Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Equity Bottom-Up

On 26 Jan, Koei-Tecmo reported underwhelming results with revenue of ¥10.11bn and OP of ¥2.99bn coming in below the consensus estimates of ¥10.47bn (results -3.4% vs. consensus) and ¥3.88bn (results -22.9% vs. consensus). The noticeable miss at the OP level was somewhat surprising given relatively strong results for online and mobile gaming so we have delved into the numbers carefully below.

On 26 Jan, Koei-Tecmo reported underwhelming results with revenue of ¥10.11bn and OP of ¥2.99bn coming in below the consensus estimates of ¥10.47bn (results -3.4% vs. consensus) and ¥3.88bn (results -22.9% vs. consensus). The noticeable miss at the OP level was somewhat surprising given relatively strong results for online and mobile gaming so we have delved into the numbers carefully below. 

Koei-Tecmo – Deciphering the Profitability of Sangokushi Strategy

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/170/original/2020-01-28_05-14-43.png?1580156104" class="editor-image img-responsive" data-smartkarma-image-id="115170"></figure><div class="content-caption">Source • Japan Analytics</div>TRACKING RESULTS &amp; REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the announcements released over the previous twenty-four hours and highlight 'winners' and 'losers' using our scoring methodology for both Results and Revisions. Until the number of daily announcements becomes excessive, we shall focus on companies with a market capitalisation fo over ¥50 billion.SCORING METHODOLOGY - Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period. The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.  The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score. These scores are then cap-weight aggregated into Sector and Market Composite Scores for which the seventeen-year track record is shown above.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/171/original/2020-01-28_05-28-10.png?1580156919" class="editor-image img-responsive" data-smartkarma-image-id="115171"></figure><div class="content-caption">Source • Japan Analytics/Cabinet Office</div>TRENDING LOWER - Although the Results Score has been moving sideways since November, the Forecast/Revision Score continues to make new ten-year lows. This downward trend is in accord with the Cabinet Office Business Conditions Leading Indicator which reached a new post-GFC low in November, before the impact of the Coronavirus.<div class="content-highlight">Note that our Scoring of both Results and Forecasts/Revisions has a strong momentum component which may lead reported earnings which tend to be a lagging indicator, hence the tighter correlations with the Leading Indicator and the market.</div>

Source • Japan AnalyticsTRACKING RESULTS &amp; REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the announcements released over the previous twenty-four hours and highlight 'winners' and 'losers' using our scoring methodology for both Results and Revisions. Until the number of daily announcements becomes excessive, we shall focus on companies with a market capitalisation fo over ¥50 billion.SCORING METHODOLOGY - Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period. The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.  The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score. These scores are then cap-weight aggregated into Sector and Market Composite Scores for which the seventeen-year track record is shown above.Source • Japan Analytics/Cabinet OfficeTRENDING LOWER - Although the Results Score has been moving sideways since November, the Forecast/Revision Score continues to make new ten-year lows. This downward trend is in accord with the Cabinet Office Business Conditions Leading Indicator which reached a new post-GFC low in November, before the impact of the Coronavirus.Note that our Scoring of both Results and Forecasts/Revisions has a strong momentum component which may lead reported earnings which tend to be a lagging indicator, hence the tighter correlations with the Leading Indicator and the market.

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 27th January - Too Early to Call a Bottom

Since we first wrote on KT in early November the stock has risen modestly by about 8%, outperforming a relatively strong TOPIX by 5.3%. We briefly spoke to the company today to gain some more colour on the overall strategic thinking and especially their relationship with Alibaba. Details below.

Since we first wrote on KT in early November the stock has risen modestly by about 8%, outperforming a relatively strong TOPIX by 5.3%. We briefly spoke to the company today to gain some more colour on the overall strategic thinking and especially their relationship with Alibaba. Details below.

After flatlining between early 2017 and mid 2019 and range trading between roughly ¥1,800-2,000, Koei Tecmo’s (KT) stock is up about 20% in four months. We believe the company’s prospects are attractive and discuss why below.

After flatlining between early 2017 and mid 2019 and range trading between roughly ¥1,800-2,000, Koei Tecmo’s (KT) stock is up about 20% in four months. We believe the company’s prospects are attractive and discuss why below.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

I expected an "easy" Tender Offer in <a href="https://www.smartkarma.com/entities/bandai-namco-holdings-inc" target="_blank" data-smartkarma-citation="entities:13435:1" rel="noopener">Bandai Namco Holdings (7832 JP)</a>'s "cleanup" of Gundam merchandising IP licensee/owner <a href="https://www.smartkarma.com/entities/sotsu-co-ltd" target="_blank" data-smartkarma-citation="entities:12978:1" rel="noopener">Sotsu Co Ltd (3711 JP)</a> founder Nasu Yuji's 49.2% stake, which then leads to Bandai Namco owning more than two-thirds, which allows Bandai Namco to squeeze out minorities. Done at a 66% premium to last close and an EV/EBITDA multiple of almost 10x, with almost 90% of the register easily accounted for, I had expected this to go quite smoothly. While it is not a knock-out price, given the founder is selling out his 49.2%, I had not expected anyone would come out against it vocally, but someone has. RMB Capital (“RMB”), an independent investment advisory firm based in Chicago, issued a <a href="https://www.businesswire.com/news/home/20191105006284/en/" target="_blank" rel="noopener">press release</a> early this morning Asia time outlining their beef. This is a burger with multiple patties.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/769/original/Screenshot%202019-11-06%20at%209.52.17%20AM.png?1573005152" class="editor-image img-responsive" data-smartkarma-image-id="104769"></figure><div class="content-caption">excerpt from the <a href="https://www.businesswire.com/news/home/20191105006284/en/" target="_blank" rel="noopener">Press Release</a>
</div>RMB explains their issues in more detail, and they are interesting. I dig in below.And because it is Sotsu... I offer a gratuitous Gundam gif (the cool retro "tokusatsu" vids are in the previous piece <a href="https://www.smartkarma.com/insights/bandai-namco-gets-that-last-bit-of-gundam-tender-offer-for-sotsu-3711-jp" target="_blank" data-smartkarma-citation="insights:33017" rel="noopener">Bandai Namco Gets That Last Bit of Gundam: Tender Offer for Sotsu (3711 JP)</a> <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/826/original/gundam.gif?1573019136" class="editor-image img-responsive" data-smartkarma-image-id="104826"></figure><hr>For more about the rules, regulations, quirks, and foibles of Japanese M&amp;A, please see the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:28911" rel="noopener">Quiddity Japan M&amp;A Guide 2019</a>.

I expected an "easy" Tender Offer in Bandai Namco Holdings (7832 JP)'s "cleanup" of Gundam merchandising IP licensee/owner Sotsu Co Ltd (3711 JP) founder Nasu Yuji's 49.2% stake, which then leads to Bandai Namco owning more than two-thirds, which allows Bandai Namco to squeeze out minorities. Done at a 66% premium to last close and an EV/EBITDA multiple of almost 10x, with almost 90% of the register easily accounted for, I had expected this to go quite smoothly. While it is not a knock-out price, given the founder is selling out his 49.2%, I had not expected anyone would come out against it vocally, but someone has. RMB Capital (“RMB”), an independent investment advisory firm based in Chicago, issued a press release early this morning Asia time outlining their beef. This is a burger with multiple patties.excerpt from the Press Release
RMB explains their issues in more detail, and they are interesting. I dig in below.And because it is Sotsu... I offer a gratuitous Gundam gif (the cool retro "tokusatsu" vids are in the previous piece Bandai Namco Gets That Last Bit of Gundam: Tender Offer for Sotsu (3711 JP) For more about the rules, regulations, quirks, and foibles of Japanese M&amp;A, please see the Quiddity Japan M&amp;A Guide 2019.

Gundam Gets Jiggy - A Voice Cries "Chotto Matte"

Japan

Koei Tecmo Holdings Co.,Ltd. is a holding company which was established through the merger of Koei Co., Ltd. and Tecmo Ltd. The Company develops and distributes video game software for personal computers and home video game consoles. The Company also operates other media business such as marketing of books and CDs and amusement facility operation.

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Koei Tecmo Holdings (3635 JP)

Koei-Tecmo – Deciphering the Profitability of Sangokushi Strategy

On 26 Jan, Koei-Tecmo reported underwhelming results with revenue of ¥10.11bn and OP of ¥2.99bn coming in below the consensus estimates of ¥10.47bn...

Mio Kato

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 27th January - Too Early to Call a Bottom

TRACKING RESULTS & REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the...

Campbell Gunn

Koei Tecmo – Aliba-Ba-Boom

Since we first wrote on KT in early November the stock has risen modestly by about 8%, outperforming a relatively strong TOPIX by 5.3%. We briefly...

Mio Kato

Koei Tecmo – Open Sesame

After flatlining between early 2017 and mid 2019 and range trading between roughly ¥1,800-2,000, Koei Tecmo’s (KT) stock is up about 20% in four...

Mio Kato

Gundam Gets Jiggy - A Voice Cries "Chotto Matte"

I expected an "easy" Tender Offer in Bandai Namco Holdings (7832 JP)'s "cleanup" of Gundam merchandising IP licensee/owner Sotsu Co Ltd (3711 JP)...

Travis Lundy

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