Japan: LINE Corp, Kao Corp, Komatsu Ltd and more

In today’s briefing:

  • LINE (3938) – This Is Not the Kitchen Sink You Are Looking For
  • Kao 2Q20 Results: Expecting Worse in the Third Quarter
  • Komatsu and HCM – Komtrax Suggests Recovery In Store

LINE (3938) – This Is Not the Kitchen Sink You Are Looking For

By Travis Lundy

Since writing my two insights describing how I thought betting on a LINE bump was not the best trade out there in Bump-Land, I have received no small amount of pushback by investors who are long the bump trade. 

My response?   That’s what makes a market. 

Today, LINE Corp (3938 JP) announced its Q2 earnings, showing both a normal operating loss and additional extraordinary losses from write-downs. That will not encourage some and I expect there may be some accusations of LINE kitchen-sinking their earnings before a Special Committee (and this has its own issues) decides to revisit the fair price valuation through a re-valuation and an updated Fairness Opinion. 

For those worried about that, I offer the following:

More discussion below.

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

DateAuthorTitle

About Cashless Payments

13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
29 July 2020 Supun Walpola  Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 

About This Deal

14 Nov 2019Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019Travis LundyNEW Deal for LINE (A Lot Like the Old Deal)
6 July 2020Travis Lundy Market Is Pricing a LINE Bump – Should It? 
22 July 2020travis Lundy A LINE Bump – The Other Argument Against 

Kao 2Q20 Results: Expecting Worse in the Third Quarter

By Oshadhi Kumarasiri

More than six months on from the initial outbreak, the spread of COVID-19 is still gaining momentum with more than 16 million recorded cases and 600,000 deaths worldwide.

Kao Corp (4452 JP) downplayed the impact of COVID-19 on quarterly results initially. However, 2Q20 results, released yesterday (29th July 2020) was a reality check for Kao, possibly the most resilient Japanese cosmetic company among peers Shiseido Company (4911 JP), Kose Corp (4922 JP), Pola Orbis Holdings (4927 JP) and Fancl Corp (4921 JP).

It appears that Kao has overestimated its resilience, especially in a time where peers were much more sceptical. Kao’s significantly weak 2Q20 results compared to its expectations as of April 2020 has prompted the company to lower its 2020 revenue and OP guidance by 5% and 14% respectively from the lower end of the April 2020 guidance range.

Source: Company Disclosures

Komatsu and HCM – Komtrax Suggests Recovery In Store

By Mio Kato, CFA

Komatsu and HCM offer slightly different views on regional recovery paths with Komatsu suggesting developed market demand could recovery earlier while HCM points to regions such as India. China has been the strong point in the Apr-Jun quarter although Komatsu has capitalised on this better than HCM. Meanwhile, the domestic market has been surprisingly resilient. What should reassure investors is that Komatsu’s Komtrax data is pointing to normalisation across numerous countries from Jun onwards.


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