Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

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.

Equity Bottom-Up

<ul>
<li>Sumco reported its 1QFY12/19 results yesterday which saw its revenue and OP growing YoY. However, when compared to 4QFY12/19 performance, both revenue and OP recorded negative QoQ growth in 1QFY12/19 due to softening semiconductor demand.</li>
<li>In addition, the company is also expecting the second quarter of the current fiscal year to be somewhat weak with revenue and OP forecasted to decline YoY. However, we believe the company is being conservative in its estimates due to uncertainty surrounding the semiconductor memory market.</li>
<li>According to the company, the demand for 200mm wafers is expected to remain steady due to strong demand from self-driving cars and electric vehicles while the 300mm wafer segment is going through an inventory correction.</li>
<li>Sumco has also mentioned that the customers not on long term contracts have requested price reductions, however, the company will give priority to price over volume. When we visited the company last month, the IR mentioned that only 20% of revenue is contracted through short-term agreements, and therefore, we do not expect the customer requests for price reductions to have a major impact on company revenues.</li>
<li>Furthermore, the expiration of the long-term polysilicon purchasing agreement with Osaka Titanium (supposed to expire by the end of March 2019) should help Sumco switch to cheaper polysilicon and we expect this to have a favourable impact on company earnings, though this will take time to filter through due to built-up inventories.</li>
<li>We believe, Sumco is currently undervalued and warrants upside to its current trading multiple as we remain positive on the company’s silicon wafer business. We do not expect the wafer makers to add capacity in a way which would create a glut of wafers in the market depressing prices. Furthermore, Sumco has more potential brownfield capacity available than its competitors, which we believe can be used in the event that demand picks up enabling the company to add new capacity faster than the competitors.</li>
</ul>


Sumco reported its 1QFY12/19 results yesterday which saw its revenue and OP growing YoY. However, when compared to 4QFY12/19 performance, both revenue and OP recorded negative QoQ growth in 1QFY12/19 due to softening semiconductor demand.
In addition, the company is also expecting the second quarter of the current fiscal year to be somewhat weak with revenue and OP forecasted to decline YoY. However, we believe the company is being conservative in its estimates due to uncertainty surrounding the semiconductor memory market.
According to the company, the demand for 200mm wafers is expected to remain steady due to strong demand from self-driving cars and electric vehicles while the 300mm wafer segment is going through an inventory correction.
Sumco has also mentioned that the customers not on long term contracts have requested price reductions, however, the company will give priority to price over volume. When we visited the company last month, the IR mentioned that only 20% of revenue is contracted through short-term agreements, and therefore, we do not expect the customer requests for price reductions to have a major impact on company revenues.
Furthermore, the expiration of the long-term polysilicon purchasing agreement with Osaka Titanium (supposed to expire by the end of March 2019) should help Sumco switch to cheaper polysilicon and we expect this to have a favourable impact on company earnings, though this will take time to filter through due to built-up inventories.
We believe, Sumco is currently undervalued and warrants upside to its current trading multiple as we remain positive on the company’s silicon wafer business. We do not expect the wafer makers to add capacity in a way which would create a glut of wafers in the market depressing prices. Furthermore, Sumco has more potential brownfield capacity available than its competitors, which we believe can be used in the event that demand picks up enabling the company to add new capacity faster than the competitors.


Sumco Reports Strong First Quarter Results; We Remain Optimistic on the Stock

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shin-etsu-chemical-co-ltd/overview" target="_blank">Shin-Etsu (4063 JP)</a> reported its 4QFY03/19 and full-year FY03/19 results on 26th April 2019. Revenue grew by JPY152.6bn posting 10.6% YoY growth while operating profit grew by 19.9% YoY in FY03/19. The Semiconductor Silicon Business continued to be the star performer of all segments while contributing approximately 47% of the revenue growth and 58% of the growth in operating income in FY03/19.</li>
<li>Moreover, Shin-Etsu’s revenue and operating profit for FY03/19 were above its own estimates by 2.2% and 3.5% respectively, although both revenue and operating profit fell below consensus estimates by 0.4% and 4.9% respectively.</li>
<li>On the other hand, the 4QFY03/19 numbers were not impressive with revenue growing only at 1.8% YoY while operating profit declined by a significant 15.4% YoY during the quarter. Yet again, both revenue and operating profit failed to beat consensus estimates as well as being below what was reported for 3QFY03/19.</li>
<li>The weaker revenue and operating profit for 4QFY03/19 were mainly due to several one-off expenses which we think will help the company stabilize its future earnings.</li>
<li>We believe, Shin-Etsu is currently undervalued and warrants upside to its current trading multiple as we continue to remain positive on the two key segments of the company. The current cheap valuations provide a good entry point to buy the stock.</li>
</ul>



Shin-Etsu (4063 JP) reported its 4QFY03/19 and full-year FY03/19 results on 26th April 2019. Revenue grew by JPY152.6bn posting 10.6% YoY growth while operating profit grew by 19.9% YoY in FY03/19. The Semiconductor Silicon Business continued to be the star performer of all segments while contributing approximately 47% of the revenue growth and 58% of the growth in operating income in FY03/19.
Moreover, Shin-Etsu’s revenue and operating profit for FY03/19 were above its own estimates by 2.2% and 3.5% respectively, although both revenue and operating profit fell below consensus estimates by 0.4% and 4.9% respectively.
On the other hand, the 4QFY03/19 numbers were not impressive with revenue growing only at 1.8% YoY while operating profit declined by a significant 15.4% YoY during the quarter. Yet again, both revenue and operating profit failed to beat consensus estimates as well as being below what was reported for 3QFY03/19.
The weaker revenue and operating profit for 4QFY03/19 were mainly due to several one-off expenses which we think will help the company stabilize its future earnings.
We believe, Shin-Etsu is currently undervalued and warrants upside to its current trading multiple as we continue to remain positive on the two key segments of the company. The current cheap valuations provide a good entry point to buy the stock.


Shin-Etsu Reports Strong FY03/2019 Results; Our Outlook Remains Positive

<ul>
<li>
<a href="https://www.smartkarma.com/entities/advantest-corp/overview" target="_blank">Advantest (6857 JP)</a> reported its 4QFY03/19 and Full-year FY03/19 results yesterday (25th of April). The company reported 36.3% YoY growth in revenue for the full-year while its operating profit more than doubled to JPY64.7bn during the year mainly due to strong performance witnessed during the first three quarters of the year.</li>
<li>On a quarterly basis, the 4QFY03/19 numbers were below our expectations. Both the revenue and the operating profit witnessed YoY declines during the quarter, with revenue declining by 5.7% YoY while operating profit declined by a significant 26.6% YoY driven by the slowdown in the global semiconductor market.</li>
<li>Furthermore, the management expects a decline in revenue and operating profit for full-year FY03/20 due to contraction in the global semiconductor tester market. That being said, the company is expecting the market to return to its growth trajectory again during CY2020 driven by the expansion of commercial 5G communication services.</li>
<li>We believe Advantest is still overvalued at its current price of JPY3,445 per share. As the memory market downturn has just started impacting Advantest, we feel the company share price will decline further with the earnings outlook deteriorating.</li>
</ul>



Advantest (6857 JP) reported its 4QFY03/19 and Full-year FY03/19 results yesterday (25th of April). The company reported 36.3% YoY growth in revenue for the full-year while its operating profit more than doubled to JPY64.7bn during the year mainly due to strong performance witnessed during the first three quarters of the year.
On a quarterly basis, the 4QFY03/19 numbers were below our expectations. Both the revenue and the operating profit witnessed YoY declines during the quarter, with revenue declining by 5.7% YoY while operating profit declined by a significant 26.6% YoY driven by the slowdown in the global semiconductor market.
Furthermore, the management expects a decline in revenue and operating profit for full-year FY03/20 due to contraction in the global semiconductor tester market. That being said, the company is expecting the market to return to its growth trajectory again during CY2020 driven by the expansion of commercial 5G communication services.
We believe Advantest is still overvalued at its current price of JPY3,445 per share. As the memory market downturn has just started impacting Advantest, we feel the company share price will decline further with the earnings outlook deteriorating.


Advantest: FY03/19 Full-Year Results Beat Consensus, 4QFY03/19 Declines Due to Memory Downturn

<ul>
<li>The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.</li>
<li>While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.</li>
<li>Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.</li>
<li>Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.</li>
</ul>


The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.
While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.
Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.
Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.


Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up

'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

- MARKET COMPOSITE -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/436/original/2019-03-10_11-07-01.png?1552183736" class="editor-image img-responsive" data-smartkarma-image-id="81436"></figure><div style="text-align: center;" class="content-caption">Source: Japan Analytics</div><div>
SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro data intervened and sent the market 3% lower over the last two trading days suggesting the bear market rally is now over. After peaking at 48%, the market-value-based percentage above the weighted sum of moving averages has now retreated to 33%. </div><hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/437/original/2019-03-10_11-38-43.png?1552185548" class="editor-image img-responsive" data-smartkarma-image-id="81437"></figure><div style="text-align: left;" class="content-caption">
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>SECTOR BREAKDOWN - The top six sectors remain domestic and defensive and are unchanged from two weeks ago with REITs, the clear leader. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Retail, Autos, and Metals remain from two weeks ago, with Machinery replacing Construction. Banks stay at the bottom, and the sector had its largest volume 'day' as measured by our Volume Score since September 21st, 2018 on Friday although many other sectors were 'active.' <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/440/original/2019-03-10_11-54-26.png?1552186476" class="editor-image img-responsive" data-smartkarma-image-id="81440"></figure><div class="content-caption">Source: Japan Analytics</div><hr>- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. <div class="content-highlight">
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, <a href="https://www.smartkarma.com/entities/26181" target="_blank" data-smartkarma-citation="entities:26181:1">Pksha Technology (3993 JP)</a> declined by 8% and 'tops' our most negative two-week change list, while the most negative outlier <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> rose by 3%. <a href="https://www.smartkarma.com/entities/8244" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a> which was also featured recovered by 9%.
<a href="https://www.smartkarma.com/entities/2709" target="_blank" data-smartkarma-citation="entities:2709:1">AnGes (4563 JP)</a> is currently the most extreme large cap positive outlier having peaked at '492' on 26th February up from a 'trough' of -132 in December. Biotechnology peer <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> is, for the third time this year, the most extreme negative outlier, having topped the 13th January and 24th February positive outlier lists and is another 'round-tripper'. 
</div><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/441/original/2019-03-10_12-13-00.png?1552187591" class="editor-image img-responsive" data-smartkarma-image-id="81441"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/442/original/2019-03-10_12-17-48.png?1552187878" class="editor-image img-responsive" data-smartkarma-image-id="81442"></figure>Source: Japan Analytics
</div>

- MARKET COMPOSITE -Source: Japan Analytics
SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro data intervened and sent the market 3% lower over the last two trading days suggesting the bear market rally is now over. After peaking at 48%, the market-value-based percentage above the weighted sum of moving averages has now retreated to 33%. - SECTORS - 
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.SECTOR BREAKDOWN - The top six sectors remain domestic and defensive and are unchanged from two weeks ago with REITs, the clear leader. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Retail, Autos, and Metals remain from two weeks ago, with Machinery replacing Construction. Banks stay at the bottom, and the sector had its largest volume 'day' as measured by our Volume Score since September 21st, 2018 on Friday although many other sectors were 'active.' Source: Japan Analytics- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, Pksha Technology (3993 JP) declined by 8% and 'tops' our most negative two-week change list, while the most negative outlier SanBio (4592 JP) rose by 3%. Leopalace21 (8848 JP) which was also featured recovered by 9%.
AnGes (4563 JP) is currently the most extreme large cap positive outlier having peaked at '492' on 26th February up from a 'trough' of -132 in December. Biotechnology peer SanBio (4592 JP) is, for the third time this year, the most extreme negative outlier, having topped the 13th January and 24th February positive outlier lists and is another 'round-tripper'. 

Source: Japan Analytics


🇯🇵 Japan: Moving Average Outliers - AnGes, SanBio, Adastria, AIN, Sumco & Benefit One

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)

Sumco Reports Strong First Quarter Results; We Remain Optimistic on the Stock

Sumco reported its 1QFY12/19 results yesterday which saw its revenue and OP growing YoY. However, when compared to 4QFY12/19 performance, both...

Shifara Samsudeen, FCMA, CGMA

Shin-Etsu Reports Strong FY03/2019 Results; Our Outlook Remains Positive

Shin-Etsu (4063 JP) reported its 4QFY03/19 and full-year FY03/19 results on 26th April 2019. Revenue grew by JPY152.6bn posting 10.6% YoY growth...

Shifara Samsudeen, FCMA, CGMA

Advantest: FY03/19 Full-Year Results Beat Consensus, 4QFY03/19 Declines Due to Memory Downturn

Advantest (6857 JP) reported its 4QFY03/19 and Full-year FY03/19 results yesterday (25th of April). The company reported 36.3% YoY growth in...

Shifara Samsudeen, FCMA, CGMA

Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up

The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers,...

Shifara Samsudeen, FCMA, CGMA

🇯🇵 Japan: Moving Average Outliers - AnGes, SanBio, Adastria, AIN, Sumco & Benefit One

- MARKET COMPOSITE - SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro...

Campbell Gunn

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