'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>
<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

Global energy equity and oil & gas macro analyst

Anish Kapadia

Akap Energy

<a href="https://www.smartkarma.com/entities/exxon-mobil-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:811:1">Exxon Mobil (XOM US)</a> and partners awarded the key contracts for the Rovuma LNG project in Mozambique, which makes the project's sanction almost certain. Despite this, it delayed the final investment decision (FID) until next year. Another bumper set of contract awards are going to <a href="https://www.smartkarma.com/entities/technipfmc-plc" target="_blank" rel="noopener" data-smartkarma-citation="entities:27505:1">TechnipFMC PLC (FTI FP)</a>, <a href="https://www.smartkarma.com/entities/jgc-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:19335:1">Jgc Corp (1963 JP)</a> and <a href="https://www.smartkarma.com/entities/fluor-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:1769:1">Fluor Corp (FLR US)</a>. Yet another positive for the LNG contractor market.

Exxon Mobil (XOM US) and partners awarded the key contracts for the Rovuma LNG project in Mozambique, which makes the project's sanction almost certain. Despite this, it delayed the final investment decision (FID) until next year. Another bumper set of contract awards are going to TechnipFMC PLC (FTI FP), Jgc Corp (1963 JP) and Fluor Corp (FLR US). Yet another positive for the LNG contractor market. 

Exxon's Mozambique LNG Project Awards Service Contracts but FID Slips into 2020

We have been discussing our more bullish outlook for LNG project sanctions than market consensus for a while and remain very confident that the market will be surprised to the upside. We have also seen new projects emerge such as Novatek's Ob LNG that could take FID early in 2020 and Argentina looking at a large scale LNG export plant. There have been 3 projects sanctioned in 2019, totalling 34mmtpa of capacity and 2 further projects that are imminently likely to take FID, with another 30mmtpa of capacity. Consultant Wood Mackenzie, which is widely used by the industry, has taken its expectations of project sanctions up to around 80mmtpa from &gt;60mmpta it forecast at the beginning of this year. We still see upside and expect &gt;100mmpta to be sanctioned this year with 20 projects in the queue. We continue to think this will be a bumper year for the LNG engineering and service companies but is a negative longer term for the LNG developers.  This should be positive for the LNG contractors such as <a href="https://www.smartkarma.com/entities/17524" target="_blank" rel="noopener" data-smartkarma-citation="entities:17524:1">Mcdermott Intl (MDR US)</a>, <a href="https://www.smartkarma.com/entities/27505" target="_blank" rel="noopener" data-smartkarma-citation="entities:27505:1">TechnipFMC PLC (FTI FP)</a>, <a href="https://www.smartkarma.com/entities/6232" target="_blank" rel="noopener" data-smartkarma-citation="entities:6232:1">Chiyoda Corp (6366 JP)</a> and <a href="https://www.smartkarma.com/entities/19335" target="_blank" rel="noopener" data-smartkarma-citation="entities:19335:1">Jgc Corp (1963 JP)</a> .

We have been discussing our more bullish outlook for LNG project sanctions than market consensus for a while and remain very confident that the market will be surprised to the upside. We have also seen new projects emerge such as Novatek's Ob LNG that could take FID early in 2020 and Argentina looking at a large scale LNG export plant. There have been 3 projects sanctioned in 2019, totalling 34mmtpa of capacity and 2 further projects that are imminently likely to take FID, with another 30mmtpa of capacity. Consultant Wood Mackenzie, which is widely used by the industry, has taken its expectations of project sanctions up to around 80mmtpa from &gt;60mmpta it forecast at the beginning of this year. We still see upside and expect &gt;100mmpta to be sanctioned this year with 20 projects in the queue. We continue to think this will be a bumper year for the LNG engineering and service companies but is a negative longer term for the LNG developers.  This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .

New LNG Projects: On-Track for a Bumper Year of Positive LNG Final Investment Decisions

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Event-Driven

On 3 Jun <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" data-smartkarma-citation="entities:6232:1">Chiyoda Corp (6366 JP)</a><a href="https://www.chiyodacorp.com/media/190603_e.pdf" target="_blank">announced that Cameron LNG had completed its first LNG shipment from train 1 (on 31 May)</a>. That news and a strong market have helped boost the stock 11% in the last two days and this is now followed by news out from JV partners <a href="https://www.smartkarma.com/entities/saipem-spa" target="_blank" data-smartkarma-citation="entities:21224:1">Saipem SpA (SPM IM)</a> and <a href="https://www.smartkarma.com/entities/mcdermott-intl-inc" target="_blank" data-smartkarma-citation="entities:17524:1">Mcdermott Intl (MDR US)</a> that their JV involving Chiyoda, CCS JV had been awarded the contract for the Mozambique Area 1 LNG facility for two liquefaction trains of 6.44m tons capacity each. This order win is another check mark in the LNG capex recovery story and should support the stock.

On 3 Jun Chiyoda Corp (6366 JP)announced that Cameron LNG had completed its first LNG shipment from train 1 (on 31 May). That news and a strong market have helped boost the stock 11% in the last two days and this is now followed by news out from JV partners Saipem SpA (SPM IM) and Mcdermott Intl (MDR US) that their JV involving Chiyoda, CCS JV had been awarded the contract for the Mozambique Area 1 LNG facility for two liquefaction trains of 6.44m tons capacity each. This order win is another check mark in the LNG capex recovery story and should support the stock.

Chiyoda: Mozambique Order Win Follows First LNG Shipment at Cameron

Following the Q1’19 results season and the corresponding updates on companies’ LNG projects we have taken the opportunity to update the outlook for LNG liquefaction plant final investment decisions. Despite a more challenging macro environment, with low LNG prices and the trade war between the US and China, we are actually more bullish on LNG project sanctions and expect well over 100mpta of projects to proceed this year, which is significantly above consensus. This continues to be positive for the LNG engineering and construction companies. (See <a href="https://www.smartkarma.com/insights/a-huge-wave-of-new-lng-projects-coming-in-the-next-18-months-positive-for-the-e-c-companies" target="_blank" data-smartkarma-citation="insights:27771">A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&amp;C Companies)</a>

Following the Q1’19 results season and the corresponding updates on companies’ LNG projects we have taken the opportunity to update the outlook for LNG liquefaction plant final investment decisions. Despite a more challenging macro environment, with low LNG prices and the trade war between the US and China, we are actually more bullish on LNG project sanctions and expect well over 100mpta of projects to proceed this year, which is significantly above consensus. This continues to be positive for the LNG engineering and construction companies. (See A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&amp;C Companies)

More Progress on LNG Projects: We Retain Our View of Much Higher than Consensus FIDs

Japan

JGC Holdings Corporation provides infrastructure construction services. The Company designs, constructs, and maintains petroleum, petrochemical, gas, nuclear power, pharmaceutical, and communication facilities. JGC Holdings offers services worldwide.

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Jgc Corp (1963 JP)

🇯🇵 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

Exxon's Mozambique LNG Project Awards Service Contracts but FID Slips into 2020

Exxon Mobil (XOM US) and partners awarded the key contracts for the Rovuma LNG project in Mozambique, which makes the project's sanction almost...

Anish Kapadia

New LNG Projects: On-Track for a Bumper Year of Positive LNG Final Investment Decisions

We have been discussing our more bullish outlook for LNG project sanctions than market consensus for a while and remain very confident that the...

Anish Kapadia

Chiyoda: Mozambique Order Win Follows First LNG Shipment at Cameron

On 3 Jun Chiyoda Corp (6366 JP)announced that Cameron LNG had completed its first LNG shipment from train 1 (on 31 May). That news and a strong...

Mio Kato

More Progress on LNG Projects: We Retain Our View of Much Higher than Consensus FIDs

Following the Q1’19 results season and the corresponding updates on companies’ LNG projects we have taken the opportunity to update the outlook for...

Anish Kapadia

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