'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.

Quantitative Analysis

<div>
• RELATIVE PRICE SCORE •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/735/original/2020-09-23_11-03-49.png?1600826665" class="editor-image img-responsive" data-smartkarma-image-id="160735"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<a href="https://www.dropbox.com/s/6h3m1giwbtzcupg/2020-09-23_11-03-49.png?dl=0" target="_blank" rel="noopener">PEAK OUTLIER</a> - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/736/original/2020-09-23_11-11-07.png?1600827080" class="editor-image img-responsive" data-smartkarma-image-id="160736"></figure>
</div>SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP))</a>  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/741/original/2020-09-23_11-39-24.png?1600828791" class="editor-image img-responsive" data-smartkarma-image-id="160741"></figure>In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.<div class="content-highlight">RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.</div>


• RELATIVE PRICE SCORE •
Source for all charts &amp; tables: Japan Analytics
PEAK OUTLIER - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  

SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( Japan Post (6178 JP))  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> was not having the best of times even before COVID as the Hong Kong protests and the South Korea boycott affected the company’s financial performance resulting in three consecutive quarters of year-on-year revenue and OP declines.Even so, the company is adored by most investors and consistently commands valuation multiples as high as 32x FY+2 PE and 20x FY+2 EBIT. <a target="_blank">After losing more than 40% of its value during the COVID-19 sell-off, the shares have rebounded to their pre COVID level, and currently trade at ¥64,870 per share which is just 7% lower than the all-time high (July 2019).</a>

Fast Retailing (9983 JP) was not having the best of times even before COVID as the Hong Kong protests and the South Korea boycott affected the company’s financial performance resulting in three consecutive quarters of year-on-year revenue and OP declines.Even so, the company is adored by most investors and consistently commands valuation multiples as high as 32x FY+2 PE and 20x FY+2 EBIT. After losing more than 40% of its value during the COVID-19 sell-off, the shares have rebounded to their pre COVID level, and currently trade at ¥64,870 per share which is just 7% lower than the all-time high (July 2019).

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

It hasn’t been easy selling clothing in the last six months or even in the months before, unless, that is, you are <a href="https://www.smartkarma.com/entities/workman-co-ltd" target="_blank" data-smartkarma-citation="entities:8467:1" rel="noopener">Workman Co Ltd (7564 JP)</a>.
The workwear to sports retailer delivered six straight months of sales growth peaking at 44% year-on-year thanks to low price cost performance, relentless expansion of private brands and investment in new franchisees.
Workman's share price is up more than 3x since we first recommended the retailer in late 2018 but we have been fans of the company for more than a decade for its disciplined focus on low-cost operations, merchandise quality and efforts to understand and produce for its core customer target.
It also helps that Workman is a franchise operation and one that, like Benetton and McDonald's and other successful franchises over time, buys the land its franchisees operate stores on. The franchise deal keeps costs way lower than competitors and also means personnel costs are for the most part variable while its competitors face fixed staff costs – a huge advantage especially now.
These are core qualities for a retailer and in all aspects, Workman continues to improve. Sales have risen as much as 44% a month since March and as explained below, there are very strong reasons to expect both sales and profit margins to grow much, much further. The share price may have dipped in recent days but the fundamentals remain strong: more growth is to come.

It hasn’t been easy selling clothing in the last six months or even in the months before, unless, that is, you are Workman Co Ltd (7564 JP).
The workwear to sports retailer delivered six straight months of sales growth peaking at 44% year-on-year thanks to low price cost performance, relentless expansion of private brands and investment in new franchisees.
Workman's share price is up more than 3x since we first recommended the retailer in late 2018 but we have been fans of the company for more than a decade for its disciplined focus on low-cost operations, merchandise quality and efforts to understand and produce for its core customer target.
It also helps that Workman is a franchise operation and one that, like Benetton and McDonald's and other successful franchises over time, buys the land its franchisees operate stores on. The franchise deal keeps costs way lower than competitors and also means personnel costs are for the most part variable while its competitors face fixed staff costs – a huge advantage especially now.
These are core qualities for a retailer and in all aspects, Workman continues to improve. Sales have risen as much as 44% a month since March and as explained below, there are very strong reasons to expect both sales and profit margins to grow much, much further. The share price may have dipped in recent days but the fundamentals remain strong: more growth is to come.

Japan's Retail Star: Workman Thrives in Crisis

The COVID-19 virus has regained momentum in Japan, and especially in Tokyo, with confirmed new daily cases rising to over 200.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/145/718/original/image_62867043121594640501211.png?1594640500" class="editor-image img-responsive" data-smartkarma-image-id="145718"></figure>
<a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>’s third quarter ended May 2020 saw revenue fall by 39% year-on-year and operating profits (excluding impairments) decline by 93%. As we expected, the company’s full-year 2020 forecasts have been revised for the third time – revenue is forecast to be ¥1,990 billion (5% lower) and operating profits will be ¥130 billion (10% lower than April’s guidance).

The COVID-19 virus has regained momentum in Japan, and especially in Tokyo, with confirmed new daily cases rising to over 200.

Fast Retailing (9983 JP)’s third quarter ended May 2020 saw revenue fall by 39% year-on-year and operating profits (excluding impairments) decline by 93%. As we expected, the company’s full-year 2020 forecasts have been revised for the third time – revenue is forecast to be ¥1,990 billion (5% lower) and operating profits will be ¥130 billion (10% lower than April’s guidance).

Fast Retailing: Lowered Guidance Still Unrealistic

Japanese sporting goods company <a href="https://www.smartkarma.com/entities/asics-corp" target="_blank" data-smartkarma-citation="entities:16287:1" rel="noopener">ASICS Corp (7936 JP) </a>has started posting sales trends for its direct retail outlets in chart format every two weeks and will continue to do so for the rest of the year. No sales data is provided, however, sales trends in Japan, Europe and the US remained weak until the end of May. Asics China, however, recorded positive year-on-year sales growth over the last four weeks.
Asics is currently trading at a twenty-year peak FY+2 EV/OP multiple of 26.1x. Our target price of ¥783, based on the 5-year average for this ratio, implies a 41.9% downside from the current price.
<h3>EV/EBIT- FY+2</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/405/original/image_11376073521591862142863.png?1591862144" class="editor-image img-responsive" data-smartkarma-image-id="139405"></figure>
<div class="content-caption">Source: Cap IQ</div>

Japanese sporting goods company ASICS Corp (7936 JP) has started posting sales trends for its direct retail outlets in chart format every two weeks and will continue to do so for the rest of the year. No sales data is provided, however, sales trends in Japan, Europe and the US remained weak until the end of May. Asics China, however, recorded positive year-on-year sales growth over the last four weeks.
Asics is currently trading at a twenty-year peak FY+2 EV/OP multiple of 26.1x. Our target price of ¥783, based on the 5-year average for this ratio, implies a 41.9% downside from the current price.
EV/EBIT- FY+2

Source: Cap IQ

Japan

WORKMAN CO., LTD. designs, produces, and retails work uniforms and related goods including work gloves and safety shoes.  The Company operates its own stores and franchise stores located throughout eastern Japan.

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Workman Co Ltd (7564 JP)

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

• RELATIVE PRICE SCORE • RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX...

Campbell Gunn

Fast Retailing: Hold or Sell Dilemma

Fast Retailing was not having the best of times even before COVID as the Hong Kong protests and the South Korea boycott affected the company’s...

Oshadhi Kumarasiri

Japan's Retail Star: Workman Thrives in Crisis

It hasn’t been easy selling clothing in the last six months or even in the months before, unless, that is, you are Workman. The workwear to sports...

Michael Causton

Fast Retailing: Lowered Guidance Still Unrealistic

The COVID-19 virus has regained momentum in Japan, and especially in Tokyo, with confirmed new daily cases rising to over 200. Fast Retailing...

Oshadhi Kumarasiri

ASICS: At a 20-Year Forward EV/OP Peak

Japanese sporting goods company ASICS Corp (7936 JP) has started posting sales trends for its direct retail outlets in chart format every two weeks...

Oshadhi Kumarasiri

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