'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

• MARKET COMPOSITE - AGGREGATE RESULTS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/865/original/2019-08-16_06-45-04.png?1565905530" class="editor-image img-responsive" data-smartkarma-image-id="95865"></figure><div class="content-caption">Source: Japan Analytics</div>THIRD DOWN QUARTER - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. FORECASTS STILL OPTIMISTIC -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. UPSIDE LIMITED - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/770/original/2019-08-15_12-05-51.png?1565838392" class="editor-image img-responsive" data-smartkarma-image-id="95770"></figure>Source: Japan Analytics 
</div>MARGIN ROLLOVER - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/772/original/2019-08-15_12-26-32.png?1565839621" class="editor-image img-responsive" data-smartkarma-image-id="95772"></figure>Source: Japan Analytics 
</div>SECTOR MARGINS - TOP - Bank Sector margins continue to slide, but have yet to lose their leading position to Telecoms despite the latter's margins being unchanged over three months. Internet and b both saw large margins contractions as did Chemicals which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, Infomation Technology.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/773/original/2019-08-15_12-44-16.png?1565840676" class="editor-image img-responsive" data-smartkarma-image-id="95773"></figure><div class="content-caption">Source: Japan Analytics </div>SECTOR MARGINS - MID - The Market Composite OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only Multi-Industry and Consumer Services saw margin increases of more than ten basis points. The worst-performing in this group were Food, Beverage &amp; Tobacco and Technology Hardware. Over a longer-term period, there has been a notable decline in Construction and Non-Bank Finance Sector margins. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/774/original/2019-08-15_12-52-37.png?1565841201" class="editor-image img-responsive" data-smartkarma-image-id="95774"></figure><div class="content-caption">Source: Japan Analytics</div>SECTOR MARGINS - BOTTOM - Only Utilities of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while Building Materials, Autos, Metals, Energy, and Other Materials all had double-digit declines. Retail margins are the most stable amongst this group,OUTLOOK - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  <hr>• RESULTS &amp; REVISION SCORE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/869/original/2019-08-16_06-50-04.png?1565905842" class="editor-image img-responsive" data-smartkarma-image-id="95869"></figure><div class="content-caption">Source: Japan Analytics</div>RESULT &amp; REVISION SCORE - After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/838/original/2019-08-15_18-08-12.png?1565860115" class="editor-image img-responsive" data-smartkarma-image-id="95838"></figure><div class="content-caption">Source: Japan Analytics</div>28-MONTH LOW - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/839/original/2019-08-15_18-23-10.png?1565861002" class="editor-image img-responsive" data-smartkarma-image-id="95839"></figure><div class="content-caption">Source: Japan Analytics</div>INTERIM v FULL-YEAR FORECASTS - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/870/original/2019-08-16_06-58-00.png?1565906307" class="editor-image img-responsive" data-smartkarma-image-id="95870"></figure><div class="content-caption">Source: Japan Analytics</div>CURRENCY IN THE DRIVING SEAT - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.In the DETAIL section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.

• MARKET COMPOSITE - AGGREGATE RESULTS •Source: Japan AnalyticsTHIRD DOWN QUARTER - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. FORECASTS STILL OPTIMISTIC -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. UPSIDE LIMITED - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.
Source: Japan Analytics 
MARGIN ROLLOVER - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.
Source: Japan Analytics 
SECTOR MARGINS - TOP - Bank Sector margins continue to slide, but have yet to lose their leading position to Telecoms despite the latter's margins being unchanged over three months. Internet and b both saw large margins contractions as did Chemicals which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, Infomation Technology.Source: Japan Analytics SECTOR MARGINS - MID - The Market Composite OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only Multi-Industry and Consumer Services saw margin increases of more than ten basis points. The worst-performing in this group were Food, Beverage &amp; Tobacco and Technology Hardware. Over a longer-term period, there has been a notable decline in Construction and Non-Bank Finance Sector margins. Source: Japan AnalyticsSECTOR MARGINS - BOTTOM - Only Utilities of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while Building Materials, Autos, Metals, Energy, and Other Materials all had double-digit declines. Retail margins are the most stable amongst this group,OUTLOOK - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  • RESULTS &amp; REVISION SCORE •Source: Japan AnalyticsRESULT &amp; REVISION SCORE - After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.Source: Japan Analytics28-MONTH LOW - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.Source: Japan AnalyticsINTERIM v FULL-YEAR FORECASTS - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.Source: Japan AnalyticsCURRENCY IN THE DRIVING SEAT - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.In the DETAIL section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.

🇯🇵 JAPAN • Summer Results & Revisions - Market Composite & Sectors - Third Down

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/182/original/2019-04-29_12-24-09.png?1556508262" class="editor-image img-responsive" data-smartkarma-image-id="86182"></figure>Source: Japan Analytics
</div>EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/411/original/2019-04-30_13-26-24.png?1556598396" class="editor-image img-responsive" data-smartkarma-image-id="86411"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/412/original/File%202019-04-30%2013%2010%2017.jpeg?1556598417" class="editor-image img-responsive" data-smartkarma-image-id="86412"></figure><div class="content-caption">Source: Japan Analytics, Pictet Asset Management</div>MARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/187/original/2019-04-29_12-32-53.png?1556508784" class="editor-image img-responsive" data-smartkarma-image-id="86187"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/190/original/2019-04-29_12-51-24.png?1556509893" class="editor-image img-responsive" data-smartkarma-image-id="86190"></figure>Source: Japan Analytics
</div>RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/193/original/2019-04-29_13-17-03.png?1556511439" class="editor-image img-responsive" data-smartkarma-image-id="86193"></figure><div class="content-caption">Source: Japan Analytics</div>USDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1">JUSDJPY CURNCY</a> highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. <div class="content-highlight">In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.</div>


Source: Japan Analytics
EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. Source: Japan Analytics, Pictet Asset ManagementMARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. 
Source: Japan Analytics
RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. Source: Japan AnalyticsUSDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in JUSDJPY CURNCY highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

Making sense of the Global Market, Euromonitor International Ltd.

Yu Mitsuhashi

Making sense of the Global Market

Euromonitor International Ltd.

We are a global market research company focused on industries, countries, economies and consumers worldwide. Our cross-country comparable research helps your organisation identify opportunities and develop growth strategies in countries and regions across the globe. With offices around the world, 1,200 analysts in 100 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change.

Thematic (Sector/Industry)

The analyst viewpoint series features interviews with analysts from several of the 46 markets covered in Euromonitor’s Consumer Finance research programme, discussing key payment trends or developments in their respective research markets.

The analyst viewpoint series features interviews with analysts from several of the 46 markets covered in Euromonitor’s Consumer Finance research programme, discussing key payment trends or developments in their respective research markets.

Analyst Viewpoint on Consumer Finance : Japan

In this last of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at companies operating CtoC sales platforms and their impact on the Japanese apparel and footwear market. Please also read the <a href="https://www.smartkarma.com/insights/can-tech-save-the-declining-japanese-apparel-industry-fashiontech-series-1-3" target="_blank">first</a> and <a href="https://www.smartkarma.com/insights/can-tech-save-the-declining-japanese-apparel-industry-fashion-tech-series-2-3" target="_blank">second</a> articles.

In this last of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at companies operating CtoC sales platforms and their impact on the Japanese apparel and footwear market. Please also read the first and second articles.

Can Tech Save the Declining Japanese Apparel Industry? : FashionTech Series (3/3)

In this second of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at Japanese FashionTech companies operating in BtoC areas, particularly via sharing economy and personalisation. For the first article, please click <a href="https://www.smartkarma.com/insights/can-tech-save-the-declining-japanese-apparel-industry-fashiontech-series-1-3" target="_blank">here</a>.

In this second of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at Japanese FashionTech companies operating in BtoC areas, particularly via sharing economy and personalisation. For the first article, please click here.

Can Tech Save The Declining Japanese Apparel Industry? Fashion-Tech Series (2/3)

Japan

OTSUKA Corporation designs, constructs, and develops computer information system and software.  The Company also sells computer peripherals, facsimiles, copy machines, and telecommunication equipment.  Otsuka offers computer training classes for its customers.

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Otsuka Corp (4768 JP)

🇯🇵 JAPAN • Summer Results & Revisions - Market Composite & Sectors - Third Down

• MARKET COMPOSITE - AGGREGATE RESULTS •THIRD DOWN QUARTER - This Insight will review the aggregate results for the 3774 listed Japanese companies...

Campbell Gunn

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of...

Campbell Gunn

Analyst Viewpoint on Consumer Finance : Japan

The analyst viewpoint series features interviews with analysts from several of the 46 markets covered in Euromonitor’s Consumer Finance research...

Euromonitor International Ltd.

Can Tech Save the Declining Japanese Apparel Industry? : FashionTech Series (3/3)

In this last of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at companies operating CtoC sales...

Euromonitor International Ltd.

Can Tech Save The Declining Japanese Apparel Industry? Fashion-Tech Series (2/3)

In this second of a series of articles examining the FashionTech scene in Japan, Euromonitor International looks at Japanese FashionTech companies...

Euromonitor International Ltd.

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