'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/000/116/923/original/2020-02-08_18-15-45.png?1581196263" class="editor-image img-responsive" data-smartkarma-image-id="116923"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/924/original/2020-02-09_06-34-51.png?1581197706" class="editor-image img-responsive" data-smartkarma-image-id="116924"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div><p><strong>OOOPS!</strong> - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>.  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/925/original/2020-02-08_10-48-19.png?1581199859" class="editor-image img-responsive" data-smartkarma-image-id="116925"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>18x EARNINGS</strong> - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/927/original/2020-02-08_10-55-21.png?1581200256" class="editor-image img-responsive" data-smartkarma-image-id="116927"></figure><div class="content-caption">Source • Japan Analytics</div><p style="text-align: left;"><strong>TTM RESULTS</strong> - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/928/original/2020-02-08_10-59-00.png?1581200533" class="editor-image img-responsive" data-smartkarma-image-id="116928"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>FORECASTS</strong> - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. </p>

Source • Japan AnalyticsOOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from Softbank Corp (9434 JP) and Honda Motor (7267 JP).  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. Source • Japan Analytics18x EARNINGS - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.Source • Japan AnalyticsTTM RESULTS - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.Source • Japan AnalyticsFORECASTS - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

<p>‘Rising Innovation 2022’ is the latest 3-Year Business Plan for <a href="https://www.smartkarma.com/entities/tsukuba-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:16705:1">Tsukuba Bank (8338 JP)</a>, a small and constantly-struggling regional bank from Ibaraki Prefecture, to the northeast of Tokyo.  The bank missed all but one of its key objectives in its previous Business Plan, but there were no consequences for senior management.  No demotions or bonus cuts, no acceptance of responsibility.  Just business as usual.  Regardless of the optimistic forecasts in the new Business Plan, growth in recent years has been virtually non-existent, FY3/2019 results missed guidance by a country mile, the bank’s stock price remains close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Yet foreign investors in aggregate own around 14% of the stock.  We fail to understand why.  <em>Caveat emptor!</em>  (May the buyer beware!)    </p>

‘Rising Innovation 2022’ is the latest 3-Year Business Plan for Tsukuba Bank (8338 JP), a small and constantly-struggling regional bank from Ibaraki Prefecture, to the northeast of Tokyo.  The bank missed all but one of its key objectives in its previous Business Plan, but there were no consequences for senior management.  No demotions or bonus cuts, no acceptance of responsibility.  Just business as usual.  Regardless of the optimistic forecasts in the new Business Plan, growth in recent years has been virtually non-existent, FY3/2019 results missed guidance by a country mile, the bank’s stock price remains close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Yet foreign investors in aggregate own around 14% of the stock.  We fail to understand why.  Caveat emptor!  (May the buyer beware!)    

Tsukuba Bank (8338.JP): Rising Innovation, Falling Momentum: Plus Ça Change...

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Yesterday after the close, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a> announced its Board of Directors had approved a <a href="https://www.nomuraholdings.com/news/nr/holdings/20190618/20190618_a.pdf" target="_blank">buyback program</a> to buy up to ¥150bn and up to 300 million shares.</p><p>The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. </p><p>300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.</p><p>This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on <a href="https://www.smartkarma.com/entities/mebuki-financial-group-inc" target="_blank" data-smartkarma-citation="entities:10048:1">Mebuki Financial Group (7167 JP)</a> and a little more here and there on cross-holding impairments).</p><p>Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least. </p>

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to 300 million shares.The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. 300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on Mebuki Financial Group (7167 JP) and a little more here and there on cross-holding impairments).Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least. 

<p>Back in 2007, foreign investors in aggregate owned around 27% of the stock of <a href="https://www.smartkarma.com/entities/16705" target="_blank" data-smartkarma-citation="entities:16705:1">Tsukuba Bank (8338 JP)</a> , a small and constantly struggling regional bank from Ibaraki Prefecture: the smallest regional bank operating in the wealthy Kanto Region surrounding Tokyo.  Wisely, after a succession of guidance misses and disappointing financial results from the bank, foreigners have cut that aggregate investment to 14%.  Still not wise enough, some might say: Tsukuba Bank has considerable historic ‘form’ when it comes to failing to deliver on expectations.  FY3/2019 results missed guidance by a country mile, its stock price is perilously close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  <em>Caveat emptor!</em>  (May the buyer beware!)</p>

Back in 2007, foreign investors in aggregate owned around 27% of the stock of Tsukuba Bank (8338 JP) , a small and constantly struggling regional bank from Ibaraki Prefecture: the smallest regional bank operating in the wealthy Kanto Region surrounding Tokyo.  Wisely, after a succession of guidance misses and disappointing financial results from the bank, foreigners have cut that aggregate investment to 14%.  Still not wise enough, some might say: Tsukuba Bank has considerable historic ‘form’ when it comes to failing to deliver on expectations.  FY3/2019 results missed guidance by a country mile, its stock price is perilously close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Caveat emptor!  (May the buyer beware!)

Tsukuba Bank (8338 JP):  Scuba Diving on an Empty Tank

<p>“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play <em>‘Julius Caesar’</em>.  Caesar ignores the warning and is assassinated later that day by his colleagues on the steps of the Senate.  We have been warning investors in Japanese bank stocks for the last few years to “beware the Ides of March”, advising them to be very underweight in the sector (or preferably out of the sector entirely) by 15 March each year to avoid the risk of incurring a similar fate at the hands of their investment colleagues as befell Julius Caesar on 15 March 44BC.  We are now well past the Ides of March and, true to form, the sector has already peaked and lost momentum after a brief <em>post</em>-Santa rally.  ‘<em>Caveat emptor!</em> (May the buyer beware!)’ remains our Caesarean soothsayer warning to would-be investors in Japanese bank stocks in 2019.</p>

“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play ‘Julius Caesar’.  Caesar ignores the warning and is assassinated later that day by his colleagues on the steps of the Senate.  We have been warning investors in Japanese bank stocks for the last few years to “beware the Ides of March”, advising them to be very underweight in the sector (or preferably out of the sector entirely) by 15 March each year to avoid the risk of incurring a similar fate at the hands of their investment colleagues as befell Julius Caesar on 15 March 44BC.  We are now well past the Ides of March and, true to form, the sector has already peaked and lost momentum after a brief post-Santa rally.  ‘Caveat emptor! (May the buyer beware!)’ remains our Caesarean soothsayer warning to would-be investors in Japanese bank stocks in 2019.

Japanese Banks:  Beyond the Ides of March

Japan

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

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Mebuki Financial Group (7167 JP)

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

OOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of...

Campbell Gunn

Tsukuba Bank (8338.JP): Rising Innovation, Falling Momentum: Plus Ça Change...

‘Rising Innovation 2022’ is the latest 3-Year Business Plan for Tsukuba Bank (8338 JP), a small and constantly-struggling regional bank from...

J. Brian Waterhouse

HUGE Nomura Holdings (8604 JP) Buyback

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to...

Travis Lundy

Tsukuba Bank (8338 JP): Scuba Diving on an Empty Tank

Back in 2007, foreign investors in aggregate owned around 27% of the stock of Tsukuba Bank (8338 JP) , a small and constantly struggling regional...

J. Brian Waterhouse

Japanese Banks: Beyond the Ides of March

“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play ‘Julius Caesar’. ...

J. Brian Waterhouse

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