'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/342/original/2020-03-11_11-02-32.png?1583892183" class="editor-image img-responsive" data-smartkarma-image-id="122342"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/590/original/2020-03-12_07-42-03.png?1583966536" class="editor-image img-responsive" data-smartkarma-image-id="122590"></figure><div class="content-caption">Source • Japan Analytics</div>CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-<ul>
<li>
Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.</li>
<li>
Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.</li>
<li>
Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. </li>
<li>
Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.</li>
<li>
Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.</li>
<li>Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. </li>
</ul>EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - <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/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 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> which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP).</a><a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.<div class="content-highlight">In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. </div>

Source • Japan AnalyticsCUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-

Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.

Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.

Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. 

Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.

Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.
Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. 
EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - Z Holdings (4689 JP), Rakuten (4755 JP), Sony (6758 JP), Japan Post (6178 JP) which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in Japan Display (6740 JP).Toshiba (6502 JP)-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. 

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Equity Bottom-Up

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/114/303/original/BANNER-CARGO-FINAL.png?1579444685" class="editor-image img-responsive" data-smartkarma-image-id="114303"></figure>In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

* Our Q3-2019 Small-Mid Cap High-Risk list of stocks ( <a href="https://www.smartkarma.com/insights/screening-the-silkroad-small-mid-cap-high-risk-names-to-avoid-q3-2019" target="_blank" data-smartkarma-citation="insights:31999" rel="noopener">Screening the Silkroad: Small-Mid Cap High-Risk Names to Avoid: Q3 2019 ) </a> produced a market cap average price return of 5%. In comparison, the MSCI Asia Pacific Index posted 8.5% over the same period. The stock rank quality of the Q3 2019 list declined 5.1 points or 6.6% for the period.  * 16-stocks appear in our Q4 2019 screen, compared to 14, 19 and 26 in Q3, Q2 and Q1 respectively. The average stock rank has decreased marginally to 74.9 points from the 76.9 points in August 2019. The fact that the screen presents with a high stock rank remains a concern. In our view, this reflects the increased level of risk in the market which is being seen in other metrics as well. * Deteriorating credit metrics support our view that the level of risk appears is increasing within the small-mid cap universe.

* Our Q3-2019 Small-Mid Cap High-Risk list of stocks ( Screening the Silkroad: Small-Mid Cap High-Risk Names to Avoid: Q3 2019 )  produced a market cap average price return of 5%. In comparison, the MSCI Asia Pacific Index posted 8.5% over the same period. The stock rank quality of the Q3 2019 list declined 5.1 points or 6.6% for the period.  * 16-stocks appear in our Q4 2019 screen, compared to 14, 19 and 26 in Q3, Q2 and Q1 respectively. The average stock rank has decreased marginally to 74.9 points from the 76.9 points in August 2019. The fact that the screen presents with a high stock rank remains a concern. In our view, this reflects the increased level of risk in the market which is being seen in other metrics as well. * Deteriorating credit metrics support our view that the level of risk appears is increasing within the small-mid cap universe. 

Screening the Silk Road: Small-Mid Cap High Risk Names to Avoid: Q4 2019

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/966/original/BANNER-CARGO-FINAL.png?1547912608" class="editor-image img-responsive" data-smartkarma-image-id="75966"></figure>Tracking Traffic/Containers &amp; Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.In this issue readers will find:<div><ol>
<li>An analysis of December container shipping rates: Our proprietary index suggests average container shipping rates firmed again in December. Firmer rates in Q418, combined with a moderation in fuel prices, probably lifted carrier margins in the period, and this improvement is likely to spill over into Q119.</li>
<li>A look at December air cargo activity, which slumped, again: The five Asia-based airlines we track reported a ~2% Y/Y decline in air cargo handled. After growing by a healthy +6.3% Y/Y in H118, air cargo demand at these five carriers has shown a consistent monthly decline, growing by just 1% in Q418 and shrinking slightly in November and December.</li>
<li>
For container carriers and airlines, fuel price increases have continued to moderate. As of mid-January, the price of bunker fuel was up just 4% Y/Y, and the price of jet fuel had declined by around 7%. Throughout much of 2018, fuel prices had risen 20-40% Y/Y, or more. </li>
<li>
Japanese carriers' December quarter earnings on the horizon: We will soon find out whether improving conditions in container shipping showed up in the carriers' P&amp;Ls, as the three major Japanese shipping companies are set to report December quarter results at the break on January 31. </li>
</ol></div>Although slowing demand growth is unlikely to generate impressive top-line improvements, firmer pricing combined with lower fuel costs should support an ongoing improvement in profitability for container carriers in the near-term. Meanwhile, the slump in air cargo demand has not yet hit air cargo yields, but it's becoming clearer that an economic slowdown is hurting demand for this relatively expensive mode of transport.

Tracking Traffic/Containers &amp; Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.In this issue readers will find:
An analysis of December container shipping rates: Our proprietary index suggests average container shipping rates firmed again in December. Firmer rates in Q418, combined with a moderation in fuel prices, probably lifted carrier margins in the period, and this improvement is likely to spill over into Q119.
A look at December air cargo activity, which slumped, again: The five Asia-based airlines we track reported a ~2% Y/Y decline in air cargo handled. After growing by a healthy +6.3% Y/Y in H118, air cargo demand at these five carriers has shown a consistent monthly decline, growing by just 1% in Q418 and shrinking slightly in November and December.

For container carriers and airlines, fuel price increases have continued to moderate. As of mid-January, the price of bunker fuel was up just 4% Y/Y, and the price of jet fuel had declined by around 7%. Throughout much of 2018, fuel prices had risen 20-40% Y/Y, or more. 

Japanese carriers' December quarter earnings on the horizon: We will soon find out whether improving conditions in container shipping showed up in the carriers' P&amp;Ls, as the three major Japanese shipping companies are set to report December quarter results at the break on January 31. 
Although slowing demand growth is unlikely to generate impressive top-line improvements, firmer pricing combined with lower fuel costs should support an ongoing improvement in profitability for container carriers in the near-term. Meanwhile, the slump in air cargo demand has not yet hit air cargo yields, but it's becoming clearer that an economic slowdown is hurting demand for this relatively expensive mode of transport.

TRACKING TRAFFIC/Containers & Air Cargo: December Box Rates & Volume Firm | Air Cargo Weak, Again

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/066/811/original/BANNER-CARGO-FINAL.png?1539638635" class="editor-image img-responsive" data-smartkarma-image-id="66811"></figure>Tracking Traffic/Containers &amp; Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo highlights changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.In this issue readers will find:<div><ol>
<li>An analysis of September container shipping rates, which climbed by +6% Y/Y on better Transpacific demand. In our view, average container rates may have bottomed already. September's increase is the first substantial rise in average rates in almost a year, and was probably sufficient to offset rising fuel prices.</li>
<li>A look at September air cargo activity and pricing for listed airlines in the region. Although demand growth so far in 2018 has been mediocre at best, air cargo pricing has been firm, and that trend continued in September. However, demand growth declined to just +2% last month, which is disappointing, in our view.</li>
</ol></div>

Tracking Traffic/Containers &amp; Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. Tracking Traffic/Containers &amp; Air Cargo highlights changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month's note includes data from about twenty different sources.In this issue readers will find:
An analysis of September container shipping rates, which climbed by +6% Y/Y on better Transpacific demand. In our view, average container rates may have bottomed already. September's increase is the first substantial rise in average rates in almost a year, and was probably sufficient to offset rising fuel prices.
A look at September air cargo activity and pricing for listed airlines in the region. Although demand growth so far in 2018 has been mediocre at best, air cargo pricing has been firm, and that trend continued in September. However, demand growth declined to just +2% last month, which is disappointing, in our view.


TRACKING TRAFFIC/Containers & Air Cargo: September Box Rates Pop | Air Freight Volume Stagnates

Japan

Mitsui O.S.K. Lines, Ltd. provides marine transportation, warehousing, and cargo handling services.  The Company operates container ship, specialized carrier, oil tankers, and ferry.  Items transported include coal, iron ore, grain, logs, aluminum, cement, industrial salt, copper ore, wood chips, paper products, chemical products, gasoline and other petroleum products, LPG, and other cargoes.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Mitsui O.S.K. Lines (9104 JP)

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds, ...

Campbell Gunn

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019...

Daniel Hellberg

Screening the Silk Road: Small-Mid Cap High Risk Names to Avoid: Q4 2019

* Our Q3-2019 Small-Mid Cap High-Risk list of stocks ( Screening the Silkroad: Small-Mid Cap High-Risk Names to Avoid: Q3 2019 ) produced a market...

David Lepper

TRACKING TRAFFIC/Containers & Air Cargo: December Box Rates & Volume Firm | Air Cargo Weak, Again

Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of...

Daniel Hellberg

TRACKING TRAFFIC/Containers & Air Cargo: September Box Rates Pop | Air Freight Volume Stagnates

Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of...

Daniel Hellberg

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)