'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)

<div class="content-highlight">We resume our regular coverage of Japan's results and revision announcements.</div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/188/original/2021-03-14_06-55-01.png?1615672515" class="editor-image img-responsive" data-smartkarma-image-id="194188"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section>STATE OF PLAY - As a reminder, the market's overall cap-weighted Results &amp; Revision Score is still negative, although its Forecast/Revision Score has recovered to +2.1.  Seventeen of twenty-nine Sectors have positive combined scores. Only two Sectors - Internet and Telecommunications have seen a decline in score over the last three months of more than 0.5 points. The greatest positive momentum is in the Multi-Industry (<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>), Restaurants and Machinery Sectors.  Of the top-twelve ranked Sectors by current Combined Score, only Energy, Technology Hardware, and Non-Bank Finance have out-performed the market since mod-December. As noted <a href="https://www.smartkarma.com/insights/japan-the-post-covid-rotation-accelerates" target="_blank" data-smartkarma-citation="insights:48644" rel="noopener">earlier</a>, the market is 'skating to where the puck will be'. • BEST &amp; WORST •Friday's 'best' and 'worst' larger-cap announcements came from <a href="https://www.smartkarma.com/entities/ya-man-ltd" target="_blank" data-smartkarma-citation="entities:16129:1" rel="noopener">Ya Man (6630 JP)</a> and <a href="https://www.smartkarma.com/entities/tanseisha-co-ltd" target="_blank" data-smartkarma-citation="entities:10898:1" rel="noopener">Tanseisha (9743 JP)</a>, respectively. For more, see the DETAIL section below.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/191/original/2021-03-14_07-36-44.png?1615675015" class="editor-image img-responsive" data-smartkarma-image-id="194191"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/192/original/2021-03-14_07-39-19.png?1615675171" class="editor-image img-responsive" data-smartkarma-image-id="194192"></figure>STILL 'IN THE WOODS' - Overall, of the 55 results announcements, 45% scored positively for earnings momentum. Trailing revenues are still declining  - by 8.7% on average, while quarterly revenues fell by 2% year-on-year. Trailing operating margins saw an average 8.2 point decline. 16% of companies were in the red for the quarter.  60% of the 43 annual forecasts/revision announcements scored positively. The average Forecast/Revision score was a positive 3.8 points.</section>

We resume our regular coverage of Japan's results and revision announcements.Source for all charts &amp; tables: Japan AnalyticsSTATE OF PLAY - As a reminder, the market's overall cap-weighted Results &amp; Revision Score is still negative, although its Forecast/Revision Score has recovered to +2.1.  Seventeen of twenty-nine Sectors have positive combined scores. Only two Sectors - Internet and Telecommunications have seen a decline in score over the last three months of more than 0.5 points. The greatest positive momentum is in the Multi-Industry (Japan Post (6178 JP)), Restaurants and Machinery Sectors.  Of the top-twelve ranked Sectors by current Combined Score, only Energy, Technology Hardware, and Non-Bank Finance have out-performed the market since mod-December. As noted earlier, the market is 'skating to where the puck will be'. • BEST &amp; WORST •Friday's 'best' and 'worst' larger-cap announcements came from Ya Man (6630 JP) and Tanseisha (9743 JP), respectively. For more, see the DETAIL section below.STILL 'IN THE WOODS' - Overall, of the 55 results announcements, 45% scored positively for earnings momentum. Trailing revenues are still declining  - by 8.7% on average, while quarterly revenues fell by 2% year-on-year. Trailing operating margins saw an average 8.2 point decline. 16% of companies were in the red for the quarter.  60% of the 43 annual forecasts/revision announcements scored positively. The average Forecast/Revision score was a positive 3.8 points.

🇯🇵 JAPAN • Results & Revisions 03/12 - Ya-Man, Tanseisha & Sharp

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

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

With people staying at home, deliveries for e-commerce orders have a better chance of succeeding, helping failed delivery rates fall from 25% to just 11% in only five years. No wonder e-commerce and transport companies are posting higher profits.

With people staying at home, deliveries for e-commerce orders have a better chance of succeeding, helping failed delivery rates fall from 25% to just 11% in only five years. No wonder e-commerce and transport companies are posting higher profits.

E-Commerce Efficiency Marches on in Japan

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-2-operating-cash-flow-accruals" target="_blank" data-smartkarma-citation="insights:40321" rel="noopener">Insight</a>, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/225/original/2020-06-21_08-34-07.png?1592698079" class="editor-image img-responsive" data-smartkarma-image-id="141225"></figure><div class="content-caption">Source: Japan Analytics</div>JAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener"> Rakuten (4755 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/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <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> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/223/original/2020-06-21_08-51-12.png?1592697088" class="editor-image img-responsive" data-smartkarma-image-id="141223"></figure><div class="content-caption">Source: Japan Analytics</div>..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous Insight, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.Source: Japan AnalyticsJAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.Source: Japan Analytics..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/997/original/2020-06-15_11-08-56.png?1592186965" class="editor-image img-responsive" data-smartkarma-image-id="139997"></figure><div class="content-caption">Source: Japan Analytics</div>
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-1-altman-z-scores" target="_blank" data-smartkarma-citation="insights:40180" rel="noopener">Part 1</a> looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)'s</a> Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
</div>UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  Five non-financial companies, which have significant financial subsidiaries (<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 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/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <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> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>), have been excluded from this analysis.


Source: Japan Analytics
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. Part 1 looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. Nissan Motor (7201 JP)'s Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  Five non-financial companies, which have significant financial subsidiaries (Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)), have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

Japan

Japan Post Holdings Co. Ltd. operates post stations, banks, and insurance business. The Company offers letters and goods transportation services, stamp sales, deposits, loans, and insurance products.

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Japan Post Holdings (6178 JP)

🇯🇵 JAPAN • Results & Revisions 03/12 - Ya-Man, Tanseisha & Sharp

We resume our regular coverage of Japan's results and revision announcements...............................................................

Campbell Gunn

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

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...

Campbell Gunn

E-Commerce Efficiency Marches on in Japan

Japanese e-commerce fulfilment efficiency is improving month to month, with delivery failure rates plummeting in the last year. The government and...

Michael Causton

🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

FROM OPERATING TO FINANCING CASH FLOWS - Having examined Operating Cash Flow in our previous Insight, we shall look into the 'stressors' between...

Campbell Gunn

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated...

Campbell Gunn

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