'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

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>

Source: Japan Analytics</div>
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

Japan Equity Analyst, all sectors

David Rubenstein

Equity Bottom-Up

Life behind bars
We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap, this small cap punches above its weight, trading $2 million dollars per day. However, we believe that the real value has yet to be unleashed. Asahi is the only listed pure-play bicycle retailer in Japan. It has the top market share at 18-20% and continues to increase share every year by opening new stores and expanding existing stores footprint.
Why we want to ride Asahi’s bicycles:
<ul>
<li>Secular growth: Solid, stable growth by ASP rise and store expansion.</li>
<li>Scale merit: smashing the local bike shops; procures low-cost China product.</li>
<li>Defensive: domestic play, anti-currency.</li>
<li>Carbon footprint low: Largest bike seller in Japan, could attract green funds.</li>
<li>Valuation attractive: PB of 1.4x is near all-time low.</li>
<li>Currency hedge: JPY strength against the RMB is a tailwind for earnings.</li>
</ul>

Life behind bars
We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap, this small cap punches above its weight, trading $2 million dollars per day. However, we believe that the real value has yet to be unleashed. Asahi is the only listed pure-play bicycle retailer in Japan. It has the top market share at 18-20% and continues to increase share every year by opening new stores and expanding existing stores footprint.
Why we want to ride Asahi’s bicycles:

Secular growth: Solid, stable growth by ASP rise and store expansion.
Scale merit: smashing the local bike shops; procures low-cost China product.
Defensive: domestic play, anti-currency.
Carbon footprint low: Largest bike seller in Japan, could attract green funds.
Valuation attractive: PB of 1.4x is near all-time low.
Currency hedge: JPY strength against the RMB is a tailwind for earnings.


Asahi (3333 Jp): I Want to Ride My Bicycle

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Capital Markets

YETI Holdings Inc / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/27727" target="_blank" data-smartkarma-citation="entities:27727:1">YETI Holdings Inc (YETI US)</a>, a US-based company specializing in premium outdoor equipment, has filed to sell its shares on the New York Stock Exchange in an offering that could raise as much as US$483 mn. 
In this note we will provide brief overviews of the deal, Yeti's history, and its main products. 
We will also review recent financial performance, which shows mostly strong but volatile top-line growth over the last few years.
Then we will attempt to answer three critical questions facing investors who may consider buying shares in Yeti's IPO: First, how quickly can Yeti grow its revenues in the medium-term? Second, does the company have any sustainable advantages over rivals? And third, which companies are the best comparables to use when trying to establish a reasonable valuation range for Yeti's shares?
Finally, we'll provide our take on Yeti's valuation versus peers at the US$20 per share mid-point. 
We have included a link to Yeti's Form S-1 filing <a href="https://www.sec.gov/Archives/edgar/data/1670592/000104746918006711/a2236865zs-1a.htm" target="_blank">here</a> and at the end of this note.

YETI Holdings Inc (YETI US), a US-based company specializing in premium outdoor equipment, has filed to sell its shares on the New York Stock Exchange in an offering that could raise as much as US$483 mn. 
In this note we will provide brief overviews of the deal, Yeti's history, and its main products. 
We will also review recent financial performance, which shows mostly strong but volatile top-line growth over the last few years.
Then we will attempt to answer three critical questions facing investors who may consider buying shares in Yeti's IPO: First, how quickly can Yeti grow its revenues in the medium-term? Second, does the company have any sustainable advantages over rivals? And third, which companies are the best comparables to use when trying to establish a reasonable valuation range for Yeti's shares?
Finally, we'll provide our take on Yeti's valuation versus peers at the US$20 per share mid-point. 
We have included a link to Yeti's Form S-1 filing here and at the end of this note.

Yeti, Inc IPO: How Much Should Investors Pay to Be Cool?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's Anta said to Mull Bid for $4B Finnish Rival Amer Sports". Finland-listed sports brand amalgamator (Wilson, Salomon, Atomic (skis), Mavic (bicycle rims), Precor (gym equipment), Arc'teryx (outdoor wear/accessories), Suunto (fitness sensors/watches), Louisville Slugger (baseball bats) and other) Amer Sports management <a href="https://www.amersports.com/2018/09/amer-sports-confirms-receipt-of-an-indication-of-interest-from-a-consortium-including-anta-sports-products/" target="_blank">confirmed</a> that it had received a non-binding preliminary indication of interest from a consortium including <a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">ANTA Sports Products (2020 HK)</a> and Asian private equity firm FountainVest Partners and also <a href="https://www.amersports.com/2018/09/amer-sports-confirms-price-indication-included-in-the-indication-of-interest/" target="_blank">confirmed</a> a price indication of a bid at €40/share to take Amer private.  The bid would be "subject to a number of conditions, including conducting a due diligence investigation, approval of the Board of Directors of ANTA and the Investment Committee of FountainVest, availability of financing from identified financing sources and receipt of a recommendation from the Board of Directors of Amer Sports. Completion of any such cash tender offer would in turn be subject to further conditions, including approval by shareholders holding at least 90% of the shares of Amer Sports and receipt of all necessary regulatory approvals."<a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">ANTA Sports Products (2020 HK)</a><a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0912/LTN20180912023.pdf" target="_blank">confirmed</a> the morning of the 12th to the HKEx that it had submitted the proposal in question with FountainVest but that there was as yet no deal.<a href="https://www.smartkarma.com/entities/21751" target="_blank" data-smartkarma-citation="entities:21751:1">Amer Sports Oyj (AMEAS FH)</a> shares had been trading around €32/share, were suspended quickly and then reopened 14% higher at ~€36.50 popped briefly then settled down into a long session of profit-taking which saw trading close at €34.20. Some 2.5% of float traded, which was 6-8x normal. Amer had said on the 11th that it had not engaged in negotiations.<h2>Where We Stand</h2><ul>
<li>ANTA shares were down 8 days in a row through the day after the announcement, falling a little in the afternoon after the news came out in Europe, then fell 9+% the following day. Despite rebounding 7+% the last two days, ANTA Sports shares are still down 17.5% in the first two weeks of the month. The shares are now at 20x 2019e PER.</li>
<li>Amer announced on September 5th a <a href="https://www.amersports.com/2018/09/amer-sports-updates-its-strategy/" target="_blank">Strategy Update</a>. Amer Sports President and CEO Heikki Takala said “We prioritize acceleration in soft goods, B2C, China, United States, and digitalization,” and the review was said to include an "integration" of PeakPerformance brand and a strategic review of the Mavic brand. In the presentation he also mentioned the Enve (bicycles) brand, noting that the entire bicycle business was not producing the growth they wanted, and offering the idea that the assets might be better held by someone else.</li>
<li>At a 26x PER multiple and probably ~15x EV/EBITDA, Amer is "expensive" but not outrageously so. At a prospective EV/revenue multiple of 1.5x, it is in the range of stocks like <a href="https://www.smartkarma.com/entities/10699" target="_blank" data-smartkarma-citation="entities:10699:1">Fila Korea Ltd (081660 KS)</a> and <a href="https://www.smartkarma.com/entities/23708" target="_blank" data-smartkarma-citation="entities:23708:1">Acushnet Holdings (GOLF US)</a> while lower than <a href="https://www.smartkarma.com/entities/3777" target="_blank" data-smartkarma-citation="entities:3777:1">Shimano Inc (7309 JP)</a> and <a href="https://www.smartkarma.com/entities/22505" target="_blank" data-smartkarma-citation="entities:22505:1">Thule Group Ab (THULE SS)</a>. </li>
</ul>

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's Anta said to Mull Bid for $4B Finnish Rival Amer Sports". Finland-listed sports brand amalgamator (Wilson, Salomon, Atomic (skis), Mavic (bicycle rims), Precor (gym equipment), Arc'teryx (outdoor wear/accessories), Suunto (fitness sensors/watches), Louisville Slugger (baseball bats) and other) Amer Sports management confirmed that it had received a non-binding preliminary indication of interest from a consortium including ANTA Sports Products (2020 HK) and Asian private equity firm FountainVest Partners and also confirmed a price indication of a bid at €40/share to take Amer private.  The bid would be "subject to a number of conditions, including conducting a due diligence investigation, approval of the Board of Directors of ANTA and the Investment Committee of FountainVest, availability of financing from identified financing sources and receipt of a recommendation from the Board of Directors of Amer Sports. Completion of any such cash tender offer would in turn be subject to further conditions, including approval by shareholders holding at least 90% of the shares of Amer Sports and receipt of all necessary regulatory approvals."ANTA Sports Products (2020 HK)confirmed the morning of the 12th to the HKEx that it had submitted the proposal in question with FountainVest but that there was as yet no deal.Amer Sports Oyj (AMEAS FH) shares had been trading around €32/share, were suspended quickly and then reopened 14% higher at ~€36.50 popped briefly then settled down into a long session of profit-taking which saw trading close at €34.20. Some 2.5% of float traded, which was 6-8x normal. Amer had said on the 11th that it had not engaged in negotiations.Where We Stand
ANTA shares were down 8 days in a row through the day after the announcement, falling a little in the afternoon after the news came out in Europe, then fell 9+% the following day. Despite rebounding 7+% the last two days, ANTA Sports shares are still down 17.5% in the first two weeks of the month. The shares are now at 20x 2019e PER.
Amer announced on September 5th a Strategy Update. Amer Sports President and CEO Heikki Takala said “We prioritize acceleration in soft goods, B2C, China, United States, and digitalization,” and the review was said to include an "integration" of PeakPerformance brand and a strategic review of the Mavic brand. In the presentation he also mentioned the Enve (bicycles) brand, noting that the entire bicycle business was not producing the growth they wanted, and offering the idea that the assets might be better held by someone else.
At a 26x PER multiple and probably ~15x EV/EBITDA, Amer is "expensive" but not outrageously so. At a prospective EV/revenue multiple of 1.5x, it is in the range of stocks like Fila Korea Ltd (081660 KS) and Acushnet Holdings (GOLF US) while lower than Shimano Inc (7309 JP) and Thule Group Ab (THULE SS). 


ANTA (2020 HK) Lobs Possible €40/Share Bid for Amer

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

Although it isn't necessarily the case that the earlier a Japanese company reports its earnings, the better run it is, there's no real surprise that it is hyper-competitive firms like <a href="https://www.smartkarma.com/entities/16195" target="_blank" data-smartkarma-citation="entities:16195:1">Tokyo Steel</a>, <a href="https://www.smartkarma.com/entities/7245" target="_blank" data-smartkarma-citation="entities:7245:1">Nidec</a> and <a href="https://www.smartkarma.com/entities/3777" target="_blank" data-smartkarma-citation="entities:3777:1">Shimano</a> that are consistently among the fastest out of the traps. By extension, these companies usually get the results season off to a good start, and by extension there is something of an expectation of this, which starts to get built into valuations. On a forward EV/OP basis, Nidec and…

Although it isn't necessarily the case that the earlier a Japanese company reports its earnings, the better run it is, there's no real surprise that it is hyper-competitive firms like Tokyo Steel, Nidec and Shimano that are consistently among the fastest out of the traps. By extension, these companies usually get the results season off to a good start, and by extension there is something of an expectation of this, which starts to get built into valuations. On a forward EV/OP basis, Nidec and…

Valuations May Prove Key As Early Japanese Results Highlight Sell-Side Optimism

Japan

SHIMANO INC. manufactures and sells products for bicycling, snowboarding, and fishing.  The Company's products include running gears and brake parts for bicycles and rods, reels, and tackles for fishing.  The Company manufactures golf related products as well.  Shimano mainly exports to Asia, Europe, and the United States.

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Shimano Inc (7309 JP)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

Asahi (3333 Jp): I Want to Ride My Bicycle

Life behind bars We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap,...

David Rubenstein

Yeti, Inc IPO: How Much Should Investors Pay to Be Cool?

YETI Holdings Inc (YETI US), a US-based company specializing in premium outdoor equipment, has filed to sell its shares on the New York Stock...

Daniel Hellberg

Valuations May Prove Key As Early Japanese Results Highlight Sell-Side Optimism

Although it isn't necessarily the case that the earlier a Japanese company reports its earnings, the better run it is, there's no real surprise...

Pelham Smithers Associates

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

Asahi (3333 Jp): I Want to Ride My Bicycle

Life behind bars We believe that Asahi has an interesting secular growth story unrealized by most institutional investors. At a Y37bn market cap,...

David Rubenstein

Yeti, Inc IPO: How Much Should Investors Pay to Be Cool?

YETI Holdings Inc (YETI US), a US-based company specializing in premium outdoor equipment, has filed to sell its shares on the New York Stock...

Daniel Hellberg

ANTA (2020 HK) Lobs Possible €40/Share Bid for Amer

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's...

Travis Lundy

Valuations May Prove Key As Early Japanese Results Highlight Sell-Side Optimism

Although it isn't necessarily the case that the earlier a Japanese company reports its earnings, the better run it is, there's no real surprise...

Pelham Smithers Associates