Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

At the end of March 2016, <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a>,  <a href="https://www.smartkarma.com/entities/hitachi-transport-system-ltd" target="_blank" data-smartkarma-citation="entities:2395:1" rel="noopener">Hitachi Transport System (9086 JP)</a>, and as-yet unlisted <a href="https://www.smartkarma.com/entities/sg-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26070:1" rel="noopener">SG Holdings (9143 JP)</a><a href="https://www.hitachi.com/New/cnews/month/2016/03/f_160330a.pdf" target="_blank" rel="noopener">announced</a> that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge "within three years" (i.e. merger by 1 April 2019). The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary of then still-unlisted SG Holdings, and <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake <a href="https://www.smartkarma.com/entities/yamato-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:2:1" rel="noopener">Yamato Holdings (9064 JP)</a> in terms of revenue and get closer to industry top dog <a href="https://www.smartkarma.com/entities/nippon-express-co-ltd" target="_blank" data-smartkarma-citation="entities:18582:1" rel="noopener">Nippon Express (9062 JP)</a>. It was supposed to help SG improve margins by doing more in B2B. SG IPOed in late 2017. Three years came and went. Nothing happened. There were collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new <a href="https://www.hitachi-transportsystem.com/en/ir/library/presentations/pdf/midtermmanagementplan_190524enR.pdf" target="_blank" rel="noopener">Mid-Term Management Plan</a> "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration, "I am aware that we are moving toward integration. I would like to harmonize future directions." [Nikkei: He showed a positive attitude...] "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. <h2>The NEW News</h2>Today mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. The first reaction was to send Hitachi Transport shares down 10+%. Hitachi Transport's first release to the exchange said that the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - which at that point were down 7% on the day - bounced sharply. After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."<ol>
<li>HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. </li>
<li>HTS will buy back "a portion" of the shares that SG owns in a <a href="https://www.hitachi-transportsystem.com/jp/news/pdf/20200924_jikokabusikinoshutokukaituke.pdf" target="_blank" rel="noopener">ToSTNeT-3 transaction</a> the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. </li>
</ol> That is a very big unwind in a very big hurry. This creates some interesting side effects and they are well-worth thinking about. More below the fold.

At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)announced that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge "within three years" (i.e. merger by 1 April 2019). The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary of then still-unlisted SG Holdings, and Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake Yamato Holdings (9064 JP) in terms of revenue and get closer to industry top dog Nippon Express (9062 JP). It was supposed to help SG improve margins by doing more in B2B. SG IPOed in late 2017. Three years came and went. Nothing happened. There were collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new Mid-Term Management Plan "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration, "I am aware that we are moving toward integration. I would like to harmonize future directions." [Nikkei: He showed a positive attitude...] "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. The NEW NewsToday mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. The first reaction was to send Hitachi Transport shares down 10+%. Hitachi Transport's first release to the exchange said that the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - which at that point were down 7% on the day - bounced sharply. After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."
HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. 
HTS will buy back "a portion" of the shares that SG owns in a ToSTNeT-3 transaction the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. 
 That is a very big unwind in a very big hurry. This creates some interesting side effects and they are well-worth thinking about. More below the fold.

Hitachi Transport & SG Holdings:  Consciously Uncoupling

<a href="https://www.smartkarma.com/entities/seino-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13248:1" rel="noopener">Seino Holdings (9076 JP)</a>, based in Gifu Prefecture (two prefectures east of Kyoto, directly north of Nagoya), is a combination transportation logistics company and car dealer, with a few other local specialties tacked on.It has 10 auto sales branches in Gifu, Shiga (next door between Gifu and Kyoto), Aichi (just south), and Tokyo, plus a unit in the Philippines, and together they sell about US$1bn of autos a year. Most of its transportation business is warehouses/logistics and truck transport but in the last couple of years it has started executing a "modal shift" to increase domestic transport by rail and ship. It has started working with partners to reduce its carbon footprint in everything it does. <h2>The NEW News</h2>Yesterday, the company reported its <a href="https://www.seino.co.jp/seino/media/pdf-lib/20200513-03.pdf" target="_blank" rel="noopener">full-year earnings</a> (Japanese only) to March 31, with revenue +1.4%yoy, OP -5.7%, and Net Profit +21%.Somewhat unusually, it provided a forecast for the year to March 31, 2021. And it isn't pretty. Revenue is scheduled to drop 10.4%, OP is scheduled to drop nearly 55%, and Net Profit is guided to fall 71%. Given the quantum of this move, and given the fact that few of their customers seem willing to forecast their own revenues, this guidance has to be seen as speculative at best, even though it is the kind of company with extremely stable revenues normally. To mitigate the potential damage from this, the company announced (also only in Japanese) <a href="https://www.seino.co.jp/seino/media/pdf-lib/20200513-05.pdf" target="_blank" rel="noopener">a large buyback</a> today. A very large buyback. It is up to 20 million shares for up to 20 billion yen, to be executed between 14 May 2020 and 23 December 2020. The oddly-specific end-date is somewhat unusual, but it is possible this leaves room to buy back more shares if needed in fiscal Q4 if the shares remain under pressure. This is, after all, a VERY cash-rich company.

Seino Holdings (9076 JP), based in Gifu Prefecture (two prefectures east of Kyoto, directly north of Nagoya), is a combination transportation logistics company and car dealer, with a few other local specialties tacked on.It has 10 auto sales branches in Gifu, Shiga (next door between Gifu and Kyoto), Aichi (just south), and Tokyo, plus a unit in the Philippines, and together they sell about US$1bn of autos a year. Most of its transportation business is warehouses/logistics and truck transport but in the last couple of years it has started executing a "modal shift" to increase domestic transport by rail and ship. It has started working with partners to reduce its carbon footprint in everything it does. The NEW NewsYesterday, the company reported its full-year earnings (Japanese only) to March 31, with revenue +1.4%yoy, OP -5.7%, and Net Profit +21%.Somewhat unusually, it provided a forecast for the year to March 31, 2021. And it isn't pretty. Revenue is scheduled to drop 10.4%, OP is scheduled to drop nearly 55%, and Net Profit is guided to fall 71%. Given the quantum of this move, and given the fact that few of their customers seem willing to forecast their own revenues, this guidance has to be seen as speculative at best, even though it is the kind of company with extremely stable revenues normally. To mitigate the potential damage from this, the company announced (also only in Japanese) a large buyback today. A very large buyback. It is up to 20 million shares for up to 20 billion yen, to be executed between 14 May 2020 and 23 December 2020. The oddly-specific end-date is somewhat unusual, but it is possible this leaves room to buy back more shares if needed in fiscal Q4 if the shares remain under pressure. This is, after all, a VERY cash-rich company. 

Seino Holdings (9076) - Delivering Cash Back in BIG BUYBACK, May Be an MBO Candidate

'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)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/397/original/2020-05-14_07-20-07.png?1589408433" class="editor-image img-responsive" data-smartkarma-image-id="133397"></figure><div class="content-caption">Source • Japan Analytics</div>
In the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday:-
</div><div><ul>
<li>The balance between positive/neutral/negative of the 318 results announcements was 144:20:154. The was no change in the average Results Score.</li>
<li>For the 156 revisions/initial forecasts, the split was 55:15:86, and the average Revision Score was -4.6. Of the 228 companies declaring full-year results, only 50% made forecasts for the current year.</li>
</ul></div>


Source • Japan Analytics
In the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday:-

The balance between positive/neutral/negative of the 318 results announcements was 144:20:154. The was no change in the average Results Score.
For the 156 revisions/initial forecasts, the split was 55:15:86, and the average Revision Score was -4.6. Of the 228 companies declaring full-year results, only 50% made forecasts for the current year.


🇯🇵 JAPAN • Results & Revisions 13th May - Matsumotokiyoshi, Fuji Media, Seino

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. 

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies reviews the best and worst performing companies by RPS over the last month and makes some specific long and short stock recommendations.COMPANY RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold. We have excluded the first twelve months of trading for newly-listed companies to remove the distortion created by the initial over-pricing of most public offerings in Japan of which <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> is the latest example. Currently, 123 companies are 'overbought', and 116 are 'oversold' - 3.3% and 3.2% of the 3,672 listed companies for which monthly data is available.  The current numbers and percentages are the largest in many years. Overbought and oversold states account for 0.7% and 1.2%, respectively of the 837,586 months of data covered since October 1990. The average 'overbought persistence' is four months with <a href="https://www.smartkarma.com/entities/16576" target="_blank" data-smartkarma-citation="entities:16576:1">Lion (4912 JP)</a> holding the record for the longest period at 24 months from September 2016 to date. The average 'oversold persistence' is 7.5 months with <a href="https://www.smartkarma.com/entities/9013" target="_blank" data-smartkarma-citation="entities:9013:1">Nippon Sheet Glass (5202 JP)</a> holding the record having been in that state for the 45 months since January 2015. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/063/937/original/2018-09-15_16-41-44.png?1536997320" class="editor-image img-responsive" data-smartkarma-image-id="63937"></figure><div class="content-caption">Source: Japan Analytics</div>OUTLIER EXTREMES - Currently, the percentage of companies that are positive outliers (&gt;4) it is a 26-year high, while the percentage of negative outliers (&lt;-2) is at a 17-year high. In the past and unsurprisingly, increases in the ratio of positive and negative outliers have been bullish and bearish, respectively. It is highly unusual for both positive and negative outliers to be rising sharply at the same time. The only similar period in the last thirty years was during the 'tech bubble'. In February 2000 the overbought and oversold percentages peaked at 2.4% and 20.5%, respectively. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/064/123/original/2018-09-18_11-05-49.png?1537236390" class="editor-image img-responsive" data-smartkarma-image-id="64123"></figure><div class="content-caption">Source: Japan Analytics</div>MARKET TIMING TEMPTATION - It is always appealing to attempt to derive trading strategies from such data - a temptation we shall resist except for the observations that the oversold ratio rises into market peaks but that a decline in the overbought ratio of at least one percentage point is required to confirm a peak. At present, only the former condition is fulfilled.  COMPANY RECOMMENDATIONS - Recommendations and comments are provided below on <a href="https://www.smartkarma.com/entities/5718" target="_blank" data-smartkarma-citation="entities:5718:1">Shiseido (4911 JP)</a>, <a href="https://www.smartkarma.com/entities/4126" target="_blank" data-smartkarma-citation="entities:4126:1">Lasertec (6920 JP)</a>, <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/8029" target="_blank" data-smartkarma-citation="entities:8029:1">Milbon (4919 JP)</a> and <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a> as well as new entrants and potential additions to the long and short Relative Price Score Portfolios.

RELATIVE PRICE SCORE - The Relative Price Score (RPS) measures stock price performance relative to TOPIX and is calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are, as a result, on a comparable scale, 'overbought' and 'oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. This insight updates our list of overbought and oversold companies reviews the best and worst performing companies by RPS over the last month and makes some specific long and short stock recommendations.COMPANY RPS STATISTICS - The Company 'outlier' thresholds are set to "+4" for overbought and "-2" for oversold. We have excluded the first twelve months of trading for newly-listed companies to remove the distortion created by the initial over-pricing of most public offerings in Japan of which Mercari (4385 JP) is the latest example. Currently, 123 companies are 'overbought', and 116 are 'oversold' - 3.3% and 3.2% of the 3,672 listed companies for which monthly data is available.  The current numbers and percentages are the largest in many years. Overbought and oversold states account for 0.7% and 1.2%, respectively of the 837,586 months of data covered since October 1990. The average 'overbought persistence' is four months with Lion (4912 JP) holding the record for the longest period at 24 months from September 2016 to date. The average 'oversold persistence' is 7.5 months with Nippon Sheet Glass (5202 JP) holding the record having been in that state for the 45 months since January 2015. Source: Japan AnalyticsOUTLIER EXTREMES - Currently, the percentage of companies that are positive outliers (&gt;4) it is a 26-year high, while the percentage of negative outliers (&lt;-2) is at a 17-year high. In the past and unsurprisingly, increases in the ratio of positive and negative outliers have been bullish and bearish, respectively. It is highly unusual for both positive and negative outliers to be rising sharply at the same time. The only similar period in the last thirty years was during the 'tech bubble'. In February 2000 the overbought and oversold percentages peaked at 2.4% and 20.5%, respectively. Source: Japan AnalyticsMARKET TIMING TEMPTATION - It is always appealing to attempt to derive trading strategies from such data - a temptation we shall resist except for the observations that the oversold ratio rises into market peaks but that a decline in the overbought ratio of at least one percentage point is required to confirm a peak. At present, only the former condition is fulfilled.  COMPANY RECOMMENDATIONS - Recommendations and comments are provided below on Shiseido (4911 JP), Lasertec (6920 JP), Sakai Moving Service (9039 JP), Milbon (4919 JP) and Workman (7564 JP) as well as new entrants and potential additions to the long and short Relative Price Score Portfolios.

Japan: Most Overbought and Oversold - Relative Price Score Update - Companies

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/034/original/2018-08-16_19-07-34.png?1534672507" class="editor-image img-responsive" data-smartkarma-image-id="61034"></figure><div class="content-caption">Source: Japan Analytics</div>A GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our '<a href="https://www.smartkarma.com/insights/japan-most-overbought-most-oversold-the-relative-price-score" target="_blank" data-smartkarma-citation="insights:21149">Nifty 50</a>' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.<div class="content-highlight">MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.</div>SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post [6178 JP</a>]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.<div class="content-highlight">
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
</div>SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.<div class="content-highlight">
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
</div>TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/038/original/2018-08-19_19-33-03.png?1534674804" class="editor-image img-responsive" data-smartkarma-image-id="61038"></figure>

Source: Japan AnalyticsA GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our 'Nifty 50' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is Japan Post [6178 JP]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.

Japan: Results & Revision Scores Summer 2018 Update - Market Composite, Sectors & Peer Groups

Japan

SEINO HOLDINGS CO., LTD. comprises a family of companies offering comprehensive transportation and logistics solutions for customers.  The Companyprovides express transportation, door-to-door parcel delivery, moving, contract logistics, and international logistics services via its ground, air, and marine transportation network.  SEINO HOLDINGS also operates Toyota dealers.

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