'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div>STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <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)</a> which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, 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 AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, 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 1 - Altman Z-Scores

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yamada-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:641:1" rel="noopener">Yamada (9831 JP)</a> and <a href="https://www.smartkarma.com/entities/edion-corp" target="_blank" data-smartkarma-citation="entities:14358:1" rel="noopener">Edion Corp (2730 JP)</a>'s MOU to negotiate to form a Holdco,  also means that capital actions to improve shareholder returns are probably dead for a year.</li>
<li>IFM critiques the IE's fair value assessment of <a href="https://www.smartkarma.com/entities/atlas-arteria-ltd" target="_blank" data-smartkarma-citation="entities:14430:1" rel="noopener">Atlas Arteria (ALX AU)</a> and extends the offer period; amid minimal tendering. </li>
<li>
<a href="https://www.smartkarma.com/entities/kawasaki-kisen-kaisha-ltd" target="_blank" data-smartkarma-citation="entities:3548:1" rel="noopener">Kawasaki Kisen Kaisha (9107 JP)</a>/KLINE upped their buyback plan from ¥50bn to ¥130bn and started with a big ToSTNeT-3.  Buy on weakness. Longer-term, be long and stay long.</li>
</ul>



Yamada (9831 JP) and Edion Corp (2730 JP)'s MOU to negotiate to form a Holdco,  also means that capital actions to improve shareholder returns are probably dead for a year.
IFM critiques the IE's fair value assessment of Atlas Arteria (ALX AU) and extends the offer period; amid minimal tendering. 

Kawasaki Kisen Kaisha (9107 JP)/KLINE upped their buyback plan from ¥50bn to ¥130bn and started with a big ToSTNeT-3.  Buy on weakness. Longer-term, be long and stay long.


Last Week In Event SPACE: Yamada/Edion, Atlas Arteria, Kawasaki Kisen Kaisha/KLINE, MGM China

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

At the beginning of the fiscal year, Japanese companies issue full-year guidance. Most of them will then revise those number when they announce 2Q results in the fall. Their hope is that they get close enough to the up and coming actual results so that they do not have to change anything again before the year closes. We have screened for companies that have significantly changed their full-year guidance.

At the beginning of the fiscal year, Japanese companies issue full-year guidance. Most of them will then revise those number when they announce 2Q results in the fall. Their hope is that they get close enough to the up and coming actual results so that they do not have to change anything again before the year closes. We have screened for companies that have significantly changed their full-year guidance. 

2Q Earnings Is the Time for Full-Year Guidance Revisions. See Who Changed Their Numbers the Most....

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. 

INTRODUCTION - The second, and final part of our Results and Forecast/Revision Scores review for Summer 2018 will look at the leading and lagging performers and forecasters among larger and middle capitalisation companies in Japan based on their most recent quarterly results and forecasts. The data series covers over 160,000 quarterly results and 120,000 initial forecasts or forecasts revisions. The scores are calculated using the most recent eight quarters of data for revenues, operating income and operating margin and measure for each metric the rate, degree and consistency of change. Each score ranges from a maximum of +30 to a minimum of -30 for each period.SUMMARY TABLES - The tables below give the top and bottom ten companies by Results Score and the ten 'Most Optimistic' and ten 'Most Pessimistic companies based on the difference between their Results Scores and Revision Scores. RESULTS SCORE TOP 10<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/232/original/2018-08-21_11-07-40.png?1534817272" class="editor-image img-responsive" data-smartkarma-image-id="61232"></figure>RESULTS SCORE BOTTOM 10<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/247/original/2018-08-21_11-48-00.png?1534819694" class="editor-image img-responsive" data-smartkarma-image-id="61247"></figure>MOST OPTIMISTIC <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/341/original/2018-08-22_10-41-33.png?1534902426" class="editor-image img-responsive" data-smartkarma-image-id="61341"></figure>MOST PESSIMISTIC<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/342/original/2018-08-22_10-44-42.png?1534902469" class="editor-image img-responsive" data-smartkarma-image-id="61342"></figure><div class="content-caption">All tables &gt; Source: Japan Analytics</div><div style="text-align: left;" class="content-caption">
Legend: ▲ and ▼ arrows indicate Score changes in the top and bottom ten per cent, respectively. The Relative Price Score measures the difference between the current relative price and the mean absolute deviation of relative prices since listing which allows for a comparison of all companies on the same absolute scale. We consider differences in the top or bottom percentiles of historical observations to be 'Overbought' and 'Oversold' and these states mark them "•" and "+", respectively.  Valuation 'QUADrants' group companies into the top and bottom 20% of TTM PER and PBR ranges and categorise companies that are outliers in both into four quadrants: "FP" = Fully Priced, "SP" = Speculative, "MT" = Mature and "DV" = Deep Value. 'NE' represents negative TTM Net Income. Forecasts older than 180 days are excluded. The Forecast Accuracy Score ('FAS') is a measure of a company’s forecast accuracy-very time and is derived from the cumulative deviations of the Revenue and Operating Income forecasts from the year-end results. 100 is a perfect score; there is no minimum score. The fewer and the more accurate the forecasts, the higher the score.  A score of over 70 indicates that the current forecast is likely to be achieved. Where there is insufficient data, or if the company has not made any forecasts in the last five years, the column entry will be blank. We would be cautious reading too much into the forecasts of the companies with low Forecast Accuracy.</div>LONG AND SHORT PORTFOLIOS - Also, we provide below long and shorts portfolios of companies where we see a significant divergence between the business performance and current share prices.

INTRODUCTION - The second, and final part of our Results and Forecast/Revision Scores review for Summer 2018 will look at the leading and lagging performers and forecasters among larger and middle capitalisation companies in Japan based on their most recent quarterly results and forecasts. The data series covers over 160,000 quarterly results and 120,000 initial forecasts or forecasts revisions. The scores are calculated using the most recent eight quarters of data for revenues, operating income and operating margin and measure for each metric the rate, degree and consistency of change. Each score ranges from a maximum of +30 to a minimum of -30 for each period.SUMMARY TABLES - The tables below give the top and bottom ten companies by Results Score and the ten 'Most Optimistic' and ten 'Most Pessimistic companies based on the difference between their Results Scores and Revision Scores. RESULTS SCORE TOP 10RESULTS SCORE BOTTOM 10MOST OPTIMISTIC MOST PESSIMISTICAll tables &gt; Source: Japan Analytics
Legend: ▲ and ▼ arrows indicate Score changes in the top and bottom ten per cent, respectively. The Relative Price Score measures the difference between the current relative price and the mean absolute deviation of relative prices since listing which allows for a comparison of all companies on the same absolute scale. We consider differences in the top or bottom percentiles of historical observations to be 'Overbought' and 'Oversold' and these states mark them "•" and "+", respectively.  Valuation 'QUADrants' group companies into the top and bottom 20% of TTM PER and PBR ranges and categorise companies that are outliers in both into four quadrants: "FP" = Fully Priced, "SP" = Speculative, "MT" = Mature and "DV" = Deep Value. 'NE' represents negative TTM Net Income. Forecasts older than 180 days are excluded. The Forecast Accuracy Score ('FAS') is a measure of a company’s forecast accuracy-very time and is derived from the cumulative deviations of the Revenue and Operating Income forecasts from the year-end results. 100 is a perfect score; there is no minimum score. The fewer and the more accurate the forecasts, the higher the score.  A score of over 70 indicates that the current forecast is likely to be achieved. Where there is insufficient data, or if the company has not made any forecasts in the last five years, the column entry will be blank. We would be cautious reading too much into the forecasts of the companies with low Forecast Accuracy.LONG AND SHORT PORTFOLIOS - Also, we provide below long and shorts portfolios of companies where we see a significant divergence between the business performance and current share prices.

Japan: Scoring Results & Revisions Summer 2018 - Top and Bottom Companies + Long & Short Portfolios

Japan

Kawasaki Kisen Kaisha, Ltd. operates marine cargo and passenger transportation around the world.  The Company provides ocean liner, bulk carrier, car carrier, unscheduled specialized carrier, and energy transportation services. The Company also offers insurance, warehousing, and land transportation services.  Items transported include automobile, grain, petroleum, coal, iron ore, and wood chip.

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Kawasaki Kisen Kaisha (9107 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

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through...

Campbell Gunn

Last Week In Event SPACE: Yamada/Edion, Atlas Arteria, Kawasaki Kisen Kaisha/KLINE, MGM China

It’s Sunday! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed during the...

David Blennerhassett

2Q Earnings Is the Time for Full-Year Guidance Revisions. See Who Changed Their Numbers the Most....

At the beginning of the fiscal year, Japanese companies issue full-year guidance. Most of them will then revise those number when they announce 2Q...

Custom Products Group

Japan: Scoring Results & Revisions Summer 2018 - Top and Bottom Companies + Long & Short Portfolios

INTRODUCTION - The second, and final part of our Results and Forecast/Revision Scores review for Summer 2018 will look at the leading and lagging...

Campbell Gunn

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