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>
<a href="https://www.smartkarma.com/entities/tokyo-electron-ltd/overview" target="_blank">Tokyo Electron (8035 JP/TEL)</a>reported its 4QFY03/19 and full-year FY03/19 results on 26<sup>th</sup> of April. The company reported a solid full-year with double-digit growth in revenue and operating profit due to strong demand for semiconductors mainly during the first half of the year.</li>
<li>However, the fourth quarter numbers failed to impress with both revenue and operating profit declining YoY, providing the indication that the semiconductor downturn has started impacting the company’s results.</li>
<li>Moreover, the management is expecting the FY03/2020 to have the worst impact from the memory market decline with revenue and operating profit forecasted to decline 13.9% YoY and 29.2% YoY respectively. This did not come in as a surprise to us as the semiconductor market has already been decelerating and the market expects the inventory adjustments to continue well into 2019.</li>
<li>We feel the stock is still overvalued at its current price of JPY17,645 per share and it could decline further once the market witnesses the severity of the down-cycle. Despite management being positive about the future business prospects, we feel it is too soon to establish a bullish view on the stock given the current decline in the semiconductor market.</li>
</ul>



Tokyo Electron (8035 JP/TEL)reported its 4QFY03/19 and full-year FY03/19 results on 26th of April. The company reported a solid full-year with double-digit growth in revenue and operating profit due to strong demand for semiconductors mainly during the first half of the year.
However, the fourth quarter numbers failed to impress with both revenue and operating profit declining YoY, providing the indication that the semiconductor downturn has started impacting the company’s results.
Moreover, the management is expecting the FY03/2020 to have the worst impact from the memory market decline with revenue and operating profit forecasted to decline 13.9% YoY and 29.2% YoY respectively. This did not come in as a surprise to us as the semiconductor market has already been decelerating and the market expects the inventory adjustments to continue well into 2019.
We feel the stock is still overvalued at its current price of JPY17,645 per share and it could decline further once the market witnesses the severity of the down-cycle. Despite management being positive about the future business prospects, we feel it is too soon to establish a bullish view on the stock given the current decline in the semiconductor market.


Tokyo Electron Reports Strong FY03/19 Results; Outlook for FY03/20 Looks Weak but Nothing Surprising

'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/000/086/182/original/2019-04-29_12-24-09.png?1556508262" class="editor-image img-responsive" data-smartkarma-image-id="86182"></figure><p>Source: Japan Analytics</p>
</div><p><strong>EARLY DAYS</strong> - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. <strong>With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/411/original/2019-04-30_13-26-24.png?1556598396" class="editor-image img-responsive" data-smartkarma-image-id="86411"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/412/original/File%202019-04-30%2013%2010%2017.jpeg?1556598417" class="editor-image img-responsive" data-smartkarma-image-id="86412"></figure><div class="content-caption">Source: Japan Analytics, Pictet Asset Management</div><p><strong>MARGIN SLIPPAGE</strong> -<strong> </strong>With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/187/original/2019-04-29_12-32-53.png?1556508784" class="editor-image img-responsive" data-smartkarma-image-id="86187"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/190/original/2019-04-29_12-51-24.png?1556509893" class="editor-image img-responsive" data-smartkarma-image-id="86190"></figure><p>Source: Japan Analytics</p>
</div><p style="text-align: left;"><strong>RESULTS &amp; REVISION SCORES</strong> - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. <strong>Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/193/original/2019-04-29_13-17-03.png?1556511439" class="editor-image img-responsive" data-smartkarma-image-id="86193"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>USDJPY NEUTRAL</strong> - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1">JUSDJPY CURNCY</a> highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.</p></div>


Source: Japan Analytics
EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. Source: Japan Analytics, Pictet Asset ManagementMARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. 
Source: Japan Analytics
RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. Source: Japan AnalyticsUSDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in JUSDJPY CURNCY highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/983/original/2019-04-26_11-52-57.png?1556247183" class="editor-image img-responsive" data-smartkarma-image-id="85983"></figure><p>Source: Japan Analytics</p>
</div><p><strong><a href="https://www.smartkarma.com/entities/18107" target="_blank" data-smartkarma-citation="entities:18107:1">ADVANTEST (6857 JP)</a></strong> reported FY2019 on 25th April and released initial forecasts for the current year which suggest that Operating Income will decline by 54% on a 19% decline in sales and a 23% decline in new orders. For details, please see <a href="https://www.smartkarma.com/companies/909" target="_blank" data-smartkarma-citation="companies:909">LightStream Research</a>'s Insight <a href="https://www.smartkarma.com/insights/advantest-fy03-19-full-year-results-beat-consensus-4qfy03-19-declines-due-to-memory-downturn" target="_blank" data-smartkarma-citation="insights:29425">here</a>. This Insight will review the company's forecasting track record, update our Scoring Charts and, based on our valuation methodology, suggest the current downside risk or short 'potential' after today's near 9% decline.  <strong>We also highlight the 11% increase in net shares outstanding in the last five quarters.</strong></p>


Source: Japan Analytics
ADVANTEST (6857 JP) reported FY2019 on 25th April and released initial forecasts for the current year which suggest that Operating Income will decline by 54% on a 19% decline in sales and a 23% decline in new orders. For details, please see LightStream Research's Insight here. This Insight will review the company's forecasting track record, update our Scoring Charts and, based on our valuation methodology, suggest the current downside risk or short 'potential' after today's near 9% decline.  We also highlight the 11% increase in net shares outstanding in the last five quarters.

6857 🇯🇵 Advantest • Scoring & Valuation Update

<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

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>Incremental technical developments continue to be of the bullish variety as more and more countries/regions begin to participate in the rally. These ongoing improvements further cement our positive overall outlook, and we continue to believe that global equities (MSCI ACWI) are poised for additional strength moving forward. In our April International Strategy, we highlight various themes which lead to our overall positive outlook, along with areas within the world's markets where we see immediate opportunity.</p>

Incremental technical developments continue to be of the bullish variety as more and more countries/regions begin to participate in the rally. These ongoing improvements further cement our positive overall outlook, and we continue to believe that global equities (MSCI ACWI) are poised for additional strength moving forward. In our April International Strategy, we highlight various themes which lead to our overall positive outlook, along with areas within the world's markets where we see immediate opportunity.

Global Ex-U.S. Equity Strategy: Positive Outlook Intact; Remain Overweight China

Japan

Tokyo Electron Limited manufactures and sells industrial electronics products, such as semiconductor manufacturing machines, computer system, and electronic components.  The Company products are sold in US, Taiwan, and others as well as in Japan.

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Tokyo Electron (8035 JP)

Tokyo Electron Reports Strong FY03/19 Results; Outlook for FY03/20 Looks Weak but Nothing Surprising

Tokyo Electron (8035 JP/TEL)reported its 4QFY03/19 and full-year FY03/19 results on 26th of April. The company reported a solid full-year with...

Shifara Samsudeen, FCMA, CGMA

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of...

Campbell Gunn

6857 🇯🇵 Advantest • Scoring & Valuation Update

ADVANTEST (6857 JP) reported FY2019 on 25th April and released initial forecasts for the current year which suggest that Operating Income will...

Campbell Gunn

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

Global Ex-U.S. Equity Strategy: Positive Outlook Intact; Remain Overweight China

Incremental technical developments continue to be of the bullish variety as more and more countries/regions begin to participate in the rally....

Vermilion Research

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