'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/325/original/2019-06-01_09-16-25.png?1559348196" class="editor-image img-responsive" data-smartkarma-image-id="89325"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/326/original/2019-06-01_09-19-21.png?1559348371" class="editor-image img-responsive" data-smartkarma-image-id="89326"></figure><p>Source: Japan Analytics</p>
</div><p><strong>INAUSPICIOUS</strong> - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/329/original/2019-06-01_10-10-41.png?1559351453" class="editor-image img-responsive" data-smartkarma-image-id="89329"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>CURRENCY RISK?</strong> - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/330/original/2019-06-01_10-14-50.png?1559351702" class="editor-image img-responsive" data-smartkarma-image-id="89330"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RSI</strong> - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/331/original/2019-06-01_10-28-00.png?1559352497" class="editor-image img-responsive" data-smartkarma-image-id="89331"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>TORAKU</strong> - The<em> Toraku</em> advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/333/original/2019-06-01_10-38-19.png?1559353116" class="editor-image img-responsive" data-smartkarma-image-id="89333"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>HIGHS - LOWS</strong> - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/332/original/2019-06-01_10-32-11.png?1559352742" class="editor-image img-responsive" data-smartkarma-image-id="89332"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>VOLUME SCORE TIMELINE</strong> - Volumes remains concentrated in the <strong>Internet</strong>, <strong>Information Technology</strong>, <strong>REITs</strong>, <strong>Electrical Equipment</strong>, and <strong>Energy</strong> Sectors, the <strong>Materials</strong>,  <strong>Restaurants</strong>, and <strong>Multi-Industry</strong> Sectors are the volume laggards.</p><div class="content-highlight"><p>In the <strong>DETAIL</strong> section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1">Kikkoman (2801 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1">Inpex (1605 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a>, and <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1">Dentsu (4324 JP)</a>.     </p></div>


Source: Japan Analytics
INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  Source: Japan AnalyticsCURRENCY RISK? - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  Source: Japan AnalyticsRSI - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. Source: Japan AnalyticsTORAKU - The Toraku advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.Source: Japan AnalyticsHIGHS - LOWS - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.Source: Japan AnalyticsVOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Electrical Equipment, and Energy Sectors, the Materials,  Restaurants, and Multi-Industry Sectors are the volume laggards.In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on Kikkoman (2801 JP), Inpex (1605 JP), Keyence (6861 JP), Leopalace21 (8848 JP), and Dentsu (4324 JP).     

🇯🇵 JAPAN • Market Update - Retesting the Low

Differentiated global TMT & Internet Research

New Street Research Insights

New Street Research

Research is provided by our team of experienced analysts. Our work is idea driven, based on independence of thought, sector expertise, and firmly focused on fundamentals and valuation of telecoms and internet names globally. New Street is headquartered in London with offices in New York, Singapore and Australia. 

New Street Research is an independent, partner-owned, research firm specialising in equity and debt research. Our equity research embraces the following sectors:

Pan European Telecom Services and Cable
US Telecoms, Cable, Satellite and Towers
Global Emerging Market Telecoms
Japan Telecoms
Asian Internet
Pan European Healthcare
US Healthcare
Japanese Healthcare

We also provide debt research on:
Pan European Telecom Services and Cable

Equity Bottom-Up

<p>Lots has been written on this site about the Japanese telecom market recently. The view at New Street Research has been and remains positive on the sector. The most recent set of results shows growth is surprising to the upside while guidance has also been positive, esp the longer term. <a href="https://www.smartkarma.com/profiles/1917" target="_blank" data-smartkarma-citation="accounts:1917">Chris Hoare</a> thinks lower handset sales, part of what New Street Research's Tech team terms refers to as an Apple air-pocket, have the potential to feed into sharply higher FCF, further boosting shareholder returns (something other writers have previously discussed). In any case shareholder returns are being boosted by ongoing buy backs by <a href="https://www.smartkarma.com/entities/623" target="_blank" data-smartkarma-citation="entities:623:1">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, and <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a> , while KDDI also boosted dividends and <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank KK (9434 JP)</a> dividend guidance was above expectations.</p><p>The round of price cutting heralded by DoCoMo seems to have been taken in the operators' stride and the outlook remains positive. Our preferred name here is KDDI. </p>

Lots has been written on this site about the Japanese telecom market recently. The view at New Street Research has been and remains positive on the sector. The most recent set of results shows growth is surprising to the upside while guidance has also been positive, esp the longer term. Chris Hoare thinks lower handset sales, part of what New Street Research's Tech team terms refers to as an Apple air-pocket, have the potential to feed into sharply higher FCF, further boosting shareholder returns (something other writers have previously discussed). In any case shareholder returns are being boosted by ongoing buy backs by NTT (Nippon Telegraph &amp; Telephone) (9432 JP), KDDI (9433 JP), and NTT Docomo (9437 JP) , while KDDI also boosted dividends and Softbank KK (9434 JP) dividend guidance was above expectations.The round of price cutting heralded by DoCoMo seems to have been taken in the operators' stride and the outlook remains positive. Our preferred name here is KDDI. 

Japanese Telcos Show Resilient Revenue And Focus on Shareholder Returns

Telco/Internet specialist

Kirk Boodry

Redex Research

<p><a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten Inc (4755 JP)</a> hosted a call with CTO Tareq Amin to update analysts and investors on recent progress. The company says cell site acquisition is moving ahead quickly and it an end-October mobile launch remains the target. As discussed previously, the next major milestone is the start of 1 July beta-testing so there was little that could be added this week although management did again run through key success factors like cost and operational efficiency from its cloud-based integrated network architecture. Mr. Amin teased a possible game-changing announcement next week, which is likely to come from the vendor side and we suspect has to do with 5G turnkey solutions. Coming out of quarterly results for all companies, the outlook has not meaningfully changed with incumbents confident that pricing changes are sufficient even with Rakuten promising disruption from a unique network and installed base of eCommerce/fintech users. </p>

Rakuten Inc (4755 JP) hosted a call with CTO Tareq Amin to update analysts and investors on recent progress. The company says cell site acquisition is moving ahead quickly and it an end-October mobile launch remains the target. As discussed previously, the next major milestone is the start of 1 July beta-testing so there was little that could be added this week although management did again run through key success factors like cost and operational efficiency from its cloud-based integrated network architecture. Mr. Amin teased a possible game-changing announcement next week, which is likely to come from the vendor side and we suspect has to do with 5G turnkey solutions. Coming out of quarterly results for all companies, the outlook has not meaningfully changed with incumbents confident that pricing changes are sufficient even with Rakuten promising disruption from a unique network and installed base of eCommerce/fintech users. 

Rakuten: Update on the Mobile Business Generally Positive

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/401/original/2019-05-21_15-51-33.png?1558421503" class="editor-image img-responsive" data-smartkarma-image-id="88401"></figure><p>Source: Japan Analytics</p>
</div><p><strong>SECOND DOWN QUARTER</strong> - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.</p><p><strong>NOT THAT 'CONSERVATIVE'</strong> - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. </p><p><strong>NO LONGER 'CHEAP' </strong>- As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/408/original/2019-05-21_16-29-55.png?1558423805" class="editor-image img-responsive" data-smartkarma-image-id="88408"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/411/original/2019-05-21_16-39-58.png?1558424413" class="editor-image img-responsive" data-smartkarma-image-id="88411"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>ROLLING TTMs AND PEAKING MARGINS</strong> - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/418/original/2019-05-21_17-16-38.png?1558426621" class="editor-image img-responsive" data-smartkarma-image-id="88418"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RESULT &amp; REVISION SCORE FLATTENS OUT</strong> - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.</p><p><strong>SECOND HALF RECOVERY?</strong> - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. </p><p>In the <strong>DETAIL</strong> section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.</p>


Source: Japan Analytics
SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.NOT THAT 'CONSERVATIVE' - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. NO LONGER 'CHEAP' - As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   Source: Japan AnalyticsROLLING TTMs AND PEAKING MARGINS - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. Source: Japan AnalyticsRESULT &amp; REVISION SCORE FLATTENS OUT - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.SECOND HALF RECOVERY? - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.

🇯🇵 JAPAN • Spring Results & Revisions - Market  & Sector Aggregates & Scores - 2nd▼Quarter

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

Last Week in Event SPACE: NTT/Docomo, Dena, Nexon, Harbin Electric, Advanced Disposal, DSV

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.

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NTT Docomo Inc (9437 JP)

🇯🇵 JAPAN • Market Update - Retesting the Low

INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the...

Campbell Gunn

Japanese Telcos Show Resilient Revenue And Focus on Shareholder Returns

Lots has been written on this site about the Japanese telecom market recently. The view at New Street Research has been and remains positive on the...

New Street Research

Rakuten: Update on the Mobile Business Generally Positive

Rakuten Inc (4755 JP) hosted a call with CTO Tareq Amin to update analysts and investors on recent progress. The company says cell site acquisition...

Kirk Boodry

🇯🇵 JAPAN • Spring Results & Revisions - Market & Sector Aggregates & Scores - 2nd▼Quarter

SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are...

Campbell Gunn

Last Week in Event SPACE: NTT/Docomo, Dena, Nexon, Harbin Electric, Advanced Disposal, DSV

Last Week in Event SPACE ... While the NTT Docomo Inc (9437 JP) buyback appears to have the possibility of a greater market impact for longer,...

David Blennerhassett

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