'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. 

Quantitative Analysis

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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/407/original/2019-03-09_14-25-50.png?1552109168" class="editor-image img-responsive" data-smartkarma-image-id="81407"></figure>
Source: Japan Analytics
</div>
JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous <a href="https://www.smartkarma.com/insights/japan-the-2018-q3-cash-flow-stakes-runners-riders-red-flags" target="_blank" data-smartkarma-citation="insights:26816">Insight</a> with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -
<ul>
<li>Operating Cash Flow</li>
<li>
Investing Cash Flow (which includes Inventory Cash Flow) 
<ul>
<li>Free Cash Flow (Operating Cash Flow less Investing Cash Flow)</li>
</ul>
</li>
<li>Financing Cash Flow</li>
<li>Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) </li>
</ul>
     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a> and <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Pan Pacific International (7532 JP)</a>,  <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson (2651 JP)</a>, and <a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">I</a><a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">DOM (7599 JP)</a>



Source: Japan Analytics

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -

Operating Cash Flow

Investing Cash Flow (which includes Inventory Cash Flow) 

Free Cash Flow (Operating Cash Flow less Investing Cash Flow)


Financing Cash Flow
Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) 

     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. Softbank Group (9984 JP), NTT Docomo (9437 JP) and Fast Retailing (9983 JP) together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including Toyota Motor (7203 JP), Softbank Group (9984 JP), Pan Pacific International (7532 JP),  Lawson (2651 JP), and IDOM (7599 JP)

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

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. 

Equity Bottom-Up

Mitsubishi has finally given up its hope of convincing Aeon to merge <a href="https://www.smartkarma.com/entities/1043" target="_blank" data-smartkarma-citation="entities:1043:1">Ministop (9946 JP)</a> with Lawson and is selling its stake in the largest retail group.
There will be no change to the extensive supply relationship between the two companies and Mitsubishi's food wholesale arm, <a href="https://www.smartkarma.com/entities/19778" target="_blank" data-smartkarma-citation="entities:19778:1">Mitsubishi Shokuhin (7451 JP)</a>.
While Aeon seems to have spurned Mitsubishi for now, it is hard to see how Aeon will progress in the convenience store sector without Mitsubishi’s help. In the short-term Ministop looks like a poor investment but Aeon may have to sell to Mitsubishi eventually and will want a good price for it.

Mitsubishi has finally given up its hope of convincing Aeon to merge Ministop (9946 JP) with Lawson and is selling its stake in the largest retail group.
There will be no change to the extensive supply relationship between the two companies and Mitsubishi's food wholesale arm, Mitsubishi Shokuhin (7451 JP).
While Aeon seems to have spurned Mitsubishi for now, it is hard to see how Aeon will progress in the convenience store sector without Mitsubishi’s help. In the short-term Ministop looks like a poor investment but Aeon may have to sell to Mitsubishi eventually and will want a good price for it.

Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

Thematic (Sector/Industry)

The following is an in-depth review of the big three Japanese convenience store (CVS) players, Seven Eleven (<a href="https://www.smartkarma.com/entities/1041" target="_blank" data-smartkarma-citation="entities:1041:1">Seven &amp; I Holdings (3382 JP)</a>), <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart (8028 JP)</a> and <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson Inc (2651 JP)</a>. This follows <a href="https://www.smartkarma.com/insights/japan-convenience-stores-still-innovating-in-a-saturated-market" target="_blank">our review of the Japanese convenience store sector overall</a>, which is best to read first.
The key operational and strategic themes relevant to investors regarding the Big Three in Japan:
<ul class="">
<li>Saturation has encouraged the top three operators to take over the remaining smaller chains while pushing into regions where they have fewer stores.</li>
<li>All are expanding new forms of retail:
<ul>
<li>Seven Eleven and Lawson have launched new e-commerce ventures that make the best use of their existing store networks and could reach national coverage quite soon.</li>
<li>Diversification: Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.</li>
</ul>
</li>
<li>While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new growth from e-commerce, hybrid stores and innovative products.</li>
</ul>

The following is an in-depth review of the big three Japanese convenience store (CVS) players, Seven Eleven (Seven &amp; I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). This follows our review of the Japanese convenience store sector overall, which is best to read first.
The key operational and strategic themes relevant to investors regarding the Big Three in Japan:

Saturation has encouraged the top three operators to take over the remaining smaller chains while pushing into regions where they have fewer stores.
All are expanding new forms of retail:

Seven Eleven and Lawson have launched new e-commerce ventures that make the best use of their existing store networks and could reach national coverage quite soon.
Diversification: Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.


While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new growth from e-commerce, hybrid stores and innovative products.


Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (<a href="https://www.smartkarma.com/entities/1041" target="_blank" data-smartkarma-citation="entities:1041:1">Seven &amp; I Holdings (3382 JP)</a>), <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">Familymart (8028 JP)</a> and <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson Inc (2651 JP)</a>. Also covered are the smaller firms like <a href="https://www.smartkarma.com/entities/1043" target="_blank" data-smartkarma-citation="entities:1043:1">Ministop Co Ltd (9946 JP)</a>, <a href="https://www.smartkarma.com/entities/5762" target="_blank" data-smartkarma-citation="entities:5762:1">Poplar Co Ltd (7601 JP)</a>, Daily Yamazaki, <a href="https://www.smartkarma.com/entities/19816" target="_blank" data-smartkarma-citation="entities:19816:1">Cvs Bay Area (2687 JP)</a>, <a href="https://www.smartkarma.com/entities/11801" target="_blank" data-smartkarma-citation="entities:11801:1">Three F Co Ltd (7544 JP)</a> and <a href="http://secoma.co.jp" target="_blank">Secoma</a> which are targets for the Big Three.
The key operational and strategic themes relevant to investors in CVS in Japan:
<ul class="">
<li>The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.</li>
<li>At the same time, all are looking at new forms of retailing to expand further:
<ul>
<li>All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.</li>
<li>Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.</li>
</ul>
</li>
<li>While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.</li>
</ul>
This first report reviews the sector overall and the main players, <a href="https://www.smartkarma.com/insights/seven-eleven-familymart-and-lawson-find-new-growth-strategies-in-tighter-market" target="_blank">while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail</a>.

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven &amp; I Holdings (3382 JP)), Familymart (8028 JP) and Lawson Inc (2651 JP). Also covered are the smaller firms like Ministop Co Ltd (9946 JP), Poplar Co Ltd (7601 JP), Daily Yamazaki, Cvs Bay Area (2687 JP), Three F Co Ltd (7544 JP) and Secoma which are targets for the Big Three.
The key operational and strategic themes relevant to investors in CVS in Japan:

The Japanese convenience store sector may have reached saturation but this has just encouraged the top three operators to speed up their quest to take over the remaining smaller chains while pushing into regions where they have fewer stores.
At the same time, all are looking at new forms of retailing to expand further:

All of the top three had previously failed to come up with coherent e-commerce strategies, but this year Seven Eleven and Lawson have launched new ideas that make better use of their existing store networks and could reach national coverage quite soon.
Diversification is another strategy to overcome saturation, and Familymart, in particular, is tying with all manner of partners to try and come up with a hit hybrid format to find new growth.


While competition from drugstores and discount food retailers is a threat, convenience stores will continue to find new sources of growth from e-commerce, hybrid stores and innovative products.

This first report reviews the sector overall and the main players, while a second report looks at the big three CVS operators – which have a combined 91% share of the market – in detail.

Japan Convenience Stores Still Innovating in a Saturated Market

Leading Japanese retail chains across all the major formats had a strong 1H2018 with surprisingly few exceptions.
Although some saw operating profits fall, and most of those that did expect profits to be lower for the year as a whole, other results were particularly impressive given the difficult operating conditions this year due to weather and natural disasters.
The following is a quick snapshot of the state-of-play at major Japanese retailers.

Leading Japanese retail chains across all the major formats had a strong 1H2018 with surprisingly few exceptions.
Although some saw operating profits fall, and most of those that did expect profits to be lower for the year as a whole, other results were particularly impressive given the difficult operating conditions this year due to weather and natural disasters.
The following is a quick snapshot of the state-of-play at major Japanese retailers.

Japan Retail Review 1H2018: Top Retailers Outperform

Japan

LAWSON, INC. operates a chain of convenience stores in Japan. The Company sells a variety of products including fast food, beverages, snacks, magazines, newspapers, and sundry goods.

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Lawson Inc (2651 JP)

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market...

Campbell Gunn

Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

Mitsubishi has finally given up its hope of convincing Aeon to merge Ministop (9946 JP) with Lawson and is selling its stake in the largest retail...

Michael Causton

Seven Eleven, Familymart and Lawson Find New Growth Strategies in Tighter Market

The following is an in-depth review of the big three Japanese convenience store (CVS) players, Seven Eleven (Seven & I Holdings (3382 JP)),...

Michael Causton

Japan Convenience Stores Still Innovating in a Saturated Market

The following is an in-depth review of the Japanese convenience store (CVS) sector and, in particular, the top three players, Seven Eleven (Seven...

Michael Causton

Japan Retail Review 1H2018: Top Retailers Outperform

Leading Japanese retail chains across all the major formats had a strong 1H2018 with surprisingly few exceptions. Although some saw operating...

Michael Causton

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52-week Range

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