Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

S&P BSE SENSEX Index / Technical Analysis

<ul>
<li>Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.</li>
<li>We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.</li>
<li>We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.</li>
</ul>


Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.
We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.
We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.


Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-electronics-group-co" target="_blank" data-smartkarma-citation="entities:4877:1" rel="noopener">Haier Electronics Group Co (1169 HK)</a> and <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a> and <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>. Shorts increased in Financials and Health Care stocks, and decreased on Consumer Discretionary, Industrials, Communication Services, Information Technology and Real Estate names.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/nippon-building-fund-inc" target="_blank" data-smartkarma-citation="entities:1900:1" rel="noopener">Nippon Building Fund (8951 JP)</a>, <a href="https://www.smartkarma.com/entities/mercari-inc" target="_blank" data-smartkarma-citation="entities:27149:1" rel="noopener">Mercari Inc (4385 JP)</a> and <a href="https://www.smartkarma.com/entities/miura-co-ltd" target="_blank" data-smartkarma-citation="entities:20185:1" rel="noopener">Miura Co Ltd (6005 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/fuji-corp-aichi" target="_blank" data-smartkarma-citation="entities:12942:1" rel="noopener">Fuji Machine Mfg (6134 JP)</a>, <a href="https://www.smartkarma.com/entities/casio-computer-co-ltd" target="_blank" data-smartkarma-citation="entities:18338:1" rel="noopener">Casio Computer (6952 JP)</a> and <a href="https://www.smartkarma.com/entities/ricoh-company-ltd" target="_blank" data-smartkarma-citation="entities:15359:1" rel="noopener">Ricoh Company Ltd (7752 JP)</a>. Sectorally, shorts increased on Consumer Discretionary, Real Estate and Financials, while shorts were covered on Consumer Staples.</p></div><div><p>In Korea, the biggest increase in shorts were seen on <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-heavy-industries" target="_blank" data-smartkarma-citation="entities:10155:1" rel="noopener">Hyundai Heavy Industries (009540 KS)</a> and <a href="https://www.smartkarma.com/entities/samsung-sdi-co-ltd" target="_blank" data-smartkarma-citation="entities:503:1" rel="noopener">Samsung SDI (006400 KS)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-chemicals-co-ltd-new" target="_blank" data-smartkarma-citation="entities:26190:1" rel="noopener">Sk Chemicals Co Ltd/New (285130 KS)</a>, <a href="https://www.smartkarma.com/entities/s-oil-corp" target="_blank" data-smartkarma-citation="entities:1667:1" rel="noopener">S Oil Corp (010950 KS)</a> and <a href="https://www.smartkarma.com/entities/hmm-co-ltd" target="_blank" data-smartkarma-citation="entities:13494:1" rel="noopener">HMM Co., Ltd. (011200 KS)</a>. </p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/asustek-computer-inc" target="_blank" data-smartkarma-citation="entities:13002:1" rel="noopener">Asustek Computer (2357 TT)</a>, <a href="https://www.smartkarma.com/entities/wiwynn-corp" target="_blank" data-smartkarma-citation="entities:27838:1" rel="noopener">Wiwynn Corp (6669 TT)</a>, <a href="https://www.smartkarma.com/entities/acer-inc" target="_blank" data-smartkarma-citation="entities:15726:1" rel="noopener">Acer Inc (2353 TT)</a> and <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/unimicron-technology-corp" target="_blank" data-smartkarma-citation="entities:18778:1" rel="noopener">Unimicron Technology (3037 TT)</a>, <a href="https://www.smartkarma.com/entities/century-iron-steel-indus" target="_blank" data-smartkarma-citation="entities:8853:1" rel="noopener">Century Iron &amp; Steel Indus (9958 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a> and <a href="https://www.smartkarma.com/entities/formosa-petrochemical-corp" target="_blank" data-smartkarma-citation="entities:20875:1" rel="noopener">Formosa Petrochemical (6505 TT)</a>. </p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Alibaba Group (9988 HK), Haier Electronics Group Co (1169 HK) and Ping An Healthcare and Technology Company Limited (1833 HK) while there was short covering on Meituan (3690 HK), Tencent Holdings (700 HK), Sunny Optical (2382 HK) and AIA Group Ltd (1299 HK). Shorts increased in Financials and Health Care stocks, and decreased on Consumer Discretionary, Industrials, Communication Services, Information Technology and Real Estate names.In Japan, stocks that saw the most shorts were Itochu Corp (8001 JP), Nippon Building Fund (8951 JP), Mercari Inc (4385 JP) and Miura Co Ltd (6005 JP) while shorts decreased on Toshiba Corp (6502 JP), Fuji Machine Mfg (6134 JP), Casio Computer (6952 JP) and Ricoh Company Ltd (7752 JP). Sectorally, shorts increased on Consumer Discretionary, Real Estate and Financials, while shorts were covered on Consumer Staples.In Korea, the biggest increase in shorts were seen on Hyundai Motor Co (005380 KS), Hyundai Heavy Industries (009540 KS) and Samsung SDI (006400 KS) while shorts were covered on Amorepacific Corp (090430 KS), Sk Chemicals Co Ltd/New (285130 KS), S Oil Corp (010950 KS) and HMM Co., Ltd. (011200 KS). Stocks in Taiwan that saw the highest increase in shorts were Asustek Computer (2357 TT), Wiwynn Corp (6669 TT), Acer Inc (2353 TT) and Largan Precision (3008 TT) while shorts were covered on Unimicron Technology (3037 TT), Century Iron &amp; Steel Indus (9958 TT), Yageo Corporation (2327 TT) and Formosa Petrochemical (6505 TT). 

Asia Short Interest Weekly: Haier, Sunny Optical, Itochu, Mercari, Toshiba, HMM, Asustek, Acer

Event-Driven

<p>The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.</p><p>The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.</p><p>These are the stocks that have been included and excluded from the index.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td colspan="2" style="text-align: center; width: 181pt;"><h3>Inclusions</h3></td>
<td colspan="2" style="text-align: center; width: 197pt;"><h3>Exclusions</h3></td>
</tr>
<tr>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
<td><strong>Name</strong></td>
<td><strong>Code</strong></td>
</tr>
<tr>
<td>1766.T</td>
<td>Token Corp</td>
<td>2124.T</td>
<td>Jac Recruitment Co Ltd</td>
</tr>
<tr>
<td>2222.T</td>
<td>Kotobuki Spirits Co Ltd</td>
<td>2206.T</td>
<td>Ezaki Glico Co Ltd</td>
</tr>
<tr>
<td>2264.T</td>
<td>Morinaga Milk Industry Co Ltd</td>
<td>2432.T</td>
<td>DeNA Co Ltd</td>
</tr>
<tr>
<td>2317.T</td>
<td>Systena Corp</td>
<td>3254.T</td>
<td>Pressance Corp</td>
</tr>
<tr>
<td>2593.T</td>
<td>Ito En Ltd</td>
<td>3668.T</td>
<td>Colopl Inc</td>
</tr>
<tr>
<td>2811.T</td>
<td>Kagome Co Ltd</td>
<td>4246.T</td>
<td>DaikyoNishikawa Corp</td>
</tr>
<tr>
<td>3563.T</td>
<td>Sushiro Global Holdings Ltd</td>
<td>4587.T</td>
<td>PeptiDream Inc</td>
</tr>
<tr>
<td>3635.T</td>
<td>Koei Tecmo Holdings Co Ltd</td>
<td>4681.T</td>
<td>Resorttrust Inc</td>
</tr>
<tr>
<td>4189.T</td>
<td>KH Neochem Co Ltd</td>
<td>4751.T</td>
<td>CyberAgent Inc</td>
</tr>
<tr>
<td>4348.T</td>
<td>Infocom Corp</td>
<td>4902.T</td>
<td>Konica Minolta Inc</td>
</tr>
<tr>
<td>4527.T</td>
<td>Rohto Pharmaceutical Co Ltd</td>
<td>5486.T</td>
<td>Hitachi Metals Ltd</td>
</tr>
<tr>
<td>4686.T</td>
<td>Justsystems Corp</td>
<td>5703.T</td>
<td>Nippon Light Metal Holdings Co Ltd</td>
</tr>
<tr>
<td>4816.T</td>
<td>Toei Animation Co Ltd</td>
<td>5714.T</td>
<td>DOWA Holdings Co Ltd</td>
</tr>
<tr>
<td>4921.T</td>
<td>Fancl Corp</td>
<td>5975.T</td>
<td>Topre Corp</td>
</tr>
<tr>
<td>5105.T</td>
<td>Toyo Tire Corp</td>
<td>6269.T</td>
<td>Modec Inc</td>
</tr>
<tr>
<td>5631.T</td>
<td>Japan Steel Works Ltd</td>
<td>6324.T</td>
<td>Harmonic Drive Systems Inc</td>
</tr>
<tr>
<td>5857.T</td>
<td>Asahi Holdings Inc</td>
<td>6463.T</td>
<td>TPR Co Ltd</td>
</tr>
<tr>
<td>6005.T</td>
<td>Miura Co Ltd</td>
<td>6473.T</td>
<td>Jtekt Corp</td>
</tr>
<tr>
<td>6035.T</td>
<td>IR Japan Holdings Ltd</td>
<td>6641.T</td>
<td>Nissin Electric Co Ltd</td>
</tr>
<tr>
<td>6134.T</td>
<td>Fuji Corp (Aichi)</td>
<td>6755.T</td>
<td>Fujitsu General Ltd</td>
</tr>
<tr>
<td>6465.T</td>
<td>Hoshizaki Corp</td>
<td>6806.T</td>
<td>Hirose Electric Co Ltd</td>
</tr>
<tr>
<td>6532.T</td>
<td>BayCurrent Consulting Inc</td>
<td>7012.T</td>
<td>Kawasaki Heavy Industries Ltd</td>
</tr>
<tr>
<td>6670.T</td>
<td>MCJ Co Ltd</td>
<td>7606.T</td>
<td>United Arrows Ltd</td>
</tr>
<tr>
<td>6753.T</td>
<td>Sharp Corp</td>
<td>7867.T</td>
<td>Tomy Co Ltd</td>
</tr>
<tr>
<td>6754.T</td>
<td>Anritsu Corp</td>
<td>8227.T</td>
<td>Shimamura Co Ltd</td>
</tr>
<tr>
<td>8354.T</td>
<td>Fukuoka Financial Group Inc</td>
<td>8628.T</td>
<td>Matsui Securities Co Ltd</td>
</tr>
<tr>
<td>8572.T</td>
<td>Acom Co Ltd</td>
<td>9404.T</td>
<td>Nippon Television Holdings Inc</td>
</tr>
<tr>
<td>9044.T</td>
<td>Nankai Electric Railway Co Ltd</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9142.T</td>
<td>Kyushu Railway Co</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9504.T</td>
<td>Chugoku Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9509.T</td>
<td>Hokkaido Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9603.T</td>
<td>H.I.S. Co Ltd</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.








Inclusions
Exclusions


Name
Code
Name
Code


1766.T
Token Corp
2124.T
Jac Recruitment Co Ltd


2222.T
Kotobuki Spirits Co Ltd
2206.T
Ezaki Glico Co Ltd


2264.T
Morinaga Milk Industry Co Ltd
2432.T
DeNA Co Ltd


2317.T
Systena Corp
3254.T
Pressance Corp


2593.T
Ito En Ltd
3668.T
Colopl Inc


2811.T
Kagome Co Ltd
4246.T
DaikyoNishikawa Corp


3563.T
Sushiro Global Holdings Ltd
4587.T
PeptiDream Inc


3635.T
Koei Tecmo Holdings Co Ltd
4681.T
Resorttrust Inc


4189.T
KH Neochem Co Ltd
4751.T
CyberAgent Inc


4348.T
Infocom Corp
4902.T
Konica Minolta Inc


4527.T
Rohto Pharmaceutical Co Ltd
5486.T
Hitachi Metals Ltd


4686.T
Justsystems Corp
5703.T
Nippon Light Metal Holdings Co Ltd


4816.T
Toei Animation Co Ltd
5714.T
DOWA Holdings Co Ltd


4921.T
Fancl Corp
5975.T
Topre Corp


5105.T
Toyo Tire Corp
6269.T
Modec Inc


5631.T
Japan Steel Works Ltd
6324.T
Harmonic Drive Systems Inc


5857.T
Asahi Holdings Inc
6463.T
TPR Co Ltd


6005.T
Miura Co Ltd
6473.T
Jtekt Corp


6035.T
IR Japan Holdings Ltd
6641.T
Nissin Electric Co Ltd


6134.T
Fuji Corp (Aichi)
6755.T
Fujitsu General Ltd


6465.T
Hoshizaki Corp
6806.T
Hirose Electric Co Ltd


6532.T
BayCurrent Consulting Inc
7012.T
Kawasaki Heavy Industries Ltd


6670.T
MCJ Co Ltd
7606.T
United Arrows Ltd


6753.T
Sharp Corp
7867.T
Tomy Co Ltd


6754.T
Anritsu Corp
8227.T
Shimamura Co Ltd


8354.T
Fukuoka Financial Group Inc
8628.T
Matsui Securities Co Ltd


8572.T
Acom Co Ltd
9404.T
Nippon Television Holdings Inc


9044.T
Nankai Electric Railway Co Ltd




9142.T
Kyushu Railway Co




9504.T
Chugoku Electric Power Co Inc




9509.T
Hokkaido Electric Power Co Inc




9603.T
H.I.S. Co Ltd






JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

<p>Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.</p>

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/496/original/2020-06-30_14-16-44.png?1593494217" class="editor-image img-responsive" data-smartkarma-image-id="143496"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<p><strong>THE CASH CONVERSION CYCLE</strong> - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.</p>
<p><strong>Net Working Capital Days</strong> varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-</p>
<ul>
<li>
<strong>+ Receivables/Revenue </strong>- the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.</li>
<li>
<strong>+ Inventory/Cost of Goods Sold -</strong> the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.</li>
<li>- <strong>Payables/Cost of Goods Sold -</strong>the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.</li>
</ul>
<p>The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/529/original/2020-06-30_15-09-41.png?1593497395" class="editor-image img-responsive" data-smartkarma-image-id="143529"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/530/original/2020-06-30_15-10-32.png?1593497471" class="editor-image img-responsive" data-smartkarma-image-id="143530"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<div class="content-caption"></div>
<p><strong>NET WORKING CAPITAL DAYS AS A STRESS TEST</strong> - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, or ignored - <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a> since 2018. (For more on SMC working capital issues, please see my colleague <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s Insight of last year - <a href="https://www.smartkarma.com/insights/smc-6273-jp-getting-in-line-with-reality" target="_blank" data-smartkarma-citation="insights:30081" rel="noopener">SMC (6273 JP): Getting in Line with Reality</a>).   </p>
<p>For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the<strong> DETAIL</strong> section below, we shall cover the outliers at both ends of <strong>Receivables Days</strong>, <strong>Inventory Days</strong>, <strong>Payables Days</strong>, and finally <strong>Net Working Capital Days</strong>.</p>


Source • Japan Analytics
THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.
Net Working Capital Days varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-


+ Receivables/Revenue - the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.

+ Inventory/Cost of Goods Sold - the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.
- Payables/Cost of Goods Sold -the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.

The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.


Source • Japan Analytics

NET WORKING CAPITAL DAYS AS A STRESS TEST - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  Nikon (7731 JP), or ignored - SMC (6273 JP) since 2018. (For more on SMC working capital issues, please see my colleague Scott Foster's Insight of last year - SMC (6273 JP): Getting in Line with Reality).   
For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the DETAIL section below, we shall cover the outliers at both ends of Receivables Days, Inventory Days, Payables Days, and finally Net Working Capital Days.

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

Japan

MIURA CO., LTD. manufactures, inspects, and maintains industrial boilers and related equipment.  The Company offers a variety of boilers including steam, hot water, marine, and waste heat recycling types.  Miura also produces non-boiler products such as pumps, refrigerators, ice makers, sterilizers, and water treatment systems.

Miura Co Ltd (6005 JP)

Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

Seeing broad-based improvement in India #SENSEX -- overweight/add exposure. We still recommend a tactical overweight to ACWI defensives with $ACWI...

Vermilion Research

Asia Short Interest Weekly: Haier, Sunny Optical, Itochu, Mercari, Toshiba, HMM, Asustek, Acer

This Insight looks at short interest movements in stocks across Asian markets and highlights stocks that have seen large increase/ decrease in...

Brian Freitas

JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

There are 32 inclusions and 27 exclusions from the JPX Nikkei 400. The changes will be effective after the close of trading on 27 November and the...

Brian Freitas

Global Equity Strategy:

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This...

Vermilion Research

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to...

Campbell Gunn