Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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.

Equity Bottom-Up

<p>In the month since we last wrote on MonotaRO (<a href="https://www.smartkarma.com/insights/monotaro-3064-jp-covid-19-drives-growth-efficiency-supports-margins" target="_blank" data-smartkarma-citation="insights:43371" rel="noopener">MonotaRO (3064 JP): COVID-19 Drives Growth, Efficiency Supports Margins)</a>, the share price has risen by 25%. This reflects significant increases in monthly sales and new customer acquisitions.</p><p>However, investors should note that the surge in new customer acquisitions triggered by the outbreak of COVID-19 is fading. </p><p>And parent company sales growth in the nine months from January to September was in line with, not better than,  management's consolidated sales guidance for FY Dec-20 as a whole. </p><p>The company has considerable long-term growth potential, in our estimation, but at more than 100x our EPS estimate for 2020, the shares now look overvalued. </p>

In the month since we last wrote on MonotaRO (MonotaRO (3064 JP): COVID-19 Drives Growth, Efficiency Supports Margins), the share price has risen by 25%. This reflects significant increases in monthly sales and new customer acquisitions.However, investors should note that the surge in new customer acquisitions triggered by the outbreak of COVID-19 is fading. And parent company sales growth in the nine months from January to September was in line with, not better than,  management's consolidated sales guidance for FY Dec-20 as a whole. The company has considerable long-term growth potential, in our estimation, but at more than 100x our EPS estimate for 2020, the shares now look overvalued. 

MonotaRO (3064 JP): Pandemic-Driven Growth Surge Fading

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<p>In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut dividend. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 150+ and 20+ companies, respectively, that have a high likelihood of raising/cutting dividends, over the next five years.</p>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<ul>
<li>We have two separate models, one for forecasting Dividend Raise and the other for Dividend Cut.</li>
<li>Our back test results are very encouraging with &gt;90% hit rate for our Dividend Raise model and 100% hit rate for our Dividend Cut model.</li>
<li>For our Dividend Raise model, we apply a combination of eight stringent parameters and use last 7Y historical data to find companies that have consistently performed strong, lending our model a high hit rate.</li>
<li>For our Dividend Cut model, we differentiate from other models by focusing on companies that have had high dividend payout ratio (&gt;50%) over last 3Y. This criterion helps us in identifying companies where there is limited scope for dividend growth through increase in dividend payouts. In our observation, such companies are most vulnerable to cut dividend when faced with weakening fundamentals or deteriorating balance sheet.</li>
</ul>
</div>
<h3>Insight Flow</h3>
<ul>
<li>Live Dashboard</li>
<li> Methodology
<ul>
<li>Philosophy</li>
<li>Dividend Raise Model</li>
<li>Dividend Cut Model</li>
</ul>
</li>
<li>Universe</li>
<li>Back Test Results
<ul>
<li>Dividend Raise Model</li>
<li>Dividend Cut Model</li>
</ul>
</li>
<li>Model Results
<ul>
<li>Companies with High Probability of Dividend Raise</li>
<li>Companies with High Probability of Dividend Cut</li>
</ul>
</li>
<li>Model Risks &amp; Limitations</li>
<li>Conclusion</li>
</ul>

In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut dividend. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 150+ and 20+ companies, respectively, that have a high likelihood of raising/cutting dividends, over the next five years.

What's Original?

We have two separate models, one for forecasting Dividend Raise and the other for Dividend Cut.
Our back test results are very encouraging with &gt;90% hit rate for our Dividend Raise model and 100% hit rate for our Dividend Cut model.
For our Dividend Raise model, we apply a combination of eight stringent parameters and use last 7Y historical data to find companies that have consistently performed strong, lending our model a high hit rate.
For our Dividend Cut model, we differentiate from other models by focusing on companies that have had high dividend payout ratio (&gt;50%) over last 3Y. This criterion helps us in identifying companies where there is limited scope for dividend growth through increase in dividend payouts. In our observation, such companies are most vulnerable to cut dividend when faced with weakening fundamentals or deteriorating balance sheet.


Insight Flow

Live Dashboard
 Methodology

Philosophy
Dividend Raise Model
Dividend Cut Model


Universe
Back Test Results

Dividend Raise Model
Dividend Cut Model


Model Results

Companies with High Probability of Dividend Raise
Companies with High Probability of Dividend Cut


Model Risks &amp; Limitations
Conclusion


Asia Dividend Forecasting | The Rise and Fall of Dividends Across Asian Companies

<p>A huge increase in the number of small accounts brought about by COVID-19 is keeping sales growth close to 20% without undermining profit margins. </p><p><span>MonotaRO should meet or exceed FY Dec-20 sales and profit guidance and is well prepared for another 2-3 years of expansion, in our estimation.</span></p><p>Projected valuations look high, but should come down fast on a three-year view and are well within historical ranges.</p><p>We are only five minutes drive from home centre Komeri (8218 JP) and 15 minutes from Cainz Home (privately owned)  [see <a href="https://www.smartkarma.com/insights/japan-retail-review-2019-20-part-ii-a-sector-by-sector-review-of-winners-and-losers" target="_blank" data-smartkarma-citation="insights:43351" rel="noopener">Japan Retail Review 2019-20 Part II: A Sector by Sector Review of Winners and Losers</a> by Michael Causton]. If we were further away or didn't have a car, we would use MonotaRO.</p><section><div id="ember6142"><p></p></div></section>

A huge increase in the number of small accounts brought about by COVID-19 is keeping sales growth close to 20% without undermining profit margins. MonotaRO should meet or exceed FY Dec-20 sales and profit guidance and is well prepared for another 2-3 years of expansion, in our estimation.Projected valuations look high, but should come down fast on a three-year view and are well within historical ranges.We are only five minutes drive from home centre Komeri (8218 JP) and 15 minutes from Cainz Home (privately owned)  [see Japan Retail Review 2019-20 Part II: A Sector by Sector Review of Winners and Losers by Michael Causton]. If we were further away or didn't have a car, we would use MonotaRO.

MonotaRO (3064 JP): COVID-19 Drives Growth, Efficiency Supports Margins

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Thematic (Sector/Industry)

<ul>
<li>The Japanese SME segment is filled with its unique structural challenges, which provides opportunities for "pick and shovel" suppliers;</li>
<li>Many of these SME backers (including oRo, which we covered previously) have generated tremendous shareholder value in the past and may continue to do so while addressing clients' key pain points alongside multiple long-term tailwinds.</li>
</ul>


The Japanese SME segment is filled with its unique structural challenges, which provides opportunities for "pick and shovel" suppliers;
Many of these SME backers (including oRo, which we covered previously) have generated tremendous shareholder value in the past and may continue to do so while addressing clients' key pain points alongside multiple long-term tailwinds.


'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/693/original/2020-09-14_09-50-37.png?1600044664" class="editor-image img-responsive" data-smartkarma-image-id="158693"></figure><div class="content-caption">Source for all charts &amp; tables except as stated: Japan Analytics</div><p><strong>EQUITY-DRIVEN</strong> - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/694/original/File%202020-09-14%2010%2007%2037.jpeg?1600045681" class="editor-image img-responsive" data-smartkarma-image-id="158694"></figure><div class="content-caption">Source: multpl.com</div><p><strong>BOOK VALUE PER SHARE </strong>- In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a> which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as <a href="https://www.smartkarma.com/entities/sosei-group-corp" target="_blank" data-smartkarma-citation="entities:770:1" rel="noopener">Sosei (4565 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/696/original/2020-09-14_10-26-48.png?1600046818" class="editor-image img-responsive" data-smartkarma-image-id="158696"></figure><p><strong>WINNERS</strong> - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">Monotaro (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, and <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>. Some of the more surprising entries are <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/697/original/2020-09-14_10-33-13.png?1600047204" class="editor-image img-responsive" data-smartkarma-image-id="158697"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/698/original/2020-09-14_10-33-41.png?1600047231" class="editor-image img-responsive" data-smartkarma-image-id="158698"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/701/original/2020-09-14_10-47-56.png?1600048087" class="editor-image img-responsive" data-smartkarma-image-id="158701"></figure><p><strong>LOSERS</strong> - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a>, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a>, and <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon (8267 JP)</a>).  Also among the latter are two medical-related business - the now remained <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca) and recent Bain PE target <a href="https://www.smartkarma.com/entities/nichii-gakkan-co" target="_blank" data-smartkarma-citation="entities:6790:1" rel="noopener">Nichii Gakkan (9792 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/706/original/2020-09-14_10-57-45.png?1600048692" class="editor-image img-responsive" data-smartkarma-image-id="158706"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/707/original/2020-09-14_10-59-22.png?1600048774" class="editor-image img-responsive" data-smartkarma-image-id="158707"></figure><p>In the <strong>DETAIL</strong> section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.</p>

Source for all charts &amp; tables except as stated: Japan AnalyticsEQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.Source: multpl.comBOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as NTT (9432 JP) which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as Sosei (4565 JP).WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as Monotaro (3064 JP), M3 (2413 JP), GMO Payment Gateway (3769 JP), and Kobe Bussan (3038 JP). Some of the more surprising entries are mixi (2121 JP) and Tokyo Electric Power (9501 JP).  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (Toshiba (6502 JP), Nissan (7201 JP), Kirin (2503 JP), Lixil (5938 JP), and Aeon (8267 JP)).  Also among the latter are two medical-related business - the now remained H.U. Group (4544 JP) (formerly Miraca) and recent Bain PE target Nichii Gakkan (9792 JP).In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

Japan

MonotaRO Co., Ltd. mainly sells machine tools, engine parts, and factory consumable goods on the web site.

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MonotaRO Co Ltd (3064 JP)

MonotaRO (3064 JP): Pandemic-Driven Growth Surge Fading

Share price up 25% in a month, discounting COVID-driven growth surge. That surge, as measured by new customer acquisitions, is fading.

Scott Foster

Asia Dividend Forecasting | The Rise and Fall of Dividends Across Asian Companies

Methodology Back Test Results Companied

Ankit Agrawal, CFA

MonotaRO (3064 JP): COVID-19 Drives Growth, Efficiency Supports Margins

x MonotaRO is the only pure-play e-commerce MRO (Maintenance, Repair and Operation) investment in the Japanese stock market. With over 10,000...

Scott Foster

Top Picks: Two More Japanese SME Backers

The Japanese SME segment is filled with its unique structural challenges, which provides opportunities for "pick and shovel" suppliers.

Steven Chen

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

MonotaRO (3064 JP): Pandemic-Driven Growth Surge Fading

Share price up 25% in a month, discounting COVID-driven growth surge. That surge, as measured by new customer acquisitions, is fading.

Scott Foster

Asia Dividend Forecasting | The Rise and Fall of Dividends Across Asian Companies

Methodology Back Test Results Companied

Ankit Agrawal, CFA

MonotaRO (3064 JP): COVID-19 Drives Growth, Efficiency Supports Margins

x MonotaRO is the only pure-play e-commerce MRO (Maintenance, Repair and Operation) investment in the Japanese stock market. With over 10,000...

Scott Foster

Top Picks: Two More Japanese SME Backers

The Japanese SME segment is filled with its unique structural challenges, which provides opportunities for "pick and shovel" suppliers.

Steven Chen

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

EQUITY-DRIVEN - Japans

Campbell Gunn