'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/923/original/2020-02-08_18-15-45.png?1581196263" class="editor-image img-responsive" data-smartkarma-image-id="116923"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/924/original/2020-02-09_06-34-51.png?1581197706" class="editor-image img-responsive" data-smartkarma-image-id="116924"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div><p><strong>OOOPS!</strong> - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>.  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/925/original/2020-02-08_10-48-19.png?1581199859" class="editor-image img-responsive" data-smartkarma-image-id="116925"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>18x EARNINGS</strong> - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/927/original/2020-02-08_10-55-21.png?1581200256" class="editor-image img-responsive" data-smartkarma-image-id="116927"></figure><div class="content-caption">Source • Japan Analytics</div><p style="text-align: left;"><strong>TTM RESULTS</strong> - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/928/original/2020-02-08_10-59-00.png?1581200533" class="editor-image img-responsive" data-smartkarma-image-id="116928"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>FORECASTS</strong> - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. </p>

Source • Japan AnalyticsOOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from Softbank Corp (9434 JP) and Honda Motor (7267 JP).  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. Source • Japan Analytics18x EARNINGS - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.Source • Japan AnalyticsTTM RESULTS - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.Source • Japan AnalyticsFORECASTS - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

<div class="content-highlight"><p style="text-align: center;"><strong>We remain selective in the Asian steel space, as overcapacity issues are here to stay.</strong></p></div><hr><p style="text-align: left;">China's steel industry has long been affected by overcapacity issues. From 2016 to 2017, the Chinese government began to rationalize the steel industry by shutting down 115 million tonnes of steel production capacity. This is in addition to the shutdown of around 120 million-140 million tonnes of off-the-books induction furnace capacity, which produced substandard steel, or <em>ditiaogang</em>, from melting scrap. This tightened the steel market in China, leading to higher steel prices and profitability for the steelmakers. Share prices of our Asian steel coverage nearly doubled from the beginning of 2016 to peak in February 2018. However, in recent months, our Asian steel coverage has declined by around 20% from its peak. This could be partly due to: (1) trade war concerns; and (2) concerns regarding a slowdown in Chinese steel demand going forward, driven by weaker construction end demand. In the long run, we expect overcapacity issues to persist, as new electric arc furnaces are expected to be built concurrent with declining apparent steel demand. We remain selective and prefer companies that focus on highgrade steel products and have a diversified business model.</p><h2><strong>Key Takeaways</strong></h2><ul>
<li>China apparent steel demand is expected to decline by a CAGR of 0.8% from 2017 to 2027, mainly driven by weakness from construction end demand, which is partly mitigated by consumer-oriented end demand as China transitions to a consumer-driven economy from an investment-oriented economy.</li>
<li>Over the next few years, new electric arc furnaces are expected to be built with the growing availability of steel scrap, resulting in ongoing overcapacity in the China steel industry. This new supply, coupled with falling demand, could result in utilization rates declining to 75% in 2027 from 81% in 2017.</li>
<li>We see modest upside in <a href="https://www.smartkarma.com/entities/208" target="_blank" data-smartkarma-citation="entities:208:1">POSCO (005490 KS)</a> and <a href="https://www.smartkarma.com/entities/961" target="_blank" data-smartkarma-citation="entities:961:1">Nippon Steel &amp; Sumitomo Metal (5401 JP)</a>, owing to their focus on high-grade steel products, diversified business models, and prudent capital management, resulting in a more resilient earnings profile.</li>
<li>We think <a href="https://www.smartkarma.com/entities/203" target="_blank" data-smartkarma-citation="entities:203:1">Angang Steel Co Ltd (H) (347 HK)</a> and <a href="https://www.smartkarma.com/entities/962" target="_blank" data-smartkarma-citation="entities:962:1">China Steel (2002 TT)</a> are overvalued, as we expect them to face strong competition from peers in an overcapacity environment due to the commoditized nature of their steel products.</li>
</ul>

We remain selective in the Asian steel space, as overcapacity issues are here to stay.China's steel industry has long been affected by overcapacity issues. From 2016 to 2017, the Chinese government began to rationalize the steel industry by shutting down 115 million tonnes of steel production capacity. This is in addition to the shutdown of around 120 million-140 million tonnes of off-the-books induction furnace capacity, which produced substandard steel, or ditiaogang, from melting scrap. This tightened the steel market in China, leading to higher steel prices and profitability for the steelmakers. Share prices of our Asian steel coverage nearly doubled from the beginning of 2016 to peak in February 2018. However, in recent months, our Asian steel coverage has declined by around 20% from its peak. This could be partly due to: (1) trade war concerns; and (2) concerns regarding a slowdown in Chinese steel demand going forward, driven by weaker construction end demand. In the long run, we expect overcapacity issues to persist, as new electric arc furnaces are expected to be built concurrent with declining apparent steel demand. We remain selective and prefer companies that focus on highgrade steel products and have a diversified business model.Key Takeaways
China apparent steel demand is expected to decline by a CAGR of 0.8% from 2017 to 2027, mainly driven by weakness from construction end demand, which is partly mitigated by consumer-oriented end demand as China transitions to a consumer-driven economy from an investment-oriented economy.
Over the next few years, new electric arc furnaces are expected to be built with the growing availability of steel scrap, resulting in ongoing overcapacity in the China steel industry. This new supply, coupled with falling demand, could result in utilization rates declining to 75% in 2027 from 81% in 2017.
We see modest upside in POSCO (005490 KS) and Nippon Steel &amp; Sumitomo Metal (5401 JP), owing to their focus on high-grade steel products, diversified business models, and prudent capital management, resulting in a more resilient earnings profile.
We think Angang Steel Co Ltd (H) (347 HK) and China Steel (2002 TT) are overvalued, as we expect them to face strong competition from peers in an overcapacity environment due to the commoditized nature of their steel products.


China Steel Industry: Are Overcapacity Issues Resolved?

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

<p>Generally speaking, if Stanley Druckenmiller says something is a bad thing and Donald Trump suggests it is a good thing, or at least is an idea worth considering, there's a tendency to think that it is a suboptimal suggestion (and probably nine times out of ten it is). However, the suggestion that listed companies in the US should move to semi-annual reporting to save money and encourage longer-term investing is worthy of more than a quip that the President should try semi-annual tweeting (not…</p>

Generally speaking, if Stanley Druckenmiller says something is a bad thing and Donald Trump suggests it is a good thing, or at least is an idea worth considering, there's a tendency to think that it is a suboptimal suggestion (and probably nine times out of ten it is). However, the suggestion that listed companies in the US should move to semi-annual reporting to save money and encourage longer-term investing is worthy of more than a quip that the President should try semi-annual tweeting (not…

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

<p>Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the Japan side, which I strongly feel you should check out if you already haven't read yet. But my headline insight of the week from Japan side is <a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a>'s another thought-provoking piece on his Japan Passive theme: <a href="https://www.smartkarma.com/insights/japan-passive-dovish-meeting-boj-to-buy-less-nikkei-225" target="_blank">JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225</a>. As for our Korean insights, we didn't have as many earnings insights as Japan…</p>

Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the Japan side, which I strongly feel you should check out if you already haven't read yet. But my headline insight of the week from Japan side is Travis Lundy's another thought-provoking piece on his Japan Passive theme: JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225. As for our Korean insights, we didn't have as many earnings insights as Japan…

Smartkarma's Week That Was in JP/KR: BOJ Again, JP/KR Earnings! & SK Telecom

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.

<p>Following the previously telegraphed move by the US to begin the process of levying tariffs on a further USD200bn in Chinese goods, markets initially fell (the Nikkei dropped as much as 2.04% at one point) but have since recovered towards the day's highs. This could partly be explained by the 6.73% fall from top to bottom over the last month pricing in these negatives but given the potential brake on the global economy which an all-out trade war would entail, we don't consider that to be a…</p>

Following the previously telegraphed move by the US to begin the process of levying tariffs on a further USD200bn in Chinese goods, markets initially fell (the Nikkei dropped as much as 2.04% at one point) but have since recovered towards the day's highs. This could partly be explained by the 6.73% fall from top to bottom over the last month pricing in these negatives but given the potential brake on the global economy which an all-out trade war would entail, we don't consider that to be a…

Trade War: Schoolyard Bully Logic Says China Just Signaled That It Would Cave

Japan

Nippon Steel Corp is an integrated steel maker. The Company produces various types of steel products used for industrial machinery & equipment and exports them worldwide.  Nippon Steel provides plant construction and urban development and also develops new businesses such as chemicals, ceramics, electronic equipment and information & communication systems.

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Nippon Steel Corporation (5401 JP)

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

OOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of...

Campbell Gunn

China Steel Industry: Are Overcapacity Issues Resolved?

We remain selective in the Asian steel space, as overcapacity issues are here to stay.China's steel industry has long been affected by overcapacity...

Morningstar, Inc.

The Case for Semi-Annual Reporting

Generally speaking, if Stanley Druckenmiller says something is a bad thing and Donald Trump suggests it is a good thing, or at least is an idea...

Pelham Smithers Associates

Smartkarma's Week That Was in JP/KR: BOJ Again, JP/KR Earnings! & SK Telecom

Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the...

Sanghyun Park

Trade War: Schoolyard Bully Logic Says China Just Signaled That It Would Cave

Following the previously telegraphed move by the US to begin the process of levying tariffs on a further USD200bn in Chinese goods, markets...

Mio Kato

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