'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. 

Quantitative Analysis

<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

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly, the company says that the 18% drop in operating income for FY19 should be the bottom and we run through some of these numbers they gave out in the insight below.  </p>

Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly, the company says that the 18% drop in operating income for FY19 should be the bottom and we run through some of these numbers they gave out in the insight below.  

DoCoMo: Key Takeaways from the Analyst Meeting

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. 

<p><a href="https://www.smartkarma.com/insights/japan-fashion-e-commerce-review-more-competition-coming-for-zozo-and-rakuten" target="_blank">As reported in a separate Insight</a> today, fashion is already the largest single category online, but it also a sector that is developing rapidly.</p><p>Around 55% of this nearly ¥2 trillion market is controlled by online malls rather than fashion retailers.</p><p>As well as <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a>, <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a>, and <a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> the key specialist online malls are <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO Inc (3092 JP)</a>, Magaseek (<a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a>) , Shop-List (<a href="https://www.smartkarma.com/entities/7790" target="_blank" data-smartkarma-citation="entities:7790:1">Crooz Inc (2138 JP)</a>), <a href="https://www.smartkarma.com/entities/26993" target="_blank" data-smartkarma-citation="entities:26993:1">Locondo (3558 JP)</a>, Fashionwalker, Buyma (<a href="https://www.smartkarma.com/entities/7036" target="_blank" data-smartkarma-citation="entities:7036:1">Enigmo Inc (3665 JP)</a>), and Qoo10 (<a href="https://www.smartkarma.com/entities/1291" target="_blank" data-smartkarma-citation="entities:1291:1">Ebay Inc (EBAY US)</a>).</p><p>Until around 2012, Zozo largely had the market to itself but the last few years have seen significant strides by both the biggest malls like Rakuten and Amazon and the smaller firms to improve their service, marketing and range to attract more of Zozo's customers – they also offer a more cooperative working relationship with their merchants.</p><p><strong>Some, such as Ebay's Japanese subsidiary and KDDI's Wowma!, have also slashed take-rates for merchants to as little as 4-6%, putting significant pressure on Zozo's main source of profits.</strong></p>

As reported in a separate Insight today, fashion is already the largest single category online, but it also a sector that is developing rapidly.Around 55% of this nearly ¥2 trillion market is controlled by online malls rather than fashion retailers.As well as Amazon.com Inc (AMZN US), Rakuten (4755 JP), and Yahoo Japan (4689 JP) the key specialist online malls are ZOZO Inc (3092 JP), Magaseek (NTT Docomo Inc (9437 JP)) , Shop-List (Crooz Inc (2138 JP)), Locondo (3558 JP), Fashionwalker, Buyma (Enigmo Inc (3665 JP)), and Qoo10 (Ebay Inc (EBAY US)).Until around 2012, Zozo largely had the market to itself but the last few years have seen significant strides by both the biggest malls like Rakuten and Amazon and the smaller firms to improve their service, marketing and range to attract more of Zozo's customers – they also offer a more cooperative working relationship with their merchants.Some, such as Ebay's Japanese subsidiary and KDDI's Wowma!, have also slashed take-rates for merchants to as little as 4-6%, putting significant pressure on Zozo's main source of profits.

ZOZO's Competitors: A Review of Japanese Online Malls Selling Fashion

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko

Travis Lundy

NTT (Nippon Telegraph & Telephone) / Event-Driven

<p>Last November when the "Docomo Shock" of lower pricing come April 2019 was announced on 31 October, the surprising result was that <a href="https://www.smartkarma.com/entities/623" target="_blank" data-smartkarma-citation="entities:623:1">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> underperformed <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a> the following day. The stub of NTT less its holdings in NTT Docomo and <a href="https://www.smartkarma.com/entities/11232" target="_blank" data-smartkarma-citation="entities:11232:1">NTT Data Corp (9613 JP)</a> was down below 12% of total NTT market cap vs 30+% a year before, and the stub price itself was near a four-year low and the NTT vs Subs Stock Price Ratio was near a 6yr low. </p><p>It was a great time to buy the stub or the NTT/Docomo ratio and I had recommended as much on 16 October 2018 in <a href="https://www.smartkarma.com/insights/ntt-stub-vs-mktcap-near-10yr-lows-stub-earnings-vs-total-near-10yr-high" target="_blank" data-smartkarma-citation="insights:25066">NTT Stub Vs MktCap Near 10yr Lows, Stub Earnings Vs Total Near 10yr High</a> (and follow-on insights) suggesting that the consensus into year-end for the NTT stub's contribution to OP into year-end and beyond was being undervalued. Indeed, the NTT/Docomo ratio troughed just below 1.70x in early October 2018 then again just below in early November 2019 after the shock, then the ratio jumped after NTT released Q2 earnings and the ratio hasn't looked back, outperforming by 15% through a week ago. The stub - if you measure it that way, doubled from less than ¥600/share to ¥1200/share as of today's close. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/530/original/Screenshot%202019-04-22%20at%208.49.44%20PM.png?1555937415" class="editor-image img-responsive" data-smartkarma-image-id="85530"></figure><div style="text-align: left;" class="content-caption">data sources: capitalIQ, company filings, Quiddity</div><p></p><p>Since then, NTT Docomo has executed a large buyback and NTT has executed a smaller buyback and the market expectation is for another NTT buyback from the government sometime after earnings.</p><p>This past several days have seen two new events for NTT Docomo.</p><ol>
<li>NTT Docomo released its new lower-priced and simpler pricing plans which start in June this year. The initial market reaction was quite positive. The stock ended up and competitors <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI Corp (9433 JP)</a> and <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank Corp (9434 JP)</a> saw even bigger jumps on the idea that they would not be obliged to match. </li>
<li>The Nikkei released an <a href="https://asia.nikkei.com/Business/Companies/NTT-Docomo-braces-for-20-profit-hit-from-June-fee-cuts" target="_blank">article</a> over the weekend saying that OP would fall 20% this year. This was a full 11.5% below the consensus forecast, but once again the stock ended up. This could have been due to short-covering in low liquidity over a holiday weekend for much of the rest of the world ahead of a very long Golden Week market holiday in Japan starting next week, but it shows that the company is taking seriously the idea of "Returns to Customers."</li>
</ol><p>That leaves NTT at a higher price vs Docomo than before but the ratio is almost 5% below recent highs despite worse than-expected forecasts for NTT Docomo OP and a promised four-year soft spot (Docomo has said it hopes to re-achieve FY18 OP levels by 2023. NTT has no such four-year "soft spot" in parent (i.e. non-Docomo non-Data) OP and indeed copper impairments are falling, and customer acquisition costs in its mature FTTH business are low and the NTT-only operations are forecast to be a larger portion of overall NTT consolidated OP and Docomo OP is scheduled to fall for the next few years. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/533/original/Screenshot%202019-04-23%20at%2012.51.32%20AM.png?1555951919" class="editor-image img-responsive" data-smartkarma-image-id="85533"></figure><div style="text-align: left;" class="content-caption">data sources: capitalIQ, broker consensus as per the day before the Docomo 2019 preview by the Nikkei, Quiddity</div><p></p><p>Given forecast rises in NTT parent profitability and contribution, and forecast weakness in the OP of its main holding, staying long NTT vs Docomo doesn't sound like a bad idea even though we are just off long-term highs in the NTT/Docomo ratio. There are, however, interesting dynamics at play, and it is worth thinking through them.</p>

Last November when the "Docomo Shock" of lower pricing come April 2019 was announced on 31 October, the surprising result was that NTT (Nippon Telegraph &amp; Telephone) (9432 JP) underperformed NTT Docomo Inc (9437 JP) the following day. The stub of NTT less its holdings in NTT Docomo and NTT Data Corp (9613 JP) was down below 12% of total NTT market cap vs 30+% a year before, and the stub price itself was near a four-year low and the NTT vs Subs Stock Price Ratio was near a 6yr low. It was a great time to buy the stub or the NTT/Docomo ratio and I had recommended as much on 16 October 2018 in NTT Stub Vs MktCap Near 10yr Lows, Stub Earnings Vs Total Near 10yr High (and follow-on insights) suggesting that the consensus into year-end for the NTT stub's contribution to OP into year-end and beyond was being undervalued. Indeed, the NTT/Docomo ratio troughed just below 1.70x in early October 2018 then again just below in early November 2019 after the shock, then the ratio jumped after NTT released Q2 earnings and the ratio hasn't looked back, outperforming by 15% through a week ago. The stub - if you measure it that way, doubled from less than ¥600/share to ¥1200/share as of today's close. data sources: capitalIQ, company filings, QuidditySince then, NTT Docomo has executed a large buyback and NTT has executed a smaller buyback and the market expectation is for another NTT buyback from the government sometime after earnings.This past several days have seen two new events for NTT Docomo.
NTT Docomo released its new lower-priced and simpler pricing plans which start in June this year. The initial market reaction was quite positive. The stock ended up and competitors KDDI Corp (9433 JP) and Softbank Corp (9434 JP) saw even bigger jumps on the idea that they would not be obliged to match. 
The Nikkei released an article over the weekend saying that OP would fall 20% this year. This was a full 11.5% below the consensus forecast, but once again the stock ended up. This could have been due to short-covering in low liquidity over a holiday weekend for much of the rest of the world ahead of a very long Golden Week market holiday in Japan starting next week, but it shows that the company is taking seriously the idea of "Returns to Customers."
That leaves NTT at a higher price vs Docomo than before but the ratio is almost 5% below recent highs despite worse than-expected forecasts for NTT Docomo OP and a promised four-year soft spot (Docomo has said it hopes to re-achieve FY18 OP levels by 2023. NTT has no such four-year "soft spot" in parent (i.e. non-Docomo non-Data) OP and indeed copper impairments are falling, and customer acquisition costs in its mature FTTH business are low and the NTT-only operations are forecast to be a larger portion of overall NTT consolidated OP and Docomo OP is scheduled to fall for the next few years. data sources: capitalIQ, broker consensus as per the day before the Docomo 2019 preview by the Nikkei, QuiddityGiven forecast rises in NTT parent profitability and contribution, and forecast weakness in the OP of its main holding, staying long NTT vs Docomo doesn't sound like a bad idea even though we are just off long-term highs in the NTT/Docomo ratio. There are, however, interesting dynamics at play, and it is worth thinking through them.

Japan

NTT DOCOMO, INC. provides various types of telecommunication services including cellular phones, satellite mobile communication, and wireless LAN Network. The Company also sells cellular phones, and other equipment.

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NTT Docomo Inc (9437 JP)

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

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...

Campbell Gunn

DoCoMo: Key Takeaways from the Analyst Meeting

Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly,...

Kirk Boodry

ZOZO's Competitors: A Review of Japanese Online Malls Selling Fashion

As reported in a separate Insight today, fashion is already the largest single category online, but it also a sector that is developing...

Michael Causton

Last Week in Event SPACE: Nissan/Renault, NTT/Doco, Ayala, Yungtay, AHG, Kosaido, SK Hynix, Anadarko

Last Week in Event SPACE ... Mangalores lurk as Renault SA (RNO FP)'s Senard bares his fangs and Nissan Motor (7201 JP)'s Saikawa said Nissan's...

David Blennerhassett

NTT Vs Docomo: Where To From Here?

Last November when the "Docomo Shock" of lower pricing come April 2019 was announced on 31 October, the surprising result was that NTT (Nippon...

Travis Lundy

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