'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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/266/original/2020-04-24_08-07-36.png?1588109848" class="editor-image img-responsive" data-smartkarma-image-id="130266"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>29TH APRIL </strong>- In the<strong> DETAIL</strong> below, we shall review Tuesday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 117 results was 52:3:62; and for the 76 revisions or initial forecasts, the split was 22:2:52. Of the 82 companies announcing annual results, only 22 made forecasts for the current year, while <a href="https://www.smartkarma.com/entities/shimano-inc" target="_blank" data-smartkarma-citation="entities:3777:1" rel="noopener">Shimano (7309 JP)</a> withdrew its FY2020 forecast. Our Sector Score chart is now showing some dramatic changes. <strong>Consumer Services</strong> is now the lowest-scoring Sector following <a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661 JP)</a>'s poor full-year results. In comparison, significant declines have been seen in <strong>Transportation &amp; Logistics</strong> (<a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway Co (9020 JP)</a> and <strong>Utilities</strong> (<a href="https://www.smartkarma.com/entities/tokyo-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:2332:1" rel="noopener">Tokyo Gas (9531 JP))</a>.  The <strong>Internet Content &amp; Services</strong> (<a href="https://www.smartkarma.com/entities/zozo-inc" target="_blank" data-smartkarma-citation="entities:18379:1" rel="noopener">ZOZO (3092 JP)</a>) and <strong>Chemicals</strong> ( <a href="https://www.smartkarma.com/entities/shin-etsu-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:4481:1" rel="noopener">Shin Etsu Chemical (4063 JP)</a>) Sectors are the largest gainers. </p>

Source • Japan Analytics29TH APRIL - In the DETAIL below, we shall review Tuesday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 117 results was 52:3:62; and for the 76 revisions or initial forecasts, the split was 22:2:52. Of the 82 companies announcing annual results, only 22 made forecasts for the current year, while Shimano (7309 JP) withdrew its FY2020 forecast. Our Sector Score chart is now showing some dramatic changes. Consumer Services is now the lowest-scoring Sector following Oriental Land (4661 JP)'s poor full-year results. In comparison, significant declines have been seen in Transportation &amp; Logistics (East Japan Railway Co (9020 JP) and Utilities (Tokyo Gas (9531 JP)).  The Internet Content &amp; Services (ZOZO (3092 JP)) and Chemicals ( Shin Etsu Chemical (4063 JP)) Sectors are the largest gainers. 

🇯🇵 JAPAN • Results & Revisions Update 29th April - Mit.Chem, TKC, Keyence, ZOZO, Shimano. Or.Land

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/414/original/2020-04-24_05-17-46.png?1587673330" class="editor-image img-responsive" data-smartkarma-image-id="129414"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/415/original/2020-04-24_05-22-47.png?1587673388" class="editor-image img-responsive" data-smartkarma-image-id="129415"></figure><div class="content-caption">Source • IHS Markit/au Jibun Bank, Cabinet Office</div><p><strong>"GETTING WORSE RAPIDLY"</strong> - According to Japan's Cabinet Office in language that has not been used since May 2009, "the Japanese economy is getting worse rapidly in an extremely severe situation" and has dropped the word "recovering" for the first time in the Abenomics era. The IHS Markit Composite PMI data (sponsored by au Jibun Bank) shown above is already below the trough of 2009 and expectations suggest that the manufacturing output indicator will follow Services into the "20s" next month. The Bank of Japan is reported to be discussing 'unlimited' purchases of fixed income securities.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/417/original/IMG_1497.jpg?1587675446" class="editor-image img-responsive" data-smartkarma-image-id="129417"></figure><div class="content-caption">Source • NHK</div><p><strong>SIGNALLING</strong> - COVID-19 daily case counts remain above 300 and 100, respectively, although these are lagging indicators given that it takes up to one week to get a test result due to a lack of personnel and excessively fax-centric bureaucratic processes.  The central and local governments are stepping up their rhetoric to encourage more social distancing, especially over the upcoming Golden Week national holidays. They have asked companies to 'cease operations' from tomorrow until 6th May. Parking lots at tourist attractions are being closed, and flower buds are being culled in parks and nature reserves. The closure of national highway routes is also being discussed. Many pachinko parlours are defying the government's request to cease operations. They may now be subjected to 'naming and shaming' - a tactic complicated by the over-representation of Korean ethnic minorities in the industry.<strong> Japan's current strategy risks falling between its twin objectives of limiting the damage to the economy while avoiding 'overshoot' in the medical system. We continue to expect the 'states of emergency' to be extended beyond 6th May.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/418/original/2020-04-23_07-03-24.png?1587676688" class="editor-image img-responsive" data-smartkarma-image-id="129418"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>INTERIM FORECASTS</strong> - Many companies issue forecasts for the interim as well as the annual period ahead. The former forecasts are often prepared and reviewed at a lower 'level' in the company than the latter, which are seen as 'targets' set by the CEO. As a result and as seen last year, the interim forecasts provide better forward guidance, a pattern that is beginning to repeat this year as seen in our scoring above. </p><p>In the <strong>DETAIL</strong> below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the 16 results was 9:0:7; and for the 17 revisions/forecasts, the split was 12:0:5, with three of the twelve 'positives' being in the Information Technology Sector. Of the eleven companies reporting annual results, only five made a forecast for the current year. <strong><a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon (7751 JP)</a></strong>became the largest company so far by market cap to withdraw its year-end forecasts. One company withdrew its dividend forecast; two increased their payouts, while <a href="https://www.smartkarma.com/entities/nok-corp" target="_blank" data-smartkarma-citation="entities:2980:1" rel="noopener">NOK (7240 JP)</a> reduced.</p>

Source • IHS Markit/au Jibun Bank, Cabinet Office"GETTING WORSE RAPIDLY" - According to Japan's Cabinet Office in language that has not been used since May 2009, "the Japanese economy is getting worse rapidly in an extremely severe situation" and has dropped the word "recovering" for the first time in the Abenomics era. The IHS Markit Composite PMI data (sponsored by au Jibun Bank) shown above is already below the trough of 2009 and expectations suggest that the manufacturing output indicator will follow Services into the "20s" next month. The Bank of Japan is reported to be discussing 'unlimited' purchases of fixed income securities.  Source • NHKSIGNALLING - COVID-19 daily case counts remain above 300 and 100, respectively, although these are lagging indicators given that it takes up to one week to get a test result due to a lack of personnel and excessively fax-centric bureaucratic processes.  The central and local governments are stepping up their rhetoric to encourage more social distancing, especially over the upcoming Golden Week national holidays. They have asked companies to 'cease operations' from tomorrow until 6th May. Parking lots at tourist attractions are being closed, and flower buds are being culled in parks and nature reserves. The closure of national highway routes is also being discussed. Many pachinko parlours are defying the government's request to cease operations. They may now be subjected to 'naming and shaming' - a tactic complicated by the over-representation of Korean ethnic minorities in the industry. Japan's current strategy risks falling between its twin objectives of limiting the damage to the economy while avoiding 'overshoot' in the medical system. We continue to expect the 'states of emergency' to be extended beyond 6th May.Source • Japan AnalyticsINTERIM FORECASTS - Many companies issue forecasts for the interim as well as the annual period ahead. The former forecasts are often prepared and reviewed at a lower 'level' in the company than the latter, which are seen as 'targets' set by the CEO. As a result and as seen last year, the interim forecasts provide better forward guidance, a pattern that is beginning to repeat this year as seen in our scoring above. In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the 16 results was 9:0:7; and for the 17 revisions/forecasts, the split was 12:0:5, with three of the twelve 'positives' being in the Information Technology Sector. Of the eleven companies reporting annual results, only five made a forecast for the current year. Canon (7751 JP)became the largest company so far by market cap to withdraw its year-end forecasts. One company withdrew its dividend forecast; two increased their payouts, while NOK (7240 JP) reduced.

🇯🇵 JAPAN • Revisions & Results 23rd April - "Getting Worse Rapidly" + OBICs, TGas, Canon, Omron

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

<p style="text-align: center;"><strong>• MARKET COMPOSITE - AGGREGATE RESULTS •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/865/original/2019-08-16_06-45-04.png?1565905530" class="editor-image img-responsive" data-smartkarma-image-id="95865"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>THIRD DOWN QUARTER</strong> - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. </p><p><strong>FORECASTS STILL OPTIMISTIC</strong> -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. </p><p><strong>UPSIDE LIMITED</strong> - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/770/original/2019-08-15_12-05-51.png?1565838392" class="editor-image img-responsive" data-smartkarma-image-id="95770"></figure><p>Source: Japan Analytics </p>
</div><p><strong>MARGIN ROLLOVER</strong> - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/772/original/2019-08-15_12-26-32.png?1565839621" class="editor-image img-responsive" data-smartkarma-image-id="95772"></figure><p>Source: Japan Analytics </p>
</div><p><strong>SECTOR MARGINS - TOP</strong> - <strong>Bank</strong> Sector margins continue to slide, but have yet to lose their leading position to <strong>Telecoms</strong> despite the latter's margins being unchanged over three months. <strong>Internet</strong> and b both saw large margins contractions as did <strong>Chemicals</strong> which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, <strong>Infomation Technology</strong>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/773/original/2019-08-15_12-44-16.png?1565840676" class="editor-image img-responsive" data-smartkarma-image-id="95773"></figure><div class="content-caption">Source: Japan Analytics </div><p><strong>SECTOR MARGINS - MID</strong> - The <strong>Market Composite</strong> OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only <strong>Multi-Industry</strong> and <strong>Consumer Services</strong> saw margin increases of more than ten basis points. The worst-performing in this group were <strong>Food, Beverage &amp; Tobacco</strong> and <strong>Technology Hardwar</strong>e. Over a longer-term period, there has been a notable decline in <strong>Construction</strong> and<strong> Non-Bank Finance</strong> Sector margins. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/774/original/2019-08-15_12-52-37.png?1565841201" class="editor-image img-responsive" data-smartkarma-image-id="95774"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>SECTOR MARGINS - BOTTOM </strong>- Only <strong>Utilities</strong> of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while<strong> Building Materials</strong>, <strong>Autos</strong>,<strong> Metals</strong>, <strong>Energy</strong>, and <strong>Other Materials</strong> all had double-digit declines. <strong>Retail</strong> margins are the most stable amongst this group,</p><p><strong>OUTLOOK</strong> - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  </p><hr><p style="text-align: center;"><strong>• RESULTS &amp; REVISION SCORE •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/869/original/2019-08-16_06-50-04.png?1565905842" class="editor-image img-responsive" data-smartkarma-image-id="95869"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RESULT &amp; REVISION SCORE </strong>- After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/838/original/2019-08-15_18-08-12.png?1565860115" class="editor-image img-responsive" data-smartkarma-image-id="95838"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>28-MONTH LOW</strong> - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/839/original/2019-08-15_18-23-10.png?1565861002" class="editor-image img-responsive" data-smartkarma-image-id="95839"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTERIM v FULL-YEAR FORECASTS</strong> - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. <strong>If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/870/original/2019-08-16_06-58-00.png?1565906307" class="editor-image img-responsive" data-smartkarma-image-id="95870"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>CURRENCY IN THE DRIVING SEAT</strong> - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.</p><p>In the <strong>DETAIL</strong> section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.</p>

• MARKET COMPOSITE - AGGREGATE RESULTS •Source: Japan AnalyticsTHIRD DOWN QUARTER - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. FORECASTS STILL OPTIMISTIC -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. UPSIDE LIMITED - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.
Source: Japan Analytics 
MARGIN ROLLOVER - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.
Source: Japan Analytics 
SECTOR MARGINS - TOP - Bank Sector margins continue to slide, but have yet to lose their leading position to Telecoms despite the latter's margins being unchanged over three months. Internet and b both saw large margins contractions as did Chemicals which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, Infomation Technology.Source: Japan Analytics SECTOR MARGINS - MID - The Market Composite OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only Multi-Industry and Consumer Services saw margin increases of more than ten basis points. The worst-performing in this group were Food, Beverage &amp; Tobacco and Technology Hardware. Over a longer-term period, there has been a notable decline in Construction and Non-Bank Finance Sector margins. Source: Japan AnalyticsSECTOR MARGINS - BOTTOM - Only Utilities of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while Building Materials, Autos, Metals, Energy, and Other Materials all had double-digit declines. Retail margins are the most stable amongst this group,OUTLOOK - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  • RESULTS &amp; REVISION SCORE •Source: Japan AnalyticsRESULT &amp; REVISION SCORE - After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.Source: Japan Analytics28-MONTH LOW - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.Source: Japan AnalyticsINTERIM v FULL-YEAR FORECASTS - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.Source: Japan AnalyticsCURRENCY IN THE DRIVING SEAT - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.In the DETAIL section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.

🇯🇵 JAPAN • Summer Results & Revisions - Market Composite & Sectors - Third Down

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/809/original/2019-08-04_13-24-01.png?1564892655" class="editor-image img-responsive" data-smartkarma-image-id="94809"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>SOUTHBOUND</strong> - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/810/original/2019-08-04_13-32-15.png?1564893149" class="editor-image img-responsive" data-smartkarma-image-id="94810"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/812/original/2019-08-04_13-39-03.png?1564893556" class="editor-image img-responsive" data-smartkarma-image-id="94812"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>BREAKDOWN</strong> - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/816/original/2019-08-04_13-44-46.png?1564893904" class="editor-image img-responsive" data-smartkarma-image-id="94816"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>YEN DRIVER</strong> - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1" rel="noopener">JUSDJPY CURNCY</a> over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.</p></div><center></center><div class="content-caption">The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell</div>

Source: Japan AnalyticsSOUTHBOUND - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.Source: Japan AnalyticsBREAKDOWN - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.Source: Japan AnalyticsYEN DRIVER - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in JUSDJPY CURNCY over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    In the DETAIL section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell

🇯🇵 Japan • Summer Results & Revisions First Cut - Southbound

<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

Japan

TOKYO GAS CO., LTD. produces and supplies liquefied natural gas to Tokyo and the surrounding areas.  The Company maintains and manages gas supply equipment and sells air conditioning appliances.  Tokyo Gas operates power generation business as well.

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