'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/000/139/997/original/2020-06-15_11-08-56.png?1592186965" class="editor-image img-responsive" data-smartkarma-image-id="139997"></figure><div class="content-caption">Source: Japan Analytics</div>
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-1-altman-z-scores" target="_blank" data-smartkarma-citation="insights:40180" rel="noopener">Part 1</a> looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. <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)'s</a> Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
</div>UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  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 Analytics
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. Part 1 looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. Nissan Motor (7201 JP)'s Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  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 2 - Operating Cash Flow & Accruals

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>’s JPY8,620 offer for <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> closes on 29 July. The shares have traded above terms for 25 out of the 26 trading days.</li>
<li>MY.Alpha Management has amassed 10.3 million shares (8.51% ownership ratio) with several purchases above terms. MY.Alpha could catalyse other shareholders to rally against a light offer. </li>
<li>The emergence of MY.Alpha, the high volume above terms, peers re-rating, the required minority acceptance rate, and an offer unattractive to historical trading ranges increase the probability of a bump. </li>
</ul>



Kirin Holdings (2503 JP)’s JPY8,620 offer for Fancl Corp (4921 JP) closes on 29 July. The shares have traded above terms for 25 out of the 26 trading days.
MY.Alpha Management has amassed 10.3 million shares (8.51% ownership ratio) with several purchases above terms. MY.Alpha could catalyse other shareholders to rally against a light offer. 
The emergence of MY.Alpha, the high volume above terms, peers re-rating, the required minority acceptance rate, and an offer unattractive to historical trading ranges increase the probability of a bump. 


Fancl (4921 JP): Evaluating the Potential of Kirin (2503 JP) Offer Bump

<ul>
<li>
<a href="https://www.smartkarma.com/entities/t-k-toka-co-ltd" target="_blank" data-smartkarma-citation="entities:18678:1" rel="noopener">T&amp;K Toka Co Ltd (4636 JP)</a> notes that Bain expects to satisfy the pre-condition and launch the JPY1,400 tender offer by mid-January. </li>
<li>The shares have, on average, traded 1.9% above the offer due to Dalton’s stakebuilding. Bain has three options – unchanged terms, allowing Dalton to roll over its shares, or bumping. </li>
<li>Bain is likely to bump as satisfying the minimum acceptance condition is challenging. A revised offer price of around JPY1,500 is possible.  </li>
</ul>



T&amp;K Toka Co Ltd (4636 JP) notes that Bain expects to satisfy the pre-condition and launch the JPY1,400 tender offer by mid-January. 
The shares have, on average, traded 1.9% above the offer due to Dalton’s stakebuilding. Bain has three options – unchanged terms, allowing Dalton to roll over its shares, or bumping. 
Bain is likely to bump as satisfying the minimum acceptance condition is challenging. A revised offer price of around JPY1,500 is possible.  


T&K Toka (4636 JP): Decisions, Decisions as Tender Start Targeted for Mid-January

Taisho Pharmaceutical Holdin / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/taisho-pharmaceutical-holdin" target="_blank" data-smartkarma-citation="entities:3774:1" rel="noopener">Taisho Pharmaceutical Holdin (4581 JP)</a>’s MBO JPY8,620 offer closes on 15 January. Since announcing the offer, the shares have traded above terms for 21 out of the 30 trading days.</li>
<li>Japan Catalyst has called the offer's P/B of 0.85x too low. While shares trading above terms does not guarantee that the tender fails, it does increase the risk of failure.</li>
<li>The offeror has no compelling reason to bump as other activists have not publicly supported Japan Catalyst, the high 55.5% premium to undisturbed price and an achievable minority acceptance rate. </li>
</ul>



Taisho Pharmaceutical Holdin (4581 JP)’s MBO JPY8,620 offer closes on 15 January. Since announcing the offer, the shares have traded above terms for 21 out of the 30 trading days.
Japan Catalyst has called the offer's P/B of 0.85x too low. While shares trading above terms does not guarantee that the tender fails, it does increase the risk of failure.
The offeror has no compelling reason to bump as other activists have not publicly supported Japan Catalyst, the high 55.5% premium to undisturbed price and an achievable minority acceptance rate. 


Taisho Pharmaceutical (4581 JP): Calm as Offer Heads for the 15 January Close

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>For the month of December 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$10bn.</li>
<li>The average premium for the new deals announced (or first discussed) in December was 44.7%. The average YTD is 39% (117 deals).</li>
<li>This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.</li>
</ul>


For the month of December 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$10bn.
The average premium for the new deals announced (or first discussed) in December was 44.7%. The average YTD is 39% (117 deals).
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.


(Mostly) Asia M&A, Dec 2023: Vinda, Adbri, Perpetual, CPMC, Sigma Health, Shinko Electric

Japan

SHiDAX CORPORATION, through its subsidiaries, provides food catering services and operates restaurants.  The Company's subsidiaries provide their services to companies, hospitals, and schools.

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Shidax Corp (4837 JP)

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated...

Campbell Gunn

Fancl (4921 JP): Evaluating the Potential of Kirin (2503 JP) Offer Bump

Kirin has extended the tender offer period from 29 July to 13 August (40 business days). Kirin believes the JPY2,690 offer sufficiently reflects...

Arun George

T&K Toka (4636 JP): Decisions, Decisions as Tender Start Targeted for Mid-January

The pre-condition has been satisfied. However, Bain has delayed the tender launch to the end of January as it has not yet completed the procedures...

Arun George

Taisho Pharmaceutical (4581 JP): Calm as Offer Heads for the 15 January Close

The offeror has no compelling reason to bump as other activists have not publicly supported Japan Catalyst, the high 55.5% premium to undisturbed...

Arun George

(Mostly) Asia M&A, Dec 2023: Vinda, Adbri, Perpetual, CPMC, Sigma Health, Shinko Electric

For the month of December, 16 new deals were discussed on Smartkarma with an overall deal size of ~US$10bn. The average premium for the new deals...

David Blennerhassett

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