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.

Event-Driven

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/590/original/2020-02-13_03-51-57.png?1581538303" class="editor-image img-responsive" data-smartkarma-image-id="117590"></figure><div class="content-caption">Source • Japan Analytics</div>12TH FEBRUARY ROUNDUP - 272 results and 122 revisions announcements were made yesterday. Our Results Score declined by another 18 basis points to reach -0.65, while the Forecast /Revision  Score added 6bps thanks to upbeat initial FY2020 forecasts from <a href="https://www.smartkarma.com/entities/shimano-inc" target="_blank" data-smartkarma-citation="entities:3777:1" rel="noopener">Shimano (7309 JP)</a> and <a href="https://www.smartkarma.com/entities/yamaha-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:7411:1" rel="noopener">Yamaha Motor (7272 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/591/original/2020-02-13_03-58-17.png?1581538602" class="editor-image img-responsive" data-smartkarma-image-id="117591"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - This quarter's Sector winners and losers are now becoming more apparent. in the former camp are Banks, Energy,  Tech Hardware, Food, Beverages &amp; Tobacco, and Non-Bank Finance, while the latter includes Other Commercial Products, Transportation &amp; Logistics, Chemicals, Building Materials, and Media. The largest one-day changes were in Energy (<a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex (1605 JP)</a>) and Telecommunications (<a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>).  825 companies have yet to report, of which 385 are due today and a similar number on Friday.

Source • Japan Analytics12TH FEBRUARY ROUNDUP - 272 results and 122 revisions announcements were made yesterday. Our Results Score declined by another 18 basis points to reach -0.65, while the Forecast /Revision  Score added 6bps thanks to upbeat initial FY2020 forecasts from Shimano (7309 JP) and Yamaha Motor (7272 JP).Source • Japan AnalyticsSECTOR TIMELINE - This quarter's Sector winners and losers are now becoming more apparent. in the former camp are Banks, Energy,  Tech Hardware, Food, Beverages &amp; Tobacco, and Non-Bank Finance, while the latter includes Other Commercial Products, Transportation &amp; Logistics, Chemicals, Building Materials, and Media. The largest one-day changes were in Energy (Inpex (1605 JP)) and Telecommunications (Softbank Group (9984 JP)).  825 companies have yet to report, of which 385 are due today and a similar number on Friday.

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 12th February ▲9449 6273 7309 ▼ 3769 6367 4324

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Yamaha Motor Robotics Holdings / Event-Driven

The history here is tough to sort out.A year ago, <a href="https://www.smartkarma.com/entities/yamaha-motor-robotics-holdin" target="_blank" data-smartkarma-citation="entities:15110:1" rel="noopener">Yamaha Motor Robotics Holdings (6274 JP)</a> was named Shinkawa, and it agreed on 12 Feb 2019 to launch a Tender Offer for a company called <a href="https://www.smartkarma.com/entities/apic-yamada-corp" target="_blank" data-smartkarma-citation="entities:11374:1" rel="noopener">Apic Yamada (6300 JP)</a> which was an auto-moulding company (aiming at the fan-out segment). What is "fan-out"? According to former Smartkarma contributor Andrew Lu....<blockquote>Fan-out is an enhancement of the standard wafer-level packaging technology developed to provide a solution for semiconductor devices requiring a higher integration level and a greater number of I/Os down to 5-10 micron line and space. In this method, chips are singularized and then embedded in a carrier after a epoxy molding compound has been added (molded reconfigured wafer). The carrier is often formed in the shape of a wafer, so that standard wafer processing methods can continue to be used to create build-up layers on the surface.  The extra carrier area around the chip allows more I/Os to be fanned out across the molded compound, thus accommodating a larger number of I/Os (input/output). After the build-up layer process (adding redistribution layers (RDL) and pads), it undergoes solder ball attachment, before the packages undergo back grinding, laser marking, and singulation.</blockquote>In any case, Shinkawa launched a Tender Offer for Apic Yamada, and on the same day, announced a private placement to <a href="https://www.smartkarma.com/entities/yamaha-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:7411:1" rel="noopener">Yamaha Motor (7272 JP)</a> such that Yamaha would purchase 56% of Shinkawa at roughly the last traded price. The aim was to raise funds to buy out Apic Yamada and fund restructuring. The issuance of shares was approved at an EGM in April 2019. The transaction closed in June and the Newco was fully-formed July 1.Shinkawa - which had negative operating profits for nine of the last ten years - saw its shares bounce on new hope.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/545/original/Screenshot%202020-02-12%20at%2010.14.46%20PM.png?1581516915" class="editor-image img-responsive" data-smartkarma-image-id="117545"></figure><div class="content-caption">source: tradingview.com, Quiddity</div>The next earnings report in May dashed what hope there was and the shares fell 30% to newer post-announcement lows.  This past autumn saw further restructuring under new management/control, an early retirement plan for employees, and the continued expectation of significant net losses. Today's Q3 earnings release cements those expectations for this year. But now there is a Tender Offer by Yamaha Motors to take out Yamaha Robotics at a 44.5% premium. That is a 12+month high. More on this below.

The history here is tough to sort out.A year ago, Yamaha Motor Robotics Holdings (6274 JP) was named Shinkawa, and it agreed on 12 Feb 2019 to launch a Tender Offer for a company called Apic Yamada (6300 JP) which was an auto-moulding company (aiming at the fan-out segment). What is "fan-out"? According to former Smartkarma contributor Andrew Lu....Fan-out is an enhancement of the standard wafer-level packaging technology developed to provide a solution for semiconductor devices requiring a higher integration level and a greater number of I/Os down to 5-10 micron line and space. In this method, chips are singularized and then embedded in a carrier after a epoxy molding compound has been added (molded reconfigured wafer). The carrier is often formed in the shape of a wafer, so that standard wafer processing methods can continue to be used to create build-up layers on the surface.  The extra carrier area around the chip allows more I/Os to be fanned out across the molded compound, thus accommodating a larger number of I/Os (input/output). After the build-up layer process (adding redistribution layers (RDL) and pads), it undergoes solder ball attachment, before the packages undergo back grinding, laser marking, and singulation.In any case, Shinkawa launched a Tender Offer for Apic Yamada, and on the same day, announced a private placement to Yamaha Motor (7272 JP) such that Yamaha would purchase 56% of Shinkawa at roughly the last traded price. The aim was to raise funds to buy out Apic Yamada and fund restructuring. The issuance of shares was approved at an EGM in April 2019. The transaction closed in June and the Newco was fully-formed July 1.Shinkawa - which had negative operating profits for nine of the last ten years - saw its shares bounce on new hope.source: tradingview.com, QuiddityThe next earnings report in May dashed what hope there was and the shares fell 30% to newer post-announcement lows.  This past autumn saw further restructuring under new management/control, an early retirement plan for employees, and the continued expectation of significant net losses. Today's Q3 earnings release cements those expectations for this year. But now there is a Tender Offer by Yamaha Motors to take out Yamaha Robotics at a 44.5% premium. That is a 12+month high. More on this below. 

Global Senior Analyst, Fundamental Equity Research

Emile Farsoun

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/yamaha-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:7411:1" rel="noopener">Yamaha Motor (7272 JP)</a> offers a strong risk reward and compelling story at current price. We believe the current valuation is cheap with the stock trading at a forward P/E of 8.8x and a forward EV/EBITDA of 5.5x. In addition, the dividend yield is 4.4%.The investment case is based on rising growth and profitability across all three segments, driven by rising share and better pricing, as well as cost restructuring.Moreover, the Japan Automotive Daily reported on December 21 that Yamaha Motor plans to develop motors for electric vehicles (EVs) and could announce details of a prototype as early as February next year. This would further enhance the overall growth story.

Yamaha Motor (7272 JP) offers a strong risk reward and compelling story at current price. We believe the current valuation is cheap with the stock trading at a forward P/E of 8.8x and a forward EV/EBITDA of 5.5x. In addition, the dividend yield is 4.4%.The investment case is based on rising growth and profitability across all three segments, driven by rising share and better pricing, as well as cost restructuring.Moreover, the Japan Automotive Daily reported on December 21 that Yamaha Motor plans to develop motors for electric vehicles (EVs) and could announce details of a prototype as early as February next year. This would further enhance the overall growth story.

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>

Source: Japan Analytics</div>
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

Japan

Yamaha Motor Co., Ltd. manufactures motorcycles.  The Company also produces motor vehicle engines for Toyota Motor Corp. and Ford Motor Co.  Yamaha Motor's specialty products include motor boats, snowmobiles, golf carts, and electric power generators.  Yamaha Motor sells products in Japan, North America, Europe, Asia, and South America.

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Yamaha Motor (7272 JP)

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei....

Mio Kato

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 12th February ▲9449 6273 7309 ▼ 3769 6367 4324

12TH FEBRUARY ROUNDUP - 272 results and 122 revisions announcements were made yesterday. Our Results Score declined by another 18 basis points to...

Campbell Gunn

Yamaha Motor Robotics TOB/Buyout

The history here is tough to sort out.A year ago, Yamaha Motor Robotics Holdings (6274 JP) was named Shinkawa, and it agreed on 12 Feb 2019 to...

Travis Lundy