue to stay away. Our preferred means of adding exposure to China's (still) growing tourism sector remains <a href="https://www.smartkarma.com/entities/17527" target="_blank" data-smartkarma-citation="entities:17527:1">Huazhu Group (HTHT US)</a>.

Ctrip.Com International (Adr) (CTRP US) reported Q318 earnings results after hours on Wednesday, November 7th that include a mix of good and bad.On the positive side, it appears top-line growth bottomed earlier in 2018. Net Revenue increased by 15.2% Y/Y in Q318, a bit faster than in Q218 (+13.3% Y/Y), and management guided to a further improvement in Q418 (+15-20%). The company's accommodation booking, package tours, and corporate travel segments all grew by at least 20% Y/Y, substantially faster than tourism market growth of about 15%. Despite continued weak growth of its transportation ticketing revenue (due to declining commissions), it appears revenue growth has bottomed.Unfortunately, the beginnings of a recovery in revenue growth are being obliterated by downward pressure on margins. Gross and operating margin in Q318 fell by 420 and 360 bps Y/Y, respectively, and during the conference call management guided to another sharp decline in core margins in Q418. Despite the improvement in top-line growth in Q318, GAAP operating profit declined by over 6% Y/Y in the quarter and management hinted on the call that lower margins could last for a couple more quarters.We've been negative on Ctrip since early 2016 owing to increasing competitive pressures from new entrants like Meituan Dianping (3690 HK) as well as established players like large hotel chains and airlines, who today have their own marketing channels. Although Ctrip has been beaten down below our long-held target price of US$36 per ADS, Q318 results suggest investors should continue to stay away. Our preferred means of adding exposure to China's (still) growing tourism sector remains Huazhu Group (HTHT US). 

Ctrip Q318 Results: BAD (Increasing Margin Pressure) > GOOD (Bottoming of Revenue Growth)

'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

<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>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>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:-<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>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 - <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>.


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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/062/359/original/BANNER-TOURISM-FINAL.png?1535731129" class="editor-image img-responsive" data-smartkarma-image-id="62359"></figure>
Tracking Traffic/Chinese Tourism is the hub for all of our research on China's tourism sector and features analysis of monthly Chinese tourism data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Our aim is to highlight important trends in China's tourism sector (and changes to those trends).
In this issue readers can find:
<div>
<ol>
<li>A review of China's outbound and domestic tourist traffic in July.</li>
<li>From a range of sources, mixed signals regarding spending by Chinese tourists abroad this Summer. </li>
<li>A quick look at strong Q218 results from <a href="https://www.smartkarma.com/entities/17527" target="_blank" data-smartkarma-citation="entities:17527:1">China Lodging Group, Ltd (Adr) (HTHT US)</a> and <a href="https://www.smartkarma.com/entities/8239" target="_blank" data-smartkarma-citation="entities:8239:1">Air China Ltd (H) (753 HK)</a>, plus an short preview of <a href="https://www.smartkarma.com/entities/180" target="_blank" data-smartkarma-citation="entities:180:1">Ctrip.Com International (Adr) (CTRP US)</a>'s earnings report due out on Wednesday, September 5th. We also remind readers to watch for news from Ctrip's rival <a href="https://www.smartkarma.com/entities/26970" target="_blank" data-smartkarma-citation="entities:26970:1">Meituan Dianping (MEITUAN CH)</a> during its expected IPO roadshow.</li>
<li>A quick recap of what remains our favorite pair idea in the sector: We suggest investors consider pairing a Long position in China Lodging (or Air China) with an equivalent Short position in Ctrip, which faces growing competition not only from the likes of Meituan and fliggy.com but also from hotel chains and airlines.</li>
</ol>
</div>


Tracking Traffic/Chinese Tourism is the hub for all of our research on China's tourism sector and features analysis of monthly Chinese tourism data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Our aim is to highlight important trends in China's tourism sector (and changes to those trends).
In this issue readers can find:


A review of China's outbound and domestic tourist traffic in July.
From a range of sources, mixed signals regarding spending by Chinese tourists abroad this Summer. 
A quick look at strong Q218 results from China Lodging Group, Ltd (Adr) (HTHT US) and Air China Ltd (H) (753 HK), plus an short preview of Ctrip.Com International (Adr) (CTRP US)'s earnings report due out on Wednesday, September 5th. We also remind readers to watch for news from Ctrip's rival Meituan Dianping (MEITUAN CH) during its expected IPO roadshow.
A quick recap of what remains our favorite pair idea in the sector: We suggest investors consider pairing a Long position in China Lodging (or Air China) with an equivalent Short position in Ctrip, which faces growing competition not only from the likes of Meituan and fliggy.com but also from hotel chains and airlines.



TRACKING TRAFFIC/Chinese Tourism: July Outbound Growth Slowed | Ctrip Q2 This Week | Meituan IPO Too

Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

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)

Japan’s popularity as a tourist destination shows no signs of abating as the number of tourists that reached its shores in the Jan-July 2018 period increased 13.9% YoY to 18.7m. While tourist numbers hit a record 2.3m for the month of July, the growth rate fell below double digits largely due to the floods that ravaged Western Japan. In this report, we will look at some of the domestic companies that have been able to reap the benefits of this surge in visitors, in terms of both revenue growth and brand awareness.

Japan’s popularity as a tourist destination shows no signs of abating as the number of tourists that reached its shores in the Jan-July 2018 period increased 13.9% YoY to 18.7m. While tourist numbers hit a record 2.3m for the month of July, the growth rate fell below double digits largely due to the floods that ravaged Western Japan. In this report, we will look at some of the domestic companies that have been able to reap the benefits of this surge in visitors, in terms of both revenue growth and brand awareness.

Friday Musings: Japanese Companies That Appear on a Tourist's Itinerary(Part 1)

AP Moeller - Maersk A/S / Equity Bottom-Up

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/060/928/original/BANNER-CARGO-FINAL.png?1534525456" class="editor-image img-responsive" data-smartkarma-image-id="60928"></figure>
Tracking Traffic/Containers &amp; Air Cargo is a hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo highlights changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.
In this issue readers will find:
<div>
<ol>
<li>An analysis of July container shipping rates, which appear largely unchanged compared to a year ago (and show no signs of the significant increases carriers were pushing for on July 1st).</li>
<li>A look at June air cargo activity (weaker, again) and yields (stronger, again) that show this segment continues to hold up far better than container shipping. </li>
<li>A quick comparison of Q2 results from select container carriers (bad) and regional airlines (OK).</li>
</ol>
</div>
After turning negative on container shipping over a year ago, we believe we're now within sight of a cyclical trough -- though we may be stuck down here for a while, barring a sudden and strong recovery in demand. Although sales momentum is weak, and fuel costs continue to rise, we believe year-over-year comparisons will get easier starting in August-September. More importantly, it's clear that many investors have already discounted the container shipping sector's weak profits, as shares of many companies have fallen by 35-50% from 52-week highs and trade below stated book value. We therefore lift our view of the sector to 'neutral'.
Fundamentally, we remain more positive on air cargo, where capacity discipline has led to improved pricing power (and higher margins) despite only modest demand growth so far in 2018. But sharp increases in jet fuel prices (up over 30% Y/Y) are also sapping profitability in this sector.


Tracking Traffic/Containers &amp; Air Cargo is a hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo highlights changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.
In this issue readers will find:


An analysis of July container shipping rates, which appear largely unchanged compared to a year ago (and show no signs of the significant increases carriers were pushing for on July 1st).
A look at June air cargo activity (weaker, again) and yields (stronger, again) that show this segment continues to hold up far better than container shipping. 
A quick comparison of Q2 results from select container carriers (bad) and regional airlines (OK).


After turning negative on container shipping over a year ago, we believe we're now within sight of a cyclical trough -- though we may be stuck down here for a while, barring a sudden and strong recovery in demand. Although sales momentum is weak, and fuel costs continue to rise, we believe year-over-year comparisons will get easier starting in August-September. More importantly, it's clear that many investors have already discounted the container shipping sector's weak profits, as shares of many companies have fallen by 35-50% from 52-week highs and trade below stated book value. We therefore lift our view of the sector to 'neutral'.
Fundamentally, we remain more positive on air cargo, where capacity discipline has led to improved pricing power (and higher margins) despite only modest demand growth so far in 2018. But sharp increases in jet fuel prices (up over 30% Y/Y) are also sapping profitability in this sector.

TRACKING TRAFFIC/Containers & Air Cargo: Nearing the Trough, But We May Be Stuck Here For A While...

Japan

Japan Airlines Co. Ltd. provides air transportation services. The Company offers a variety of scheduled  flights and unscheduled flights throughout the world as well as offers air courier services. Japan Airlines also provides tickets, resort hotels, and travel agencies services.

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Japan Airlines (9201 JP)

Ctrip Q318 Results: BAD (Increasing Margin Pressure) > GOOD (Bottoming of Revenue Growth)

Ctrip.Com International (Adr) (CTRP US) reported Q318 earnings results after hours on Wednesday, November 7th that include a mix of good and bad.On...

Daniel Hellberg

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

TRACKING TRAFFIC/Chinese Tourism: July Outbound Growth Slowed | Ctrip Q2 This Week | Meituan IPO Too

Tracking Traffic/Chinese Tourism is the hub for all of our research on China's tourism sector and features analysis of monthly Chinese tourism...

Daniel Hellberg

Friday Musings: Japanese Companies That Appear on a Tourist's Itinerary(Part 1)

Japan’s popularity as a tourist destination shows no signs of abating as the number of tourists that reached its shores in the Jan-July 2018 period...

Chacko Jacob

TRACKING TRAFFIC/Containers & Air Cargo: Nearing the Trough, But We May Be Stuck Here For A While...

Tracking Traffic/Containers & Air Cargo is a hub for all of our research on container shipping and air cargo, featuring analysis of...

Daniel Hellberg

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