Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

Terra Drone Corp. offers drone services. The Company provides aerial survey, infrastructure inspection, data analysis, agricultural activity support, and other services. Terra Drone also conducts drone development, drone system development, and other businesses.

<ul>
<li>Terra Drone has invested in its two Ukrainian partners, turning them into consolidated subsidiaries. It can now be regarded as an active participant in the Ukraine war.</li>
<li>The company remains in the red, but the bonds with warrants issue made in July should cover capital spending through January 2030. By then, it should break even. </li>
<li>At ¥14,050, the shares are approaching their May high. As a result of the financing, the PBR has dropped from 29X to 7X,</li>
</ul>


Terra Drone has invested in its two Ukrainian partners, turning them into consolidated subsidiaries. It can now be regarded as an active participant in the Ukraine war.
The company remains in the red, but the bonds with warrants issue made in July should cover capital spending through January 2030. By then, it should break even. 
At ¥14,050, the shares are approaching their May high. As a result of the financing, the PBR has dropped from 29X to 7X,


Terra Drone (278A JP): Ukrainian Subsidiaries in the Line of Fire

KEYENCE CORPORATION develops, manufactures, and sells sensors and measuring instruments used for factory automation (FA) and high technology hobby products. The Company's products include fiber optic sensors, photoelectric sensors, programmable logic controllers (PLC), laser scan micrometers, bar code readers, and radio-controlled model cars.

<ul>
<li>A rebound in demand from China and the weak yen supported June quarter sales and profit growth. But further yen weakness seems cannot be assumed.</li>
<li>AI contributes to factory automation, but cannot replace the granular knowledge of the company's sales-engineers. </li>
<li>The shares have rebounded to within 4% of their early May high.  At 35X our EPS estimate for FY Mar-28, they look reasonably valued. </li>
</ul>


A rebound in demand from China and the weak yen supported June quarter sales and profit growth. But further yen weakness seems cannot be assumed.
AI contributes to factory automation, but cannot replace the granular knowledge of the company's sales-engineers. 
The shares have rebounded to within 4% of their early May high.  At 35X our EPS estimate for FY Mar-28, they look reasonably valued. 


Kawasaki Heavy Industries / Equity Bottom-Up

Kawasaki Heavy Industries, Ltd. designs, develops, and manufactures transport equipment and industrial heavy machinery for military and commercial use.  The Company produces ships, railroad cars, aircraft engines and parts, hydraulic and gas turbines, submarine engines, boilers, and industrial robots.  Kawasaki Heavy Industries offers engineering and construction services to industrial plants.

<ul>
<li>KHI's new share and CB issues will fund production upgrades while strengthening the balance sheet. Potential dilution should be in the price.</li>
<li>The share price has been declining since March as overbought defense contractors were sold off. That is coming to an end. MHI has started to recover. </li>
<li>Collaboration with Airbus and Eurodrone is another reminder that Japan's defense build-up is not driven by the wars in Ukraine or the Persian Gulf. </li>
</ul>


KHI's new share and CB issues will fund production upgrades while strengthening the balance sheet. Potential dilution should be in the price.
The share price has been declining since March as overbought defense contractors were sold off. That is coming to an end. MHI has started to recover. 
Collaboration with Airbus and Eurodrone is another reminder that Japan's defense build-up is not driven by the wars in Ukraine or the Persian Gulf. 


KHI (7012 JP): Production Upgrades & Drone Deal with Airbus

Astroscale, the satellite servicing and debris removal company

<ul>
<li>¥30.6 billion in new capital raised through stock and CB issues, equivalent to 3.8x equity, 95% of total assets, and 3X this year's projected net loss. </li>
<li>Gross margin has turned positive. Order backlog 2.6X midpoint of this fiscal year's project income guidance. Outlook for new orders improving with Japan's defense build-up. </li>
<li>The share price has dropped back more than 60% from its recent peak to where it was in early April, presenting a new long-term investment opportunity. </li>
</ul>


¥30.6 billion in new capital raised through stock and CB issues, equivalent to 3.8x equity, 95% of total assets, and 3X this year's projected net loss. 
Gross margin has turned positive. Order backlog 2.6X midpoint of this fiscal year's project income guidance. Outlook for new orders improving with Japan's defense build-up. 
The share price has dropped back more than 60% from its recent peak to where it was in early April, presenting a new long-term investment opportunity. 


Astroscale (186A JP): New Capital, New Phase of Growth

Mitsubishi Heavy Industries / Equity Bottom-Up

Mitsubishi Heavy Industries, Ltd. is a comprehensive heavy machinery maker. The Company manufactures machinery, ships, turbines and engines, prime movers, aircrafts, and machine parts for military and commercial use.  Mitsubishi Heavy Industries also researches and develops nuclear power plants.

<ul>
<li>Development of AI with Preferred Networks provides a Japanese alternative to the unreliable USA., which has just cut off foreign access to advanced Anthropic models. </li>
<li>Successful H3 rocket launch reduces uncertainty. Positive spin on Global Combat Air Programme kicks that dented can down the road. </li>
<li>Share price down 32% from early March peak to 31x FY Mar-27 EPS guidance as of June 13 close. Time to have another look. </li>
</ul>


Development of AI with Preferred Networks provides a Japanese alternative to the unreliable USA., which has just cut off foreign access to advanced Anthropic models. 
Successful H3 rocket launch reduces uncertainty. Positive spin on Global Combat Air Programme kicks that dented can down the road. 
Share price down 32% from early March peak to 31x FY Mar-27 EPS guidance as of June 13 close. Time to have another look. 


MHI (7011): Autonomous AI Via Preferred Networks

Securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea. Permanent resident of Japan.

Scott Foster
Senior Technology Analyst, Japanese Equities
• LightStream Research

Terra Drone (278A JP): Ukrainian Subsidiaries in the Line of Fire

Terradrone has raised enough capital to see it through January 2030. By then, it could break even. By consolidating its Ukrainian partners, it has...

Scott Foster

Keyence (6861 JP): Not Threatened by AI

Strong 1Q growth driven by rebounding demand in China and the weak yen. Further yen weakness unlikely, but automation continues and Keyence sales...

Scott Foster

KHI (7012 JP): Production Upgrades & Drone Deal with Airbus

New shares and CBs to finance long-term growth with production upgrades and hydrogen energy. MOU with Airbus and Eurodrone adds to defense industry...

Scott Foster

Astroscale (186A JP): New Capital, New Phase of Growth

¥30.6 billion raised via new share and CB issues, enough to pay for capacity expansion and support another 2-3 years of growth. Shares down from...

Scott Foster

MHI (7011): Autonomous AI Via Preferred Networks

Tie-up with Preferred Networks provides Japanese AI just when access to advanced American AI has been blocked. Successful H3 launch reduces...

Scott Foster