Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

According to Softbank (indirectly), WeWork revenue growth continues to slow and losses to expand. We did not get any detailed financial data this quarter but its announcement of financial targets and a breakdown of WeWork's impact on Softbank Q3 numbers give us enough to get a rough idea. The magnitude of near-term losses does explain why conversions for most recent investments/contribution of joint venture stakes and the tender offer for the minority shareholders don't kick until April when (presumably) the situation has stabilised. Meanwhile, it also The appears the fair value for equity has declined from $7.8bn at Q2 (Sep) to $7.3bn as of December.

According to Softbank (indirectly), WeWork revenue growth continues to slow and losses to expand. We did not get any detailed financial data this quarter but its announcement of financial targets and a breakdown of WeWork's impact on Softbank Q3 numbers give us enough to get a rough idea. The magnitude of near-term losses does explain why conversions for most recent investments/contribution of joint venture stakes and the tender offer for the minority shareholders don't kick until April when (presumably) the situation has stabilised. Meanwhile, it also The appears the fair value for equity has declined from $7.8bn at Q2 (Sep) to $7.3bn as of December.

WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/963/original/2020-02-15_09-46-55.png?1581796265" class="editor-image img-responsive" data-smartkarma-image-id="117963"></figure><div class="content-caption">Source • Japan Analytics</div>A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/966/original/2020-02-16_05-32-51.png?1581798783" class="editor-image img-responsive" data-smartkarma-image-id="117966"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/967/original/2020-02-16_05-28-20.png?1581798803" class="editor-image img-responsive" data-smartkarma-image-id="117967"></figure><div class="content-caption">Source • Japan Analytics</div>ACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.<div class="content-highlight">In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.</div>

Source • Japan AnalyticsA YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.Source • Japan AnalyticsACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<div>
Last Week in Event SPACE ...
</div>
<div>
<ul>
<li>
<a href="https://www.smartkarma.com/entities/bank-permata-tbk-pt" target="_blank" data-smartkarma-citation="entities:728:1" rel="noopener">Bank Permata (BNLI IJ)</a> is worthwhile owning here. It is worthwhile buying dips too.</li>
<li>The <a href="https://www.smartkarma.com/entities/china-agri-industries-hldgs" target="_blank" data-smartkarma-citation="entities:11088:1" rel="noopener">China Agri Industries Hldgs (606 HK)</a> deal is done and dusted as the IFA positively signs off.</li>
<li>
<a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a>'s buyback, at the current share price, is only 6.9mm shares, which is 6.1% of shares outstanding, and a chunk of that will likely be done off-market. But it's a start. </li>
<li>
<a href="https://www.smartkarma.com/entities/ayala-corporation" target="_blank" data-smartkarma-citation="entities:1474:1" rel="noopener">Ayala Corporation (AC PM)</a> is oversold as the impact from various government probes into utility contracts appear minimal. <a href="https://www.smartkarma.com/entities/manila-water-co-inc" target="_blank" data-smartkarma-citation="entities:22789:1" rel="noopener">Manila Water Co (MWC PM)</a> is now out of its hands.</li>
<li>
<a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>'s CEO said the company plans more buybacks and securitizations. This tells you all you need to know. NTT vs <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc</a> is the trade.</li>
<li>
<a href="https://www.smartkarma.com/entities/tokyo-broadcasting-system" target="_blank" data-smartkarma-citation="entities:12981:1" rel="noopener">Tokyo Broadcasting System (9401 JP)</a> throws shareholders a tiny bone, with most of the meat already picked off.</li>
</ul>
</div>
<div>
<ul>
<li>Plus, other events, CCASS movements and Mood Spins.</li>
</ul>
</div>
(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)


Last Week in Event SPACE ...




Bank Permata (BNLI IJ) is worthwhile owning here. It is worthwhile buying dips too.
The China Agri Industries Hldgs (606 HK) deal is done and dusted as the IFA positively signs off.

GMO Internet (9449 JP)'s buyback, at the current share price, is only 6.9mm shares, which is 6.1% of shares outstanding, and a chunk of that will likely be done off-market. But it's a start. 

Ayala Corporation (AC PM) is oversold as the impact from various government probes into utility contracts appear minimal. Manila Water Co (MWC PM) is now out of its hands.

NTT (Nippon Telegraph &amp; Telephone) (9432 JP)'s CEO said the company plans more buybacks and securitizations. This tells you all you need to know. NTT vs NTT Docomo Inc is the trade.

Tokyo Broadcasting System (9401 JP) throws shareholders a tiny bone, with most of the meat already picked off.




Plus, other events, CCASS movements and Mood Spins.


(This insight covers specific insights &amp; comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

Last Week in Event SPACE: Bank Permata, China Agri, Ayala, GMO, NTT, Tokyo Broadcasting

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

Senior Credit Analyst, Lucror Analytics

Trung Nguyen

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

In our view, Softbank’s Q3/19-20 earnings results did not contain surprises, given recent events, namely the increase in Alibaba's share price (which accounted 80% of the increase in Softbank's shareholder value) and the favourable court decision on the Sprint/T-Mobile merger. The financial risk profile, as measured by LTV since Softbank is now a true investment holdco, was healthy at 16%. We continue to be constructive on Softbank’s credit profile, mainly due to our favourable outlook on Alibaba, its most important asset.

  In our view, Softbank’s Q3/19-20 earnings results did not contain surprises, given recent events, namely the increase in Alibaba's share price (which accounted 80% of the increase in Softbank's shareholder value) and the favourable court decision on the Sprint/T-Mobile merger. The financial risk profile, as measured by LTV since Softbank is now a true investment holdco, was healthy at 16%. We continue to be constructive on Softbank’s credit profile, mainly due to our favourable outlook on Alibaba, its most important asset. 

Softbank - Earnings Flash - Q3 FY 2019-20 Results - Lucror Analytics

Japan

SoftBank Group Corp provides telecommunication services.  The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

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Softbank Group (ADR) (SFTBY US)

WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses

According to Softbank (indirectly), WeWork revenue growth continues to slow and losses to expand. We did not get any detailed financial data this...

Kirk Boodry

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined...

Campbell Gunn

Last Week in Event SPACE: Bank Permata, China Agri, Ayala, GMO, NTT, Tokyo Broadcasting

Last Week in Event SPACE ... Bank Permata (BNLI IJ) is worthwhile owning here. It is worthwhile buying dips too. The China Agri Industries...

David Blennerhassett

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own...

Michael Causton

Softbank - Earnings Flash - Q3 FY 2019-20 Results - Lucror Analytics

In our view, Softbank’s Q3/19-20 earnings results did not contain surprises, given recent events, namely the increase in Alibaba's share price...

Lucror Analytics

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