'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/000/117/963/original/2020-02-15_09-46-55.png?1581796265" class="editor-image img-responsive" data-smartkarma-image-id="117963"></figure><div class="content-caption">Source • Japan Analytics</div>A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/966/original/2020-02-16_05-32-51.png?1581798783" class="editor-image img-responsive" data-smartkarma-image-id="117966"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/967/original/2020-02-16_05-28-20.png?1581798803" class="editor-image img-responsive" data-smartkarma-image-id="117967"></figure><div class="content-caption">Source • Japan Analytics</div>ACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.<div class="content-highlight">In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.</div>

Source • Japan AnalyticsA YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.Source • Japan AnalyticsACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

Telco/Internet specialist

Kirk Boodry

Redex Research

Rakuten posted Q4/FY19 results including the first annual net loss since FY08 on the back of accelerated investment in mobile and logistics.  That was largely expected however and the big news is that Rakuten will unveil new mobile pricing on 3 March with a commercial launch confirmed for early April.  The latter is a modest positive as it reaches sufficient scale to launch although as we explain in the report below we do not think the initial phase is a worry for incumbents. On the margin, Rakuten's launch should be good for KDDI (roaming fees) but less so for DoCoMo (MVNO subscriber erosion).

Rakuten posted Q4/FY19 results including the first annual net loss since FY08 on the back of accelerated investment in mobile and logistics.  That was largely expected however and the big news is that Rakuten will unveil new mobile pricing on 3 March with a commercial launch confirmed for early April.  The latter is a modest positive as it reaches sufficient scale to launch although as we explain in the report below we do not think the initial phase is a worry for incumbents. On the margin, Rakuten's launch should be good for KDDI (roaming fees) but less so for DoCoMo (MVNO subscriber erosion). 

Rakuten: Q4 Results Takeaways Include Firming up of Mobile Launch Timeline

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

NTT (Nippon Telegraph & Telephone) / Equity Bottom-Up

The buyback by <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> over the past year and small change has been significant.In November 2018, NTT Docomo announced a "Docomo Shock" which was that Revenues and Operating Profit would drop in the following year, and would not recover until FY2023. The stock fell sharply the next day.To mitigate some of the effect of this on shareholders, NTT Docomo announced a buyback discussed in <a href="https://www.smartkarma.com/insights/ntt-docomo-tender-offer-buyback-means-buy-ntt" target="_blank" data-smartkarma-citation="insights:25690" rel="noopener">NTT Docomo Tender Offer Buyback Means Buy NTT</a> on 7 Nov 2018. NTT Docomo bought ¥600bn of its own shares at a 7% discount to the close in a Tender Offer which saw 99+% of the buyback sold by NTT. What that meant, given the ratio of shares held by NTT, was that the company would buy the next ¥300-400bn of shares directly from the market, from non-NTT investors. That meant NTT's buyback, near its end, was going to leave the flow dynamics firmly in Docomo's favor for many months. Since just before the end of the NTT on-market buyback, NTT has underperformed Docomo by 10% despite buying back a large stake from the government. On-market pressure matters. But that ends soon for Docomo. And Docomo has promised "Customer Returns" and on a price basis, NTT is at its cheapest level vs forward earnings relative to Docomo in many, many years.

The buyback by NTT Docomo Inc (9437 JP) over the past year and small change has been significant.In November 2018, NTT Docomo announced a "Docomo Shock" which was that Revenues and Operating Profit would drop in the following year, and would not recover until FY2023. The stock fell sharply the next day.To mitigate some of the effect of this on shareholders, NTT Docomo announced a buyback discussed in NTT Docomo Tender Offer Buyback Means Buy NTT on 7 Nov 2018. NTT Docomo bought ¥600bn of its own shares at a 7% discount to the close in a Tender Offer which saw 99+% of the buyback sold by NTT. What that meant, given the ratio of shares held by NTT, was that the company would buy the next ¥300-400bn of shares directly from the market, from non-NTT investors. That meant NTT's buyback, near its end, was going to leave the flow dynamics firmly in Docomo's favor for many months. Since just before the end of the NTT on-market buyback, NTT has underperformed Docomo by 10% despite buying back a large stake from the government. On-market pressure matters. But that ends soon for Docomo. And Docomo has promised "Customer Returns" and on a price basis, NTT is at its cheapest level vs forward earnings relative to Docomo in many, many years.

Docomo Buyback Nearly Done; NTT/Docomo Cheapest Fundamentally in A Looooong Time

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.

Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus expectations for -¥5,487m. Top line growth was weak as Mercari focused on increasing supply to rebalance supply-demand on the platform but this appears to be in-line with expectations and the key is whether these efforts drive some modest acceleration in growth in 2H. Costs were a negative surprise but 2Q is likely to be the peak and while 3Q may not see a large decline, profitability should improve noticeably from 4Q as the Origami acquisition is digested. In particular, the sharp increase in the profitability of the Japanese flea market business to a 32% adjusted OPM, while perhaps a little inflated, points to the potential for consolidated profitability early next FY.

Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus expectations for -¥5,487m. Top line growth was weak as Mercari focused on increasing supply to rebalance supply-demand on the platform but this appears to be in-line with expectations and the key is whether these efforts drive some modest acceleration in growth in 2H. Costs were a negative surprise but 2Q is likely to be the peak and while 3Q may not see a large decline, profitability should improve noticeably from 4Q as the Origami acquisition is digested. In particular, the sharp increase in the profitability of the Japanese flea market business to a 32% adjusted OPM, while perhaps a little inflated, points to the potential for consolidated profitability early next FY.

Japan

NTT DOCOMO, INC. provides various types of telecommunication services including cellular phones, satellite mobile communication, and wireless LAN Network. The Company also sells cellular phones, and other equipment.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

NTT Docomo Inc (9437 JP)

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined...

Campbell Gunn

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own...

Michael Causton

Rakuten: Q4 Results Takeaways Include Firming up of Mobile Launch Timeline

Rakuten posted Q4/FY19 results including the first annual net loss since FY08 on the back of accelerated investment in mobile and logistics. That...

Kirk Boodry

Docomo Buyback Nearly Done; NTT/Docomo Cheapest Fundamentally in A Looooong Time

The buyback by NTT Docomo Inc (9437 JP) over the past year and small change has been significant.In November 2018, NTT Docomo announced a "Docomo...

Travis Lundy

Mercari – On Track for Loss Peak-Out

Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus...

Mio Kato

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)