Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, 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

<ul>
<li>CEO Jensen Huang's keynote address at Nvidia's GTC event on March 18 was a reminder that generative AI is about building secure and reliable systems, not chatting up the future.</li>
<li>NEC has spent three years developing its own AI supercomputer, creating the best performing Japanese-language large language model (LLM), and testing new AI products in-house before delivering them to clients.</li>
<li>The introduction of generative AI and LLMs into business- and industry-specific solutions should provide meaningful additions to NEC’s telecom services, social infrastructure, aerospace and national security related businesses. </li>
</ul>


CEO Jensen Huang's keynote address at Nvidia's GTC event on March 18 was a reminder that generative AI is about building secure and reliable systems, not chatting up the future.
NEC has spent three years developing its own AI supercomputer, creating the best performing Japanese-language large language model (LLM), and testing new AI products in-house before delivering them to clients.
The introduction of generative AI and LLMs into business- and industry-specific solutions should provide meaningful additions to NEC’s telecom services, social infrastructure, aerospace and national security related businesses. 


<ul>
<li>The P/E ratio has risen above 20x this fiscal year from no more than 13x in the previous four years, reflecting successful restructuring and investor enthusiasm for AI. </li>
<li>Profit margins are rising, but remain moderate in absolute terms with room for further improvement. The shares may consolidate, but they do not look overvalued.</li>
<li>Management is aiming for generative AI sales of ¥50 billion in three years time. This is less than 2% of total sales, but a positive indicator for NEC's software business.</li>
</ul>


The P/E ratio has risen above 20x this fiscal year from no more than 13x in the previous four years, reflecting successful restructuring and investor enthusiasm for AI. 
Profit margins are rising, but remain moderate in absolute terms with room for further improvement. The shares may consolidate, but they do not look overvalued.
Management is aiming for generative AI sales of ¥50 billion in three years time. This is less than 2% of total sales, but a positive indicator for NEC's software business.


NEC (6701 JP): Generative AI Is the Spark, Not the Driver

Japan Specialist

Mark Chadwick

<ul>
<li>NEC's buyback announcement sends a clear message that the MTP is on track and management feel the stock is undervalued</li>
<li>The recent IR DAY increased our conviction in the financial model. We were impressed with the improving pipeline of Open RAN customers</li>
<li>The stock is significantly undervalued, trading below book value, with improving ROE</li>
</ul>


NEC's buyback announcement sends a clear message that the MTP is on track and management feel the stock is undervalued
The recent IR DAY increased our conviction in the financial model. We were impressed with the improving pipeline of Open RAN customers
The stock is significantly undervalued, trading below book value, with improving ROE


<ul>
<li>NEC' is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.</li>
<li>Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. </li>
<li>Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.</li>
</ul>


NEC' is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.
Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. 
Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.


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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>The review period for the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY</a> family of indices, <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225</a>, <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">STAR50</a>, the KRX New Deal Index and a global index ends on 31 January.</li>
<li>The January rebalance of the IDX30 and LQ45 indices will be implemented at the close of trading on 31 January.</li>
<li>There have been huge inflows into the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-inde" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">CSI 300 Index</a> ETFs for another week. This will increase the impact on the index changes at the next rebalance.</li>
</ul>


The review period for the NIFTY family of indices, Nikkei 225, STAR50, the KRX New Deal Index and a global index ends on 31 January.
The January rebalance of the IDX30 and LQ45 indices will be implemented at the close of trading on 31 January.
There have been huge inflows into the CSI 300 Index ETFs for another week. This will increase the impact on the index changes at the next rebalance.


Index Rebalance & ETF Flow Recap: CSI300, CSI500, SSE50, ChiNext, KOSPI200, Renesas, IDX30/LQ45

Japan

NEC Corporation manufactures and markets computers, telecommunication equipment, electronic devices, semiconductors, and software.  The Company's products include printers, modems, cellular phones, plasma display panels (PDP), network systems, memory, integrated circuits (IC), thin film transistor-liquid crystal display (TFT-LCD), and printed circuit boards (PCB). NEC operates worldwide.

NEC Corp (6701 JP)

NEC (6701 JP): Generative AI (Part 2)

NEC's AI supercomputer, Japanese large-language models and reliable generative AI based services should make significant long-term contributions to...

Scott Foster

NEC (6701 JP): Generative AI Is the Spark, Not the Driver

The shares are up 2.2X in the past year, but do not look overvalued. AI has sparked investor interest, but efficiency gains are driving profits....

Scott Foster

NEC (6701) | Even Higher Conviction

NEC offers a unique combination of a discounted valuation today with a clear structural growth story across the thematic areas of DX and 5G. Recent...

Mark Chadwick

NEC (6701 JP): Enough for Now

NEC's share price is up almost 90% since January, but sales and profit growth has declined. Valuations look reasonable. Take profit and wait to see...

Scott Foster

Index Rebalance & ETF Flow Recap: CSI300, CSI500, SSE50, ChiNext, KOSPI200, Renesas, IDX30/LQ45

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas