Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Thematic (Sector/Industry)

<p>On our next Webinar, we are thrilled to welcome back Insight Provider <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>, who will present his hand-picked ideas in Japan's IT sector. </p>
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<h3>The webinar will be hosted on Wednesday, 27 October 2021, 17:00 SGT/HKT.</h3>
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<h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=85198859426" target="_blank" rel="noopener">Register for the Webinar here</a></h2>
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<p>Scott Foster is a securities analyst who has been covering electronics, precision equipment &amp; robotics, engineering, construction, transport, and other sectors for more than 25 years in Japan and 3 years in Korea.</p>
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On our next Webinar, we are thrilled to welcome back Insight Provider Scott Foster, who will present his hand-picked ideas in Japan's IT sector. 

The webinar will be hosted on Wednesday, 27 October 2021, 17:00 SGT/HKT.

Register for the Webinar here




Scott Foster is a securities analyst who has been covering electronics, precision equipment &amp; robotics, engineering, construction, transport, and other sectors for more than 25 years in Japan and 3 years in Korea.



Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.</p>

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.

Global Equity Strategy: Bullish Outlook Intact

Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

Ingenuity

Our focus is exclusively on in-depth research & consulting in the broader semiconductor industry. We focus on the key players, namely Intel, Micron, Qualcomm, Apple, Samsung, NVIDIA, AMD, TSMC & Global Foundries - as well as some of the lesser known, but nonetheless critical, companies such as ASML (for EUV), Mellanox, Cavium, Xilinx etc. We specialise in their products, roadmaps, process technologies, competitive advantages & threats etc. We also help our clients understand the implications of new and emerging technologies, e.g. 3D X-Point, 3D NAND, Carbon Nanotubes, Autonomous Driving, Graphene, Silicon Photonics, Wafer-Level Optics, Artificial Intelligence, FPGA, GPU, ASIC etc. 

Semiconductor Analysis & Research

<p>Semiconductor wafer fab equipment sales are on track to grow by over 20% sequentially in 2020 with the broader foundry segment growing by around 20% and TSMC more than 30%. Yet, silicon wafer area shipments will struggle to increase by more than 2% and revenues are set to remain flat to slightly down. How do we explain the seeming discrepancy between these growth numbers? Here's our thoughts on the matter. </p>

Semiconductor wafer fab equipment sales are on track to grow by over 20% sequentially in 2020 with the broader foundry segment growing by around 20% and TSMC more than 30%. Yet, silicon wafer area shipments will struggle to increase by more than 2% and revenues are set to remain flat to slightly down. How do we explain the seeming discrepancy between these growth numbers? Here's our thoughts on the matter. 

Silicon Wafers. Why The Tepid Growth Despite Strength in WFE, Foundry & Logic?

'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.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/859/original/2020-09-27_06-54-19.png?1601157286" class="editor-image img-responsive" data-smartkarma-image-id="161859"></figure><div class="content-caption">Source for all charts &amp; Tables: Japan Analytics</div><p><strong>BOTTOMING OUT?</strong> - The Japanese markets were only open for three days this week, however, of the manufacturing companies that reported several, such as <a href="https://www.smartkarma.com/entities/hirose-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:13513:1" rel="noopener">Hirose Electric (6806 JP)</a> and <a href="https://www.smartkarma.com/entities/ngk-insulators-ltd" target="_blank" data-smartkarma-citation="entities:12580:1" rel="noopener">NGK Insulators (5333 JP)</a> showed signs of a bottoming out in earnings momentum. While some domestic consumer-facing companies are seeing 'boomtown' conditions (see <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori (9843 JP)</a> below) a broader recovery is dependent on the manufacturing sectors of the economy. Although it is early in the reporting cycle, our three metrics that track results and revisions have improved in the last seven days. As the retail-dominated Febru0ry/May/August/November year-end cohort report over the next two week, we shall see further upticks.     </p><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p><p style="text-align: left;">Our best and worst pair from Friday's announcements is home furnishing retailer <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori (9843 JP)</a> and the leisure and travel company <a href="https://www.smartkarma.com/entities/h-i-s-co-ltd" target="_blank" data-smartkarma-citation="entities:19311:1" rel="noopener">H.I.S. (9603 JP)</a> with a maximum-negative-scoring full-year forecast operating loss of ¥37 billion.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/862/original/2020-09-27_07-19-01.png?1601158772" class="editor-image img-responsive" data-smartkarma-image-id="161862"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/863/original/2020-09-27_07-20-58.png?1601158948" class="editor-image img-responsive" data-smartkarma-image-id="161863"></figure><hr><p style="text-align: center;"><strong>DAILY STATS</strong></p><hr><div><p style="text-align: center;"><strong>9 Quarterly Results</strong></p></div><div><ul style="list-style-type: disc;">
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<strong>Results Score:</strong> 33% Positive / 0% Neutral / 67% Negative</li>
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<strong>Average Results Score Change:</strong> -3.4 points</li>
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<strong>Average % Change in Revenue:</strong> -24.6% Quarter YoY / -12.6% Rolling TTM YoY </li>
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<strong>Average Operating Profit Margin Change:</strong> -5.0ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 67%</li>
</ul></div><hr><div><p style="text-align: center;"><strong>17 Annual • 7 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
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<strong>Annual Forecast/Revision Score:</strong> 55% Positive / 0% Neutral / 45% Negative</li>
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<strong>Interim Forecast/Revision Score Change:</strong> 53% Positive / 12% Neutral / 35% Negative</li>
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<strong>Average Forecast/Revision Score Change:</strong> +0.5 points</li>
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Source for all charts &amp; Tables: Japan AnalyticsBOTTOMING OUT? - The Japanese markets were only open for three days this week, however, of the manufacturing companies that reported several, such as Hirose Electric (6806 JP) and NGK Insulators (5333 JP) showed signs of a bottoming out in earnings momentum. While some domestic consumer-facing companies are seeing 'boomtown' conditions (see Nitori (9843 JP) below) a broader recovery is dependent on the manufacturing sectors of the economy. Although it is early in the reporting cycle, our three metrics that track results and revisions have improved in the last seven days. As the retail-dominated Febru0ry/May/August/November year-end cohort report over the next two week, we shall see further upticks.     • BEST &amp; WORST •Our best and worst pair from Friday's announcements is home furnishing retailer Nitori (9843 JP) and the leisure and travel company H.I.S. (9603 JP) with a maximum-negative-scoring full-year forecast operating loss of ¥37 billion.DAILY STATS9 Quarterly Results

Results Score: 33% Positive / 0% Neutral / 67% Negative

Average Results Score Change: -3.4 points

Average % Change in Revenue: -24.6% Quarter YoY / -12.6% Rolling TTM YoY 

Average Operating Profit Margin Change: -5.0ppt

Percentage Making Quarterly Losses: 67%
17 Annual • 7 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 55% Positive / 0% Neutral / 45% Negative

Interim Forecast/Revision Score Change: 53% Positive / 12% Neutral / 35% Negative

Average Forecast/Revision Score Change: +0.5 points


🇯🇵 JAPAN • Results & Revisions 09/25 - HIS, Mimasu (& SUMCO), Nitori, SG, & Alps Alpine Revises▲!

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/496/original/2020-06-30_14-16-44.png?1593494217" class="editor-image img-responsive" data-smartkarma-image-id="143496"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<p><strong>THE CASH CONVERSION CYCLE</strong> - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.</p>
<p><strong>Net Working Capital Days</strong> varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-</p>
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<strong>+ Receivables/Revenue </strong>- the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.</li>
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<strong>+ Inventory/Cost of Goods Sold -</strong> the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.</li>
<li>- <strong>Payables/Cost of Goods Sold -</strong>the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.</li>
</ul>
<p>The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/529/original/2020-06-30_15-09-41.png?1593497395" class="editor-image img-responsive" data-smartkarma-image-id="143529"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/530/original/2020-06-30_15-10-32.png?1593497471" class="editor-image img-responsive" data-smartkarma-image-id="143530"></figure>
<div class="content-caption">Source • Japan Analytics</div>
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<p><strong>NET WORKING CAPITAL DAYS AS A STRESS TEST</strong> - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, or ignored - <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a> since 2018. (For more on SMC working capital issues, please see my colleague <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s Insight of last year - <a href="https://www.smartkarma.com/insights/smc-6273-jp-getting-in-line-with-reality" target="_blank" data-smartkarma-citation="insights:30081" rel="noopener">SMC (6273 JP): Getting in Line with Reality</a>).   </p>
<p>For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the<strong> DETAIL</strong> section below, we shall cover the outliers at both ends of <strong>Receivables Days</strong>, <strong>Inventory Days</strong>, <strong>Payables Days</strong>, and finally <strong>Net Working Capital Days</strong>.</p>


Source • Japan Analytics
THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.
Net Working Capital Days varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-


+ Receivables/Revenue - the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.

+ Inventory/Cost of Goods Sold - the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.
- Payables/Cost of Goods Sold -the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.

The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.


Source • Japan Analytics

NET WORKING CAPITAL DAYS AS A STRESS TEST - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  Nikon (7731 JP), or ignored - SMC (6273 JP) since 2018. (For more on SMC working capital issues, please see my colleague Scott Foster's Insight of last year - SMC (6273 JP): Getting in Line with Reality).   
For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the DETAIL section below, we shall cover the outliers at both ends of Receivables Days, Inventory Days, Payables Days, and finally Net Working Capital Days.

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

Japan

SUMCO Corporation manufactures silicon wafers for the semiconductor industry. The Company produces silicon wafers used to produce solar batteries as well as ultra-high purity quartz used to produce vessels for silicon manufacturing process. SUMCO markets its products worldwide.

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SUMCO Corp (3436 JP)

Smartkarma Webinar | Japan IT Picks

Join us for a session with Insight Provider Scott Foster, who will present his hand-picked ideas in Japan's IT sector.

Smartkarma Research

Global Equity Strategy: Bullish Outlook Intact

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. In this report, we...

Vermilion Research

Silicon Wafers. Why The Tepid Growth Despite Strength in WFE, Foundry & Logic?

With the WFE and foundry segments set for >20% growth in 2020, why are silicon wafer area shipments growing by only 2.4%? Here's what we think the...

William Keating

🇯🇵 JAPAN • Results & Revisions 09/25 - HIS, Mimasu (& SUMCO), Nitori, SG, & Alps Alpine Revises▲!

• BEST WORST •

Campbell Gunn

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to...

Campbell Gunn

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