Quality-first, Business-perspective, Long-term, Urbem (HK) Limited

Urbem Capital

Quality-first, Business-perspective, Long-term

Equity Bottom-Up

<ul class="">
<li>We view Warren Buffett's move to invest in Japan's largest trading companies as being indicative of the lack of reasonably-valued opportunities in the US as well as the size disadvantage of Berkshire Hathaway;</li>
<li>While being in no place to judge the superinvestor's investment decision, we find better investment targets to "participate in the future of Japan," especially for those who manage a smaller AUM than Berkshire;</li>
<li>In this article, we list one superior-quality business that serves the backbone of Japan's economy (i.e., the SMEs);</li>
<li>Our investment strategy concentrates on quality from a business perspective and seeks long-term opportunities with a 10%-15% hurdle rate.</li>
</ul>


We view Warren Buffett's move to invest in Japan's largest trading companies as being indicative of the lack of reasonably-valued opportunities in the US as well as the size disadvantage of Berkshire Hathaway;
While being in no place to judge the superinvestor's investment decision, we find better investment targets to "participate in the future of Japan," especially for those who manage a smaller AUM than Berkshire;
In this article, we list one superior-quality business that serves the backbone of Japan's economy (i.e., the SMEs);
Our investment strategy concentrates on quality from a business perspective and seeks long-term opportunities with a 10%-15% hurdle rate.


One "Better" Quality Pick to Consider to Participate in the Future of Japan

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

This week's two-part Holdco overview is chock-full of charts, covering the performance of all 566 stubs in my stub monitor, across all countries, and liquidity baskets, in the midst of the recent correction in markets.
This insight covers Japan and Korea.
The results, as always, are interesting, with some baskets clearly outperforming others. If you take the view that more liquid parents vis-à-vis less liquid subs will either underperform or outperform during these unprecedented times, the answer is not always clear cut, from one country to the next. 
As always, there is more below the fold.

This week's two-part Holdco overview is chock-full of charts, covering the performance of all 566 stubs in my stub monitor, across all countries, and liquidity baskets, in the midst of the recent correction in markets.
This insight covers Japan and Korea.
The results, as always, are interesting, with some baskets clearly outperforming others. If you take the view that more liquid parents vis-à-vis less liquid subs will either underperform or outperform during these unprecedented times, the answer is not always clear cut, from one country to the next. 
As always, there is more below the fold.

Holdcos: Charts Amongst The Carnage. Part 1. Japan & Korea

'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/000/080/728/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

- MARKET COMPOSITE -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/882/original/2019-02-24_11-07-12.png?1550974089" class="editor-image img-responsive" data-smartkarma-image-id="79882"></figure><div class="content-caption">Source: Japan Analytics</div>ALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above the Christmas Day low. The 'market value'-based percentage above moving averages almost reached a new three-month on Thursday; the stock count version is lagging as usual.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/886/original/2019-02-24_11-32-45.png?1550975583" class="editor-image img-responsive" data-smartkarma-image-id="79886"></figure><div class="content-caption">Source: Japan Analytics</div>STILL SOME UPSIDE - Using the three-month rate of change in this indicator, we are a few weeks away from generating a short-term sell signal, the last such trigger having occurred on 25th October. <hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/887/original/2019-02-24_11-45-38.png?1550976349" class="editor-image img-responsive" data-smartkarma-image-id="79887"></figure><div style="text-align: left;" class="content-caption">
LEGEND: 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 domestic and defensive. REITs, Information Technology, Transporation and Utilities continue from our previous review with Restaurants and Healthcare replacing Media and Telecommunications. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, and Metals remain from two weeks ago, with Construction and Retail replacing Chemicals and Other Materials. <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.
<a href="https://www.smartkarma.com/entities/26181" target="_blank" data-smartkarma-citation="entities:26181:1">PKSHA Technology (3993 JP)</a> is currently the most extreme large capitalisation positive outlier and an excellent example of a -100 to 100 'roundtrip' in under two months. <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> is, again, the most extreme negative outlier, having topped the 13th January positive outlier list and is another 'round-tripper'. We also add the chart for 'cockroach' stock <a href="https://www.smartkarma.com/entities/8244" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a> which no longer qualifies for inclusion in our tables, having lost 60% of its value in the last two weeks and 79% in less than a year.
</div><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/890/original/2019-02-24_12-58-23.png?1550980729" class="editor-image img-responsive" data-smartkarma-image-id="79890"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/891/original/2019-02-24_12-59-54.png?1550980806" class="editor-image img-responsive" data-smartkarma-image-id="79891"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/892/original/2019-02-24_13-12-58.png?1550981589" class="editor-image img-responsive" data-smartkarma-image-id="79892"></figure>Source: Japan Analytics
</div>

- MARKET COMPOSITE -Source: Japan AnalyticsALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above the Christmas Day low. The 'market value'-based percentage above moving averages almost reached a new three-month on Thursday; the stock count version is lagging as usual.Source: Japan AnalyticsSTILL SOME UPSIDE - Using the three-month rate of change in this indicator, we are a few weeks away from generating a short-term sell signal, the last such trigger having occurred on 25th October. - SECTORS - 
LEGEND: 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 domestic and defensive. REITs, Information Technology, Transporation and Utilities continue from our previous review with Restaurants and Healthcare replacing Media and Telecommunications. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, and Metals remain from two weeks ago, with Construction and Retail replacing Chemicals and Other Materials. - 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.
PKSHA Technology (3993 JP) is currently the most extreme large capitalisation positive outlier and an excellent example of a -100 to 100 'roundtrip' in under two months. SanBio (4592 JP) is, again, the most extreme negative outlier, having topped the 13th January positive outlier list and is another 'round-tripper'. We also add the chart for 'cockroach' stock Leopalace21 (8848 JP) which no longer qualifies for inclusion in our tables, having lost 60% of its value in the last two weeks and 79% in less than a year.

Source: Japan Analytics


🇯🇵 Japan: Moving Average Outliers - PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS

Travis Lundy

Equity Capital Markets

On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) <a href="https://www.smartkarma.com/entities/12653" target="_blank" data-smartkarma-citation="entities:12653:1">Avant Corp (3836 JP)</a> announced its <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213.pdf" target="_blank">Q2 earnings</a>, a <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213-1.pdf" target="_blank">reassignment</a> from the TSE2 to the TSE1, and an <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213-2.pdf" target="_blank">Offering</a>.The Secondary Offering of 1.956mm shares is a selldown of about one-quarter of CEO Morikawa's shareholdings and what appears to be the majority of the position held by Wada Shigefumi. The greenshoe of 293k shares brings the total deal to 2.25mm shares…

On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) Avant Corp (3836 JP) announced its Q2 earnings, a reassignment from the TSE2 to the TSE1, and an Offering.The Secondary Offering of 1.956mm shares is a selldown of about one-quarter of CEO Morikawa's shareholdings and what appears to be the majority of the position held by Wada Shigefumi. The greenshoe of 293k shares brings the total deal to 2.25mm shares…

Japan

OBIC Business Consultants Co.,Ltd. develops and markets business solution packaged software. The Company's products include software for accounting, banking, wage calculation, sales management, inventory control, and tax calculation. OBIC Business Consultants Co Ltd. also provides support and training services.

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Obic Business Consultants (4733 JP)

One "Better" Quality Pick to Consider to Participate in the Future of Japan

Warren Buffett's Berkshire Hathaway

Urbem Capital

Holdcos: Charts Amongst The Carnage. Part 1. Japan & Korea

This week's two-part Holdco overview is chock-full of charts, covering the performance of all 566 stubs in my stub monitor, across all countries,...

David Blennerhassett

🇯🇵 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

🇯🇵 Japan: Moving Average Outliers - PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS

- MARKET COMPOSITE -ALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above...

Campbell Gunn

Avant (3836 JP) I: The Offering

On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) Avant...

Travis Lundy

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