'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/496/original/2020-06-30_14-16-44.png?1593494217" class="editor-image img-responsive" data-smartkarma-image-id="143496"></figure>
<div class="content-caption">Source • Japan Analytics</div>
THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.
Net Working Capital Days varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-
<ul>
<li>
+ Receivables/Revenue - the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.</li>
<li>
+ Inventory/Cost of Goods Sold - the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.</li>
<li>- Payables/Cost of Goods Sold -the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.</li>
</ul>
The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/529/original/2020-06-30_15-09-41.png?1593497395" class="editor-image img-responsive" data-smartkarma-image-id="143529"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/530/original/2020-06-30_15-10-32.png?1593497471" class="editor-image img-responsive" data-smartkarma-image-id="143530"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<div class="content-caption"></div>
NET WORKING CAPITAL DAYS AS A STRESS TEST - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, or ignored - <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a> since 2018. (For more on SMC working capital issues, please see my colleague <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s Insight of last year - <a href="https://www.smartkarma.com/insights/smc-6273-jp-getting-in-line-with-reality" target="_blank" data-smartkarma-citation="insights:30081" rel="noopener">SMC (6273 JP): Getting in Line with Reality</a>).   
For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the DETAIL section below, we shall cover the outliers at both ends of Receivables Days, Inventory Days, Payables Days, and finally Net Working Capital Days.


Source • Japan Analytics
THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.
Net Working Capital Days varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-


+ Receivables/Revenue - the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.

+ Inventory/Cost of Goods Sold - the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.
- Payables/Cost of Goods Sold -the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.

The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.


Source • Japan Analytics

NET WORKING CAPITAL DAYS AS A STRESS TEST - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  Nikon (7731 JP), or ignored - SMC (6273 JP) since 2018. (For more on SMC working capital issues, please see my colleague Scott Foster's Insight of last year - SMC (6273 JP): Getting in Line with Reality).   
For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the DETAIL section below, we shall cover the outliers at both ends of Receivables Days, Inventory Days, Payables Days, and finally Net Working Capital Days.

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

eRESULTS &amp; REVISIONS UPDATE SERIES - After a month's gap, we shall now resume daily coverage of Japan's results, forecasts and revisions announcements as the 420 companies with February, May, August and November year-ends start to report. Initially, we shall cover all companies irrespective of market capitalisation, to highlight the financial impact of COVID-19  on specific Sectors and Peer Groups.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/142/848/original/2020-06-29_05-02-16.png?1593374573" class="editor-image img-responsive" data-smartkarma-image-id="142848"></figure><div class="content-caption">Source • Japan Analytics</div>LEADING INDICATOR LEADS - The Cabinet Office's Leading Indicator of Business Conditions is suggesting that earnings and revisions (as represented above by our Results Score and Forecast/Revision Score) have some significant downside, perhaps closer to the low of 2009. The degree to which the market has already discounted the recovery of 2021 is moot; however, the current level of confidence is about to be put to the test, as was evident from Friday's announcements.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/142/853/original/2020-06-29_05-11-32.png?1593375116" class="editor-image img-responsive" data-smartkarma-image-id="142853"></figure><div class="content-caption">Source • Tokyo Metropolitan Government</div>FAR FROM NORMAL - As a reminder that Tokyo's levels of social activity have yet to recover -passenger numbers on Toei subway lines are still 30% below January levels at peak office-worker commuting times.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/142/854/original/2020-06-29_05-17-39.png?1593375481" class="editor-image img-responsive" data-smartkarma-image-id="142854"></figure><div class="content-caption">Source • Japan Analytics</div>GRAPHIC DETAIL - In an attempt to highlight absolute and relative company-specific trends, we have added some additional graphic material in the DETAIL section below. As always, comments and feedback are welcome.<hr>DAILY STATS14 Quarterly Results<ul>
<li>
Results Score: 12 Negative / 2 Positive</li>
<li>
Average Results Score Change:-5.0</li>
<li>
Average % Change in Revenue: -16% Quarter YoY / -5% Rolling TTM YoY</li>
<li>
Average Operating Profit Margin Change: -2.2ppt</li>
</ul><hr>7 Annual 6 Interim Forecasts Revisions<ul>
<li>
Forecast Revision Score: 6 Positive / 7 Negative</li>
<li>
Average Forecast/Revision Score Change: -2.7</li>
</ul>

eRESULTS &amp; REVISIONS UPDATE SERIES - After a month's gap, we shall now resume daily coverage of Japan's results, forecasts and revisions announcements as the 420 companies with February, May, August and November year-ends start to report. Initially, we shall cover all companies irrespective of market capitalisation, to highlight the financial impact of COVID-19  on specific Sectors and Peer Groups.Source • Japan AnalyticsLEADING INDICATOR LEADS - The Cabinet Office's Leading Indicator of Business Conditions is suggesting that earnings and revisions (as represented above by our Results Score and Forecast/Revision Score) have some significant downside, perhaps closer to the low of 2009. The degree to which the market has already discounted the recovery of 2021 is moot; however, the current level of confidence is about to be put to the test, as was evident from Friday's announcements.Source • Tokyo Metropolitan GovernmentFAR FROM NORMAL - As a reminder that Tokyo's levels of social activity have yet to recover -passenger numbers on Toei subway lines are still 30% below January levels at peak office-worker commuting times.Source • Japan AnalyticsGRAPHIC DETAIL - In an attempt to highlight absolute and relative company-specific trends, we have added some additional graphic material in the DETAIL section below. As always, comments and feedback are welcome.DAILY STATS14 Quarterly Results

Results Score: 12 Negative / 2 Positive

Average Results Score Change:-5.0

Average % Change in Revenue: -16% Quarter YoY / -5% Rolling TTM YoY

Average Operating Profit Margin Change: -2.2ppt
7 Annual 6 Interim Forecasts Revisions

Forecast Revision Score: 6 Positive / 7 Negative

Average Forecast/Revision Score Change: -2.7


🇯🇵 JAPAN • Results & Revisions 26th June

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

On the 4th of February the Nikkei <a href="http://asia.nikkei.com/Business/Deals/Toyota-near-tie-up-with-Suzuki-on-development-procurement" target="_blank">reported</a> that <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor Corp (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/732" target="_blank" data-smartkarma-citation="entities:732:1">Suzuki Motor Corp (7269 JP)</a> were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. <a href="https://www.smartkarma.com/entities/20528" target="_blank" data-smartkarma-citation="entities:20528:1">Mazda Motor Corp (7261 JP)</a> may feel particularly pressured…

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. Mazda Motor Corp (7261 JP) may feel particularly pressured…

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

Japan

OSG CORPORATION manufactures machine tool equipment such as taps, end mills, thread rolling dies, gauges, and drills.  The Company also produces the corresponding machinery including drill grinders, band saws, and rolling machines.  OSG operates overseas production plants in the United States, Brazil, and Taiwan.

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OSG Corp (6136 JP)

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 26th June

eRESULTS & REVISIONS UPDATE SERIES - After a month's gap, we shall now resume daily coverage of Japan's results, forecasts and revisions...

Campbell Gunn

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an...

Mio Kato

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52-week Range

Market Cap (USDm)

P/E

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