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.

Event-Driven

<p>The <a href="https://www.ft.com/content/89efb01d-b5f9-427b-b779-b118cd4383f0" target="_blank" rel="noopener">FT has an article</a> out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of a merger between the two companies. This is not especially surprising to us and we had touted the possibility earlier this year as being more plausible than it would appear on the surface. According to the FT, the idea was rather roundly shot down by both sides. This too is not particularly surprising, but we believe that while now is not the ideal time for a merger, it is one of the few options which could help the companies regain vigour… if done correctly, which will be difficult.</p>

The FT has an article out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of a merger between the two companies. This is not especially surprising to us and we had touted the possibility earlier this year as being more plausible than it would appear on the surface. According to the FT, the idea was rather roundly shot down by both sides. This too is not particularly surprising, but we believe that while now is not the ideal time for a merger, it is one of the few options which could help the companies regain vigour… if done correctly, which will be difficult.

Equity Bottom-Up

<p>While Mazda’s stock price and earnings have underwhelmed, we believe the company continues to make significant progress in strengthening its business below the surface. The recent COVID driven selloff has now pushed the stock price down to about 0.36x book and for all of its struggles, we believe Mazda deserves to trade at a higher multiple purely based on product quality. However, we also see the company turning around its sales, distribution and after sales service which had traditionally been its Achilles heel. For this reason, we believe there is very significant upside.</p>

While Mazda’s stock price and earnings have underwhelmed, we believe the company continues to make significant progress in strengthening its business below the surface. The recent COVID driven selloff has now pushed the stock price down to about 0.36x book and for all of its struggles, we believe Mazda deserves to trade at a higher multiple purely based on product quality. However, we also see the company turning around its sales, distribution and after sales service which had traditionally been its Achilles heel. For this reason, we believe there is very significant upside.

Mazda – Rising Repeat Rate Makes This Our Top Pick in the Sector

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/490/original/2020-07-29_05-46-56.png?1595972235" class="editor-image img-responsive" data-smartkarma-image-id="148490"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/491/original/2020-07-29_05-47-39.png?1595972270" class="editor-image img-responsive" data-smartkarma-image-id="148491"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>OUTLIERS</strong> - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's case - the SPE business of <a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> and the FA business of <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>.  The latter's forecast, if achieved, would take their incremental operating profit margin to -2,631. While the market has over-reacted to TEL's stability, many, including this writer, have been overly complacent about the pace Fanuc's recovery. The SPE and FAA business cycles are no longer synchronised, and Fanuc's valuations have yet to adjust to that new reality.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/493/original/2020-07-29_06-48-44.png?1595972935" class="editor-image img-responsive" data-smartkarma-image-id="148493"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/494/original/2020-07-29_06-49-07.png?1595972973" class="editor-image img-responsive" data-smartkarma-image-id="148494"></figure><div class="content-caption">Source • Japan Analytics</div><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p style="text-align: center;"><strong>55 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 14 Positive / 1 Neutral / 40 Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.4</li>
<li>
<strong>Average % Change in Revenue:</strong> -11.8% Quarter YoY / -2.4% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.0ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 31%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>23 Annual • 17 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score</strong>: 7 Positive / 0 Neutral / 16 Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 4 Positive / 0 Neutral / 13 Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -9.8</li>
</ul></div>

Source • Japan AnalyticsOUTLIERS - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's case - the SPE business of Tokyo Electron (8035 JP) and the FA business of Fanuc (6954 JP).  The latter's forecast, if achieved, would take their incremental operating profit margin to -2,631. While the market has over-reacted to TEL's stability, many, including this writer, have been overly complacent about the pace Fanuc's recovery. The SPE and FAA business cycles are no longer synchronised, and Fanuc's valuations have yet to adjust to that new reality.Source • Japan AnalyticsDAILY STATS55 Quarterly Results

Results Score: 14 Positive / 1 Neutral / 40 Negative

Average Results Score Change: -3.4

Average % Change in Revenue: -11.8% Quarter YoY / -2.4% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.0ppt

Percentage Making Quarterly Losses: 31%
 23 Annual • 17 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 7 Positive / 0 Neutral / 16 Negative

Interim Forecast/Revision Score Change: 4 Positive / 0 Neutral / 13 Negative

Average Forecast/Revision Score Change: -9.8


🇯🇵 JAPAN • Results & Revisions 28th July - TEL, Fanuc, Canon, Nissan, Shin-Etsu, Omron

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/266/original/2020-07-28_06-42-44.png?1595886197" class="editor-image img-responsive" data-smartkarma-image-id="148266"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/267/original/2020-07-28_06-47-55.png?1595886499" class="editor-image img-responsive" data-smartkarma-image-id="148267"></figure><div class="content-caption">Source • Japan Analytics</div>
<p><a href="https://www.smartkarma.com/entities/koei-tecmo-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20277:1" rel="noopener">Koei Tecmo (3635 JP)</a> - Koei Tecmo produced the most-improved Results Score among large-cap companies yesterday. Colleague <a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato</a>'s April Insight<a href="https://www.smartkarma.com/insights/koei-tecmo-plenty-of-headroom-to-play-with" target="_blank" data-smartkarma-citation="insights:38880" rel="noopener"> Plenty of Headroom to Play With</a> called this correctly - <em>"the strength of Sangokushi Senryaku Ban and a strong game pipeline should help the company continue to outperform significantly."</em> The shares are now Overbought, and the valuation has never been as extreme. A Results Score of 30 is 'perfection'. We would trim into any results-induced move above ¥3,500.</p>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div><hr><div><p style="text-align: center;"><strong>40 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 14 Positive / 0 Neutral / 26 Negative</li>
<li>
<strong>Average Results Score Change: -</strong>3.3</li>
<li>
<strong>Average % Change in Revenue:</strong> -10.6% Quarter YoY / -3.0% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.1ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 18%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>19 Annual • 12 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 6 Positive / 0 Neutral / 13 Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 2 Positive / 0 Neutral / 10 Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -11.5</li>
</ul></div>


Source • Japan Analytics
Koei Tecmo (3635 JP) - Koei Tecmo produced the most-improved Results Score among large-cap companies yesterday. Colleague Mio Kato's April Insight Plenty of Headroom to Play With called this correctly - "the strength of Sangokushi Senryaku Ban and a strong game pipeline should help the company continue to outperform significantly." The shares are now Overbought, and the valuation has never been as extreme. A Results Score of 30 is 'perfection'. We would trim into any results-induced move above ¥3,500.
DAILY STATS
40 Quarterly Results

Results Score: 14 Positive / 0 Neutral / 26 Negative

Average Results Score Change: -3.3

Average % Change in Revenue: -10.6% Quarter YoY / -3.0% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.1ppt

Percentage Making Quarterly Losses: 18%
 19 Annual • 12 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 6 Positive / 0 Neutral / 13 Negative

Interim Forecast/Revision Score Change: 2 Positive / 0 Neutral / 10 Negative

Average Forecast/Revision Score Change: -11.5


🇯🇵 JAPAN • Results & Revisions 27th July - Koei Tecmo, Nitto Denko, MMC, Stanley Electric, Exedy

<p>Today Mitsubishi Motors released a set of rather shocking results, harsh-looking but still perhaps optimistic guidance and its new Mid-Term Business Plan – Small but Beautiful. We find the company’s current situation to be anything but beautiful given the deterioration of results in its key ASEAN market.</p>

Today Mitsubishi Motors released a set of rather shocking results, harsh-looking but still perhaps optimistic guidance and its new Mid-Term Business Plan – Small but Beautiful. We find the company’s current situation to be anything but beautiful given the deterioration of results in its key ASEAN market.

Japan

Mazda Motor Corporation manufactures and sells automobiles, trucks, auto parts, and its accessories.  The Company operates its business worldwide.

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Mazda Motor (7261 JP)

Revisiting Our Nissan-Honda Merger Idea

The FT has an article out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of...

Mio Kato

Mazda – Rising Repeat Rate Makes This Our Top Pick in the Sector

While Mazda’s stock price and earnings have underwhelmed, we believe the company continues to make significant progress in strengthening its...

Mio Kato

🇯🇵 JAPAN • Results & Revisions 28th July - TEL, Fanuc, Canon, Nissan, Shin-Etsu, Omron

OUTLIERS - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 27th July - Koei Tecmo, Nitto Denko, MMC, Stanley Electric, Exedy

Koei Tecmo (3635 JP) - Koei Tecmo produced the most-improved Results Score among large-cap companies yesterday. Colleague Mio Kato's April...

Campbell Gunn

Mitsubishi Motors – Small and Ugly

Today Mitsubishi Motors released a set of rather shocking results, harsh-looking but still perhaps optimistic guidance and its new Mid-Term...

Mio Kato

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