Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The data is largely unchanged since the <a href="https://www.smartkarma.com/insights/nikkei-225-sep-annual-review-predictions-3-in-3-out" target="_blank" data-smartkarma-citation="insights:73209" rel="noopener">Nikkei 225 Sep Annual Review Predictions - 3 In, 3 Out</a> set of predictions published 15 days ago.</li>
<li>The consultation results are out. They are as expected too. This has the hallmarks of a VERY well-signalled trade. But it's a biggie. The funding trade alone is ¥600bn.</li>
<li>Because of the data, market conditions, and the variability of choice at the edges, I believe that warrants particular strategy.</li>
</ul>


The data is largely unchanged since the Nikkei 225 Sep Annual Review Predictions - 3 In, 3 Out set of predictions published 15 days ago.
The consultation results are out. They are as expected too. This has the hallmarks of a VERY well-signalled trade. But it's a biggie. The funding trade alone is ¥600bn.
Because of the data, market conditions, and the variability of choice at the edges, I believe that warrants particular strategy.


Nikkei 225 Sep22 Annual Review; Data Final, Predictions Unch'd; Strategy Involved

<a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan Railway Co (9021 JP)</a>  is one of the first three listed JR companies (along with <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway Co (9020 JP)</a> and <a href="https://www.smartkarma.com/entities/central-japan-railway-co" target="_blank" data-smartkarma-citation="entities:13520:1" rel="noopener">Central Japan Railway Co (9022 JP)</a>) and was always the smallest, in size and investor interest, until <a href="https://www.smartkarma.com/entities/kyushu-railway-company" target="_blank" data-smartkarma-citation="entities:23609:1" rel="noopener">Kyushu Railway Company (9142 JP)</a> came along. JR West has "always" traded at a lower EV/EBITDA, EV/EBIT, and PER than a basket of its peers. For a long time that was due to lower ROAs and higher debt/EBITDA. Now ROAs have basically matched the basket of peers and so pre and post-covid, ROEs looked OK. Covid hit hard. Inbound tourism fell, business travel fell, commuting use fell, costs didn't. Gross margins which had been 22-27% for most of the last 20 years fell below zero. Revenues fell by 40%. Four Zero Percent. That is huge for a transport utility.  This is the same story for all the rails, but more for some than others.   The stock is down 50% from late 2019 highs. The question is whether that is enough. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/967/original/Screenshot+2021-09-05+at+10.36.27+AM.png?1630809405" class="editor-image img-responsive" data-smartkarma-image-id="227967"></figure></section>Last week on 1 September, the company <a href="https://www.westjr.co.jp/global/en/ir/news/2022/pdf/en_20210901.pdf" target="_blank" rel="noopener">announced</a> an offering of 51+mm shares including greenshoe, split 40/60 international/domestic. That is about 40 days volume and after the stock fell 15%, is worth about ¥260bn. The company has a large number of retail shareholders, and a very heavy passive and cross-holding ownership. It has a relatively low active institutional ownership - domestic or foreign. With the dividend down 40+% it still yields ~2% because of where the stock has fallen. Even better for some potential holders, the kabunushi yutai yield is 5+%, and up to 9% if one optimises (and rides the shinkansen, stays in hotels, and eats at restaurants in hotels). That may make it a selling point to some, but institutional investors don't get that benefit, so that aspect alone may not get all of the deal sold.There is an interesting story of Historical Cheapness vs Supply vs Benefits along with large passive ownership and decent-to-large passive demand for the offering. More below the fold.

West Japan Railway Co (9021 JP)  is one of the first three listed JR companies (along with East Japan Railway Co (9020 JP) and Central Japan Railway Co (9022 JP)) and was always the smallest, in size and investor interest, until Kyushu Railway Company (9142 JP) came along. JR West has "always" traded at a lower EV/EBITDA, EV/EBIT, and PER than a basket of its peers. For a long time that was due to lower ROAs and higher debt/EBITDA. Now ROAs have basically matched the basket of peers and so pre and post-covid, ROEs looked OK. Covid hit hard. Inbound tourism fell, business travel fell, commuting use fell, costs didn't. Gross margins which had been 22-27% for most of the last 20 years fell below zero. Revenues fell by 40%. Four Zero Percent. That is huge for a transport utility.  This is the same story for all the rails, but more for some than others.   The stock is down 50% from late 2019 highs. The question is whether that is enough. Last week on 1 September, the company announced an offering of 51+mm shares including greenshoe, split 40/60 international/domestic. That is about 40 days volume and after the stock fell 15%, is worth about ¥260bn. The company has a large number of retail shareholders, and a very heavy passive and cross-holding ownership. It has a relatively low active institutional ownership - domestic or foreign. With the dividend down 40+% it still yields ~2% because of where the stock has fallen. Even better for some potential holders, the kabunushi yutai yield is 5+%, and up to 9% if one optimises (and rides the shinkansen, stays in hotels, and eats at restaurants in hotels). That may make it a selling point to some, but institutional investors don't get that benefit, so that aspect alone may not get all of the deal sold.There is an interesting story of Historical Cheapness vs Supply vs Benefits along with large passive ownership and decent-to-large passive demand for the offering. More below the fold. 

JR West (9021 JP) Offering - Supply Vs Yutai+Passive Demand

'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/000/139/255/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

Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

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)

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.

We have decided to split our coverage of Analyst Upgrades and Downgrades into Japan only and Asia -ex Japan. We track changes in recommendations for the overall market to identify which sectors and companies are currently trending up in popularity and which are trending down.<h2>Positive Side</h2><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/023/022/original/2.png?1490213989" class="editor-image img-responsive" data-smartkarma-image-id="23022"></figure><div class="content-caption">Source: Custom Products</div>As you can see from the chart above the Energy Minerals (Only 7 names in sector), Finance and Consumer Durables Sectors had the highest % of upgrades relative to total recommendations over…

We have decided to split our coverage of Analyst Upgrades and Downgrades into Japan only and Asia -ex Japan. We track changes in recommendations for the overall market to identify which sectors and companies are currently trending up in popularity and which are trending down.Positive SideSource: Custom ProductsAs you can see from the chart above the Energy Minerals (Only 7 names in sector), Finance and Consumer Durables Sectors had the highest % of upgrades relative to total recommendations over…

Most Popular and Unpopular Japanese Sectors over Last 2 Weeks....

Japan

Keikyu Corporation provides rail and bus mass transit services in Tokyo, Yokohama, and the Miura Peninsula.  The Company also has non-transportation interests including real estate development, hotel operation, leisure facilities and supermarket chain operation in the vicinity of its railway system.

Keikyu Corp (9006 JP)

Nikkei 225 Sep22 Annual Review; Data Final, Predictions Unch'd; Strategy Involved

The Nikkei 225 Consultation Results were published last Wednesday. The data cutoff was last Friday. It's all pretty well-signalled but there are...

Travis Lundy

JR West (9021 JP) Offering - Supply Vs Yutai+Passive Demand

JR West surprised the market with an equity offering last Wednesday. It is JPY 260bn or so at current price and represents more than 20% EPS...

Travis Lundy

🇯🇵 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

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

Most Popular and Unpopular Japanese Sectors over Last 2 Weeks....

We have decided to split our coverage of Analyst Upgrades and Downgrades into Japan only and Asia -ex Japan. We track changes in recommendations...

Custom Products Group