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.

Equity Bottom-Up

We visited <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> ​last week to discuss their overseas strategy and Money Services Business in more depth. We came away with a better understanding of the depth and solidity of the company's long-term growth trajectory and a better appreciation of quality of the company's strategy and forward planning. While we previously noted that we did not believe GMO PG was a short, with a correction to the stock price and stronger confidence in the long-term prospects for the company we view current levels as an attractive entry point for long-term investors. Details below.

We visited GMO Payment Gateway (3769 JP) ​last week to discuss their overseas strategy and Money Services Business in more depth. We came away with a better understanding of the depth and solidity of the company's long-term growth trajectory and a better appreciation of quality of the company's strategy and forward planning. While we previously noted that we did not believe GMO PG was a short, with a correction to the stock price and stronger confidence in the long-term prospects for the company we view current levels as an attractive entry point for long-term investors. Details below.

GMO Payment Gateway: Overseas, ST Lending and B2B Lay the Groundwork for Growth Far Into Future

We visited <a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">Gmo Payment Gateway (3769 JP)</a> a couple of times over the last few weeks to discuss their business model and future prospects. The company's position as an "arms-dealer" in the payment wars gives it leverage into a very rapidly growing space while also making the company an almost guaranteed winner. It is thus understandable that it would trade at a premium multiple.The question ultimately is whether 118x FY09/19 PE is too much of a premium. Below, we discuss the company's business model and provide comparisons with the valuations of other consistently rapid growing stocks in Japan.

We visited Gmo Payment Gateway (3769 JP) a couple of times over the last few weeks to discuss their business model and future prospects. The company's position as an "arms-dealer" in the payment wars gives it leverage into a very rapidly growing space while also making the company an almost guaranteed winner. It is thus understandable that it would trade at a premium multiple.The question ultimately is whether 118x FY09/19 PE is too much of a premium. Below, we discuss the company's business model and provide comparisons with the valuations of other consistently rapid growing stocks in Japan.

GMO Payment Gateway: As Expensive as It Is, This Is Not a Short

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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. 

MonotaRO's domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April. Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier. At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.

MonotaRO's domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April. Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier. At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.

MonotaRO (3064 JP): Slow March, Strong 1Q

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

- MARKET COMPOSITE -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/944/original/2019-03-24_06-29-24.png?1553376576" class="editor-image img-responsive" data-smartkarma-image-id="82944"></figure><div class="content-caption">Source: Japan Analytics</div>FIVE-MONTH HIGH - This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on 26th February at ¥659t. The market-value-based percentage above moving averages reached a five-month on Friday. However, the three-month change in that percentage is suggesting that a new bear phase will now commence.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/945/original/2019-03-24_06-37-53.png?1553377087" class="editor-image img-responsive" data-smartkarma-image-id="82945"></figure><div class="content-caption">Source: Japan Analytics</div>SELL SIGNAL - The three-month change in the market-value-based percentage above moving averages reached 38 on Friday. Although this indicator is not always reliable as a long-term indicator, it has been helpful over shorter periods and has called the most recent peak in October and December's trough.  We now expect at least a decline in the market composite to below ¥600t and, if economic conditions continue to weaken, a re-test of the December low. <hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/947/original/2019-03-24_07-15-15.png?1553379324" class="editor-image img-responsive" data-smartkarma-image-id="82947"></figure><div style="text-align: left;" class="content-caption">
NB: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>SECTOR BREAKDOWN - The top six sectors remain mostly domestic and defensive. REITs,Restaurants, Healthcare, Transportation, and Utilities continue from our previous review with Other Commercial Products replacing Information Technology. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, Retail, and Metals remain from two weeks ago, with Energy replacing Construction. With the Yen having broken the ¥110 level against the US dollar on Friday, we would expect the Autos, Machinery, Electrical Equipment, Technology Hardware, and Chemicals sectors to weaken further as indicated by their Negative Crossover percentages. <hr>- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. <div class="content-highlight">
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, <a href="https://www.smartkarma.com/entities/2709" target="_blank" data-smartkarma-citation="entities:2709:1">AnGes (4563 JP)</a> is still the most extreme large cap positive outlier and gained a further 8% over the fortnight. We recommend taking short-term profits.
In the same sector <a href="https://www.smartkarma.com/entities/21001" target="_blank" data-smartkarma-citation="entities:21001:1">Eisai (4523 JP)</a> is the most extreme negative outlier after falling by 16.6% on Friday on the discontinuation of the clinical phase 3 trials of Biogen's Alzheimer's treatment Aducanumab as the primary endpoint is unlikely to be reached. Now at an eight-month Relative Price Score low, a short-term recovery to above ¥8,000 is likely.

</div><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/959/original/2019-03-24_08-46-23.png?1553385811" class="editor-image img-responsive" data-smartkarma-image-id="82959"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/963/original/2019-03-24_10-37-51.png?1553391481" class="editor-image img-responsive" data-smartkarma-image-id="82963"></figure>Source: Japan Analytics
</div>

- MARKET COMPOSITE -Source: Japan AnalyticsFIVE-MONTH HIGH - This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on 26th February at ¥659t. The market-value-based percentage above moving averages reached a five-month on Friday. However, the three-month change in that percentage is suggesting that a new bear phase will now commence.Source: Japan AnalyticsSELL SIGNAL - The three-month change in the market-value-based percentage above moving averages reached 38 on Friday. Although this indicator is not always reliable as a long-term indicator, it has been helpful over shorter periods and has called the most recent peak in October and December's trough.  We now expect at least a decline in the market composite to below ¥600t and, if economic conditions continue to weaken, a re-test of the December low. - SECTORS - 
NB: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.SECTOR BREAKDOWN - The top six sectors remain mostly domestic and defensive. REITs,Restaurants, Healthcare, Transportation, and Utilities continue from our previous review with Other Commercial Products replacing Information Technology. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, Retail, and Metals remain from two weeks ago, with Energy replacing Construction. With the Yen having broken the ¥110 level against the US dollar on Friday, we would expect the Autos, Machinery, Electrical Equipment, Technology Hardware, and Chemicals sectors to weaken further as indicated by their Negative Crossover percentages. - COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, AnGes (4563 JP) is still the most extreme large cap positive outlier and gained a further 8% over the fortnight. We recommend taking short-term profits.
In the same sector Eisai (4523 JP) is the most extreme negative outlier after falling by 16.6% on Friday on the discontinuation of the clinical phase 3 trials of Biogen's Alzheimer's treatment Aducanumab as the primary endpoint is unlikely to be reached. Now at an eight-month Relative Price Score low, a short-term recovery to above ¥8,000 is likely.


Source: Japan Analytics


🇯🇵 Japan: Moving Average Outliers - Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/728/original/2019-03-02_20-40-55.png?1551526871" class="editor-image img-responsive" data-smartkarma-image-id="80728"></figure>Source: Japan Analytics
</div>LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/722/original/2019-03-02_18-02-59.png?1551517390" class="editor-image img-responsive" data-smartkarma-image-id="80722"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/724/original/2019-03-02_18-07-56.png?1551517689" class="editor-image img-responsive" data-smartkarma-image-id="80724"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/729/original/2019-03-02_20-41-51.png?1551526925" class="editor-image img-responsive" data-smartkarma-image-id="80729"></figure><div class="content-caption">Source: Japan Analytics</div>HOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/10020" target="_blank" data-smartkarma-citation="entities:10020:1">Sakai Moving Service (9039 JP)</a>, <a href="https://www.smartkarma.com/entities/20269" target="_blank" data-smartkarma-citation="entities:20269:1">Sumitomo Chemical (4005 JP)</a>, <a href="https://www.smartkarma.com/entities/8431" target="_blank" data-smartkarma-citation="entities:8431:1">Parco (8251 JP)</a>, <a href="https://www.smartkarma.com/entities/4489" target="_blank" data-smartkarma-citation="entities:4489:1">Chugai Pharmaceutical (4519 JP)</a>, <a href="https://www.smartkarma.com/entities/14674" target="_blank" data-smartkarma-citation="entities:14674:1">Nichias (5393 JP)</a>, <a href="https://www.smartkarma.com/entities/27043" target="_blank" data-smartkarma-citation="entities:27043:1">Raksul (4384 JP)</a>, <a href="https://www.smartkarma.com/entities/10503" target="_blank" data-smartkarma-citation="entities:10503:1">Daito Trust (1878 JP)</a>, and <a href="https://www.smartkarma.com/entities/14502" target="_blank" data-smartkarma-citation="entities:14502:1">Benefit One (2412 JP)</a>.


Source: Japan Analytics
LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  Source: Japan AnalyticsHOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on Sakai Moving Service (9039 JP), Sumitomo Chemical (4005 JP), Parco (8251 JP), Chugai Pharmaceutical (4519 JP), Nichias (5393 JP), Raksul (4384 JP), Daito Trust (1878 JP), and Benefit One (2412 JP).   

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

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)

GMO Payment Gateway: Overseas, ST Lending and B2B Lay the Groundwork for Growth Far Into Future

We visited GMO Payment Gateway (3769 JP) last week to discuss their overseas strategy and Money Services Business in more depth. We came away with...

Mio Kato

GMO Payment Gateway: As Expensive as It Is, This Is Not a Short

We visited Gmo Payment Gateway (3769 JP) a couple of times over the last few weeks to discuss their business model and future prospects. The...

Mio Kato

MonotaRO (3064 JP): Slow March, Strong 1Q

MonotaRO's domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance...

Scott Foster

🇯🇵 Japan: Moving Average Outliers - Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

- MARKET COMPOSITE -FIVE-MONTH HIGH - This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on...

Campbell Gunn

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the...

Campbell Gunn

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52-week Range

Market Cap (USDm)

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GMO Payment Gateway: Overseas, ST Lending and B2B Lay the Groundwork for Growth Far Into Future

We visited GMO Payment Gateway (3769 JP) ​last week to discuss their overseas strategy and Money Services Business in more depth. We came away with...

Mio Kato

GMO Payment Gateway: As Expensive as It Is, This Is Not a Short

We visited Gmo Payment Gateway (3769 JP) a couple of times over the last few weeks to discuss their business model and future prospects. The...

Mio Kato

MonotaRO (3064 JP): Slow March, Strong 1Q

MonotaRO's domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance...

Scott Foster

🇯🇵 Japan: Moving Average Outliers - Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

- MARKET COMPOSITE -FIVE-MONTH HIGH - This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on...

Campbell Gunn

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the...

Campbell Gunn

We visited GMO Payment Gateway (3769 JP) last week to discuss their overseas strategy and Money Services Business in more depth. We came away with...