'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)

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<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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div>STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>- have been excluded from this analysis.

Source: Japan AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)- have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/218/original/2020-04-03_05-20-38.png?1585862586" class="editor-image img-responsive" data-smartkarma-image-id="126218"></figure><div class="content-caption">Source • @punxjk</div>ABE-NO-MASKS - Japan's 'softly-softly' approach to COVID-19 continues despite Tokyo recording its highest number of daily new cases to date. PM Abe's two-masks-per-household policy has been widely-derided as in the viral mashup above of the TV-anime Sazae-san's seven-member family plus pet cat. The Tokyo healthcare system is close to a tipping point or 'overshoot' in 'gairaigo'. The national government is caught between wanting to avoid the economic consequences of a proper lockdown and the difficulty of enforcing such a measure even under the new emergency powers. Local governments are limited to closing high schools and publically-owned facilities.SOCIAL PRESSURE - Two Osaka hostess bars have become centres of infection, but cannot be named as the owners have refused consent fearing a loss of business. Social pressure is, however,  resulting in voluntary closures of some restaurants as well as Maruhan's 16 Tokyo pachinko parlours. Other parlours have just turned down their garish lighting to 'attract fewer customers'.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/219/original/2020-04-03_06-44-57.png?1585863904" class="editor-image img-responsive" data-smartkarma-image-id="126219"></figure><div class="content-caption">Source • The Economist</div>NECESSARY PRECAUTIONS -  A new <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561560" target="_blank" rel="noopener">study </a>by economists at the Fed and MIT Sloan of US cities during and after the 1918 flu pandemic has found that cities that intervened earlier and more aggressively did not perform worse and, if anything, grow faster after the pandemic is over. Our ﬁndings thus indicate that non-pharmaceutical interventions not only lower mortality; they also mitigate the adverse economic consequences of a pandemic. While some of this effect may be due to shifts in population to the then less-populous West Coast, the difference between San Francisco and Omaha is stark. As was the case after the 1980s stock market bubble, the 2008 Financial Crisis and the events of 3/11, efforts to smooth the decline in the economy only serve to prolong the recovery.THURSDAY 2ND APRIL - A relatively quiet day saw nine quarterly results, with four of the nine companies also making revisions or initial forecasts. All but one of the results scored negatively, and none had a positive change. Of the eight forecasts, only two were positive.

Source • @punxjkABE-NO-MASKS - Japan's 'softly-softly' approach to COVID-19 continues despite Tokyo recording its highest number of daily new cases to date. PM Abe's two-masks-per-household policy has been widely-derided as in the viral mashup above of the TV-anime Sazae-san's seven-member family plus pet cat. The Tokyo healthcare system is close to a tipping point or 'overshoot' in 'gairaigo'. The national government is caught between wanting to avoid the economic consequences of a proper lockdown and the difficulty of enforcing such a measure even under the new emergency powers. Local governments are limited to closing high schools and publically-owned facilities.SOCIAL PRESSURE - Two Osaka hostess bars have become centres of infection, but cannot be named as the owners have refused consent fearing a loss of business. Social pressure is, however,  resulting in voluntary closures of some restaurants as well as Maruhan's 16 Tokyo pachinko parlours. Other parlours have just turned down their garish lighting to 'attract fewer customers'.Source • The EconomistNECESSARY PRECAUTIONS -  A new study by economists at the Fed and MIT Sloan of US cities during and after the 1918 flu pandemic has found that cities that intervened earlier and more aggressively did not perform worse and, if anything, grow faster after the pandemic is over. Our ﬁndings thus indicate that non-pharmaceutical interventions not only lower mortality; they also mitigate the adverse economic consequences of a pandemic. While some of this effect may be due to shifts in population to the then less-populous West Coast, the difference between San Francisco and Omaha is stark. As was the case after the 1980s stock market bubble, the 2008 Financial Crisis and the events of 3/11, efforts to smooth the decline in the economy only serve to prolong the recovery.THURSDAY 2ND APRIL - A relatively quiet day saw nine quarterly results, with four of the nine companies also making revisions or initial forecasts. All but one of the results scored negatively, and none had a positive change. Of the eight forecasts, only two were positive.  

🇯🇵 JAPAN • Revisions & Results Update 2nd April - Necessary Precautions

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. 

SEVEN UP QUARTERS - With 95% of this quarters' results now announced, Japanese listed company's earnings per share has now risen for seven straight quarters.  Revenue is up 7% year-on-year and 1.8% over the last three months. For Operating and Net Income, the numbers are 13.9%/4.4% and 24.1%/10.3%, respectively.PEAK NET INCOME &amp; 'ABE-ERA' RECORD-LOW PE - The ¥9.6 trillion year-on-year improvement in Net Income is mostly a result in turnarounds in the Energy, Electronics and Auto sectors courtesy…

SEVEN UP QUARTERS - With 95% of this quarters' results now announced, Japanese listed company's earnings per share has now risen for seven straight quarters.  Revenue is up 7% year-on-year and 1.8% over the last three months. For Operating and Net Income, the numbers are 13.9%/4.4% and 24.1%/10.3%, respectively.PEAK NET INCOME &amp; 'ABE-ERA' RECORD-LOW PE - The ¥9.6 trillion year-on-year improvement in Net Income is mostly a result in turnarounds in the Energy, Electronics and Auto sectors courtesy…

Japan: Results and Revisions Update - Aggregate TTM Net Income Exceeds 2019 Full-Year Forecast

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

The presence of <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a> CEO, James Murren, in Tokyo earlier this month, is a timely reminder to everyone that the re-election of Shinzo Abe’s government last year means that the Casino Bill is still in the works, even if it is stuck behind the Gambling Addiction bill. Indeed, it is probably the case that Murren is over to emphasize the point that firms like his are willing to invest heavily in Japan provided the limitations brought about by the Gambling Addiction bill…

The presence of MGM Resorts International (MGM US) CEO, James Murren, in Tokyo earlier this month, is a timely reminder to everyone that the re-election of Shinzo Abe’s government last year means that the Casino Bill is still in the works, even if it is stuck behind the Gambling Addiction bill. Indeed, it is probably the case that Murren is over to emphasize the point that firms like his are willing to invest heavily in Japan provided the limitations brought about by the Gambling Addiction bill…

Japan

SANKYO CO., LTD. develops, manufactures, and sells pachinko, pachinko slot machines, related parts, and other peripheral devices.  The main products include Fever Zeus Series.  The Company also operates amusement related businesses.

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Sankyo Co Ltd (6417 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 - Stress Tests Part 1 - Altman Z-Scores

STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through...

Campbell Gunn

🇯🇵 JAPAN • Revisions & Results Update 2nd April - Necessary Precautions

ABE-NO-MASKS - Japan's 'softly-softly' approach to COVID-19 continues despite Tokyo recording its highest number of daily new cases to date. PM...

Campbell Gunn

Japan: Results and Revisions Update - Aggregate TTM Net Income Exceeds 2019 Full-Year Forecast

SEVEN UP QUARTERS - With 95% of this quarters' results now announced, Japanese listed company's earnings per share has now risen for seven straight...

Campbell Gunn

Japan Casino Bill Back in the Headlines

The presence of MGM Resorts International (MGM US) CEO, James Murren, in Tokyo earlier this month, is a timely reminder to everyone that the...

Pelham Smithers Associates

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