Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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 Capital Markets

Japan Post Holdings / Equity Capital Markets

<p>Japan Post Holdings’ listed subsidiary, Japan Post Insurance has suffered from a scandal involving improper sales practices and this has suppressed its multiple noticeably despite strong EPS growth. As sales activities start to normalise we believe the market is severely underestimating how small an improvement would be required here to drive very large increases in earnings.</p>

Japan Post Holdings’ listed subsidiary, Japan Post Insurance has suffered from a scandal involving improper sales practices and this has suppressed its multiple noticeably despite strong EPS growth. As sales activities start to normalise we believe the market is severely underestimating how small an improvement would be required here to drive very large increases in earnings.

Japan Post – Insurance Business Is Sandbagging Guidance

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a> has seen a flurry of profit-taking in the past two weeks since it dramatically repurchased 30% of its shares outstanding in an overnight trade.</p><p>The shares now trade lower than they did the moment before the announcement. </p><p><a href="https://www.smartkarma.com/entities/dai-ichi-life-insurance" target="_blank" data-smartkarma-citation="entities:1109:1" rel="noopener">Dai Ichi Life Insurance (8750 JP)</a> is probably JPI's closest listed peer, and it is up 8.8% in the same period. </p><p>I would say that the stock and its holders are conspiring against me but that is not how things work.</p><p><em>Lots of discussion below the fold - index treatment, overhang, PBR accretion, and more.</em></p>

Japan Post Insurance (7181 JP) has seen a flurry of profit-taking in the past two weeks since it dramatically repurchased 30% of its shares outstanding in an overnight trade.The shares now trade lower than they did the moment before the announcement. Dai Ichi Life Insurance (8750 JP) is probably JPI's closest listed peer, and it is up 8.8% in the same period. I would say that the stock and its holders are conspiring against me but that is not how things work.Lots of discussion below the fold - index treatment, overhang, PBR accretion, and more.

Japan Post Insurance - A Surprising Selloff But Still A Buy

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.</p></div><div><p>These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.</p></div><div>
<p>These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.</p>
<p>Over the last couple of months, our pair trades have returned 2.54% on average.</p>
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In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.


'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/378/original/2020-08-08_12-56-11.png?1596858996" class="editor-image img-responsive" data-smartkarma-image-id="151378"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>30x</strong> - Following Friday's 'peak' in this quarter's results announcements, our prediction that the market multiple would exceed 30 times by months end, occurred in one week, and aggregate forecast operating and net profits are now ¥4.3 trillion and ¥4.6 trillion lower than at the end of last month. A large number of companies that previously had avoided making full-year forecasts three months ago are now doing so, hastening the decline. The last time the market aggregate multiple was above 30 times was just before "3/11" when net income and total market value were both half the current values. Other than the 2008/9 financial crisis, the market multiple rarely exceeded 25 times in the prior decade.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/387/original/2020-08-08_15-39-59.png?1596868850" class="editor-image img-responsive" data-smartkarma-image-id="151387"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>-40%</strong> - Forecast full-year revenues are 10% lower than a year ago, and forecast operating profits are 40% below the level of August 2019. Forecast operating margins, at 4.8%, are 300 basis points below the peak of September 2018. Net margins are to decline by 318 bps to 2.7% as net income forecasts are half those of a year ago.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/388/original/2020-08-08_15-45-35.png?1596869157" class="editor-image img-responsive" data-smartkarma-image-id="151388"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>SECTOR FORECASTS</strong> - Four Sectors are forecasting full-year losses - <strong>Energy</strong>, <strong>Metals</strong>, <strong>Restaurants</strong> and <strong>Consumer Services</strong>, although<strong> Metals</strong> appears to be bottoming out. Only the Healthcare Sector has seen any operating margin improvement; however, that modest change is now well discounted. <strong>Autos</strong>,<strong> Utilities</strong>, and<strong> Transportation</strong> have seen 100 bps year-on-year forecast operating margin declines, but are still expecting to be in the black. The<strong> Information Technology</strong> and<strong> Non-Bank Finance</strong> (mostly Insurance) Sectors are forecasting 'flat'.</p><p style="text-align: center;"><strong>•BEST &amp; WORST 7th AUGUST •</strong></p><p style="text-align: left;">The 'best' of Friday's large-cap announcements came from <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/t-d-holdings-inc" target="_blank" data-smartkarma-citation="entities:3431:1" rel="noopener">T&amp;D Holdings (8795 JP)</a>; the worst from <a href="https://www.smartkarma.com/entities/daiichikosho-co-ltd" target="_blank" data-smartkarma-citation="entities:8629:1" rel="noopener">Daiichikosho (7458 JP)</a> and <a href="https://www.smartkarma.com/entities/kyoritsu-maintenance-co-ltd" target="_blank" data-smartkarma-citation="entities:19645:1" rel="noopener">Kyoritsu Maintenance (9616 JP)</a>.  More extensive coverage follows in the <strong>DETAIL</strong> section below.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/389/original/2020-08-08_16-30-24.png?1596871844" class="editor-image img-responsive" data-smartkarma-image-id="151389"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/390/original/2020-08-05_07-34-43.png?1596872118" class="editor-image img-responsive" data-smartkarma-image-id="151390"></figure><p></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/391/original/2020-08-08_16-37-27.png?1596872258" class="editor-image img-responsive" data-smartkarma-image-id="151391"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/392/original/2020-08-08_16-38-12.png?1596872310" class="editor-image img-responsive" data-smartkarma-image-id="151392"></figure><div class="content-caption">Source • Japan Analytics</div><div><hr></div><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p><strong>PERCENTAGES</strong> -<strong> 65%</strong> of quarterly results,<strong>  76</strong>% of annual forecasts/revisions and <strong>80</strong>% of interim forecasts have negative Scores and<strong> 28%</strong> of companies reporting lost money for the quarter.</p></div><hr><div><p style="text-align: center;"><strong>663 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 29% Positive / 6% Neutral / 65% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.4 points</li>
<li>
<strong>Average % Change in Revenue:</strong> -10.4% Quarter YoY / -2.2% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.3 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 28%</li>
</ul></div><hr><div><p style="text-align: center;"><strong>196 Annual • 123 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 19% Positive / 5% Neutral / 76% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change: </strong>19% Positive / 1% Neutral / 80% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -10.9 points</li>
</ul></div>

Source • Japan Analytics30x - Following Friday's 'peak' in this quarter's results announcements, our prediction that the market multiple would exceed 30 times by months end, occurred in one week, and aggregate forecast operating and net profits are now ¥4.3 trillion and ¥4.6 trillion lower than at the end of last month. A large number of companies that previously had avoided making full-year forecasts three months ago are now doing so, hastening the decline. The last time the market aggregate multiple was above 30 times was just before "3/11" when net income and total market value were both half the current values. Other than the 2008/9 financial crisis, the market multiple rarely exceeded 25 times in the prior decade.  Source • Japan Analytics-40% - Forecast full-year revenues are 10% lower than a year ago, and forecast operating profits are 40% below the level of August 2019. Forecast operating margins, at 4.8%, are 300 basis points below the peak of September 2018. Net margins are to decline by 318 bps to 2.7% as net income forecasts are half those of a year ago.Source • Japan AnalyticsSECTOR FORECASTS - Four Sectors are forecasting full-year losses - Energy, Metals, Restaurants and Consumer Services, although Metals appears to be bottoming out. Only the Healthcare Sector has seen any operating margin improvement; however, that modest change is now well discounted. Autos, Utilities, and Transportation have seen 100 bps year-on-year forecast operating margin declines, but are still expecting to be in the black. The Information Technology and Non-Bank Finance (mostly Insurance) Sectors are forecasting 'flat'.•BEST &amp; WORST 7th AUGUST •The 'best' of Friday's large-cap announcements came from mixi (2121 JP) and T&amp;D Holdings (8795 JP); the worst from Daiichikosho (7458 JP) and Kyoritsu Maintenance (9616 JP).  More extensive coverage follows in the DETAIL section below.Source • Japan AnalyticsDAILY STATSPERCENTAGES - 65% of quarterly results,  76% of annual forecasts/revisions and 80% of interim forecasts have negative Scores and 28% of companies reporting lost money for the quarter.663 Quarterly Results

Results Score: 29% Positive / 6% Neutral / 65% Negative

Average Results Score Change: -3.4 points

Average % Change in Revenue: -10.4% Quarter YoY / -2.2% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.3 ppt

Percentage Making Quarterly Losses: 28%
196 Annual • 123 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 19% Positive / 5% Neutral / 76% Negative

Interim Forecast/Revision Score Change: 19% Positive / 1% Neutral / 80% Negative

Average Forecast/Revision Score Change: -10.9 points


🇯🇵 JAPAN • Results & Revisions 7th August - MS&AD, Mixi, SMC, Otsuka, Kyoritsu M, Hoshizaki, HDS

<div><p>The short notional in the market for the data released 3 March is US$24.60bn (up by US$388mm excluding FX movements) with the largest short positions in <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18448:1">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9924:1">Taiyo Yuden (6976 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:1:1">Canon Inc (7751 JP)</a> and <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a>. </p></div><div><p>Most shorted stocks as a percentage of free float are <a href="https://www.smartkarma.com/entities/anritsu-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:3700:1">Anritsu Corp (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9924:1">Taiyo Yuden (6976 JP)</a>, <a href="https://www.smartkarma.com/entities/aruhi-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:26072:1">Aruhi Corp (7198 JP)</a> and <a href="https://www.smartkarma.com/entities/tokai-carbon-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9145:1">Tokai Carbon (5301 JP)</a> while the stocks with the highest days to cover are <a href="https://www.smartkarma.com/entities/vital-ksk-holdings-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:7398:1">Vital Ksk Holdings (3151 JP)</a>, <a href="https://www.smartkarma.com/entities/aruhi-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:26072:1"></a><a href="https://www.smartkarma.com/entities/katakura-industries-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:2007:1">Katakura Industries (3001 JP)</a>, <a href="https://www.smartkarma.com/entities/j-trust-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:20246:1">J Trust Co Ltd (8508 JP)</a> and <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18448:1">Itochu Corp (8001 JP)</a>. </p></div><div><p>The largest increases in short notional over the week were <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18847:1">TDK Corp (6762 JP)</a>, <a href="https://www.smartkarma.com/entities/peptidream-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:13514:1">Peptidream Inc (4587 JP)</a>, <a href="https://www.smartkarma.com/entities/t-d-holdings-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:3431:1">T&amp;D Holdings (8795 JP)</a> and <a href="https://www.smartkarma.com/entities/minebea-mitsumi-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:5032:1">Minebea Mitsumi (6479 JP)</a> while shorts were covered in <a href="https://www.smartkarma.com/entities/fuji-heavy-industries-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:5439:1">Subaru Corp (7270 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:13316:1">M3 Inc (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18107:1">Advantest Corp (6857 JP)</a>.   </p></div><div><p>Sectorally, short positions increased in Industrials (US$194m), Information Technology (US$63m) and Materials (US$54m), while shorts were covered in Real Estate (US$35m) and Health Care (US$19m).</p></div>

The short notional in the market for the data released 3 March is US$24.60bn (up by US$388mm excluding FX movements) with the largest short positions in Itochu Corp (8001 JP), Toyota Motor (7203 JP), Taiyo Yuden (6976 JP), Canon Inc (7751 JP) and Fast Retailing (9983 JP). Most shorted stocks as a percentage of free float are Anritsu Corp (6754 JP), Taiyo Yuden (6976 JP), Aruhi Corp (7198 JP) and Tokai Carbon (5301 JP) while the stocks with the highest days to cover are Vital Ksk Holdings (3151 JP), Katakura Industries (3001 JP), J Trust Co Ltd (8508 JP) and Itochu Corp (8001 JP). The largest increases in short notional over the week were TDK Corp (6762 JP), Peptidream Inc (4587 JP), T&amp;D Holdings (8795 JP) and Minebea Mitsumi (6479 JP) while shorts were covered in Subaru Corp (7270 JP), M3 Inc (2413 JP), Fast Retailing (9983 JP) and Advantest Corp (6857 JP).   Sectorally, short positions increased in Industrials (US$194m), Information Technology (US$63m) and Materials (US$54m), while shorts were covered in Real Estate (US$35m) and Health Care (US$19m).

Japan - Small Caps and Micro Caps With High Short Interest Free Fall

Japan

T&D Holdings, Inc. is a holding company established through the merger of Taiyo Life Insurance, Daido Life Insurance, and T&D Financial Life Insurance. The Company manages life insurance operations for its subsidiaries.

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T&D Holdings (8795 JP)

Japan Post – Insurance Business Is Sandbagging Guidance

As Japan Post Insurance's sales activities start to normalise we believe the market is underestimating how small an improvement would be required...

Mio Kato

Japan Post Insurance - A Surprising Selloff But Still A Buy

Japan Post Insurance has bought back 29% of its shares and EPS, book value, and EEV accretion is immense, but the shares have underperformed rival...

Travis Lundy

Pair Trading Ideas - Asian Financials

We highlight potential trades among liquid large cap Asian financial stocks that are correlated and exhibit mean reversion. We recommend closing...

Brian Freitas

🇯🇵 JAPAN • Results & Revisions 7th August - MS&AD, Mixi, SMC, Otsuka, Kyoritsu M, Hoshizaki, HDS

30x - Following Friday's 'peak' in this quarter's results announcements, our prediction that the market multiple would exceed 30 times by months...

Campbell Gunn

Japan - Small Caps and Micro Caps With High Short Interest Free Fall

The short notional in the market for the data released 3 March is US$24.60bn (up by US$388mm excluding FX movements) with the largest short...

Brian Freitas

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