Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

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

<ul>
<li>The Japanese drug maker, <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a>  announced yesterday (11th June 2020) that it has entered into an agreement to divest a portfolio of select non-core over-the-counter (OTC) and prescription drugs which are sold exclusively in Asia Pacific to South Korea’s <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>  for US$278m.</li>
<li>Takeda will receive up to US$266m upfront in cash and up to an additional US$12m in potential milestone payments, subject to customary legal and regulatory closing conditions. The transaction is expected to conclude at the end of this year.</li>
<li>The company has been divesting its non-core assets in order to reduce its debt and focus on its core areas. While the sale of non-core assets will result in a decline in the company’s top line in the short-term, we remain positive on the company’s mainstay products.</li>
<li>On the other hand, we expect the deal to help Celltrion expand its presence in the diabetes and hypertension drug market (local-brand treatments) which should offer the company with sustainable revenue growth.</li>
</ul>


The Japanese drug maker, Takeda Pharmaceutical (4502 JP)  announced yesterday (11th June 2020) that it has entered into an agreement to divest a portfolio of select non-core over-the-counter (OTC) and prescription drugs which are sold exclusively in Asia Pacific to South Korea’s Celltrion Inc (068270 KS)  for US$278m.
Takeda will receive up to US$266m upfront in cash and up to an additional US$12m in potential milestone payments, subject to customary legal and regulatory closing conditions. The transaction is expected to conclude at the end of this year.
The company has been divesting its non-core assets in order to reduce its debt and focus on its core areas. While the sale of non-core assets will result in a decline in the company’s top line in the short-term, we remain positive on the company’s mainstay products.
On the other hand, we expect the deal to help Celltrion expand its presence in the diabetes and hypertension drug market (local-brand treatments) which should offer the company with sustainable revenue growth.


Takeda Offloads Asia-Focused Drugs to South Korea’s Celltrion

Japan Specialist

Mark Chadwick

Shareholders are the owners, and owners have the power. I doubt that John Lennon would have written a song about shareholders, but if he had, that is what he would have said.  
Shareholders would have been eagerly anticipating this year’s proxy season in Japan. Over the past three years, momentum had been building, with more and more shareholders exercising their right to put proposals to the will of the majority. 
COVID-19 has probably taken some of the wind out of the activists’ sails, at least for this year. Still, we count fourteen proposals delivered so far and we dig a little deeper into the upcoming votes at <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> , <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> , <a href="https://www.smartkarma.com/entities/mitsubishi-logistics-corp" target="_blank" data-smartkarma-citation="entities:11909:1" rel="noopener">Mitsubishi Logistics (9301 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-mining-smelting-co" target="_blank" data-smartkarma-citation="entities:15998:1" rel="noopener">Mitsui Mining &amp; Smelting Co (5706 JP)</a>

Shareholders are the owners, and owners have the power. I doubt that John Lennon would have written a song about shareholders, but if he had, that is what he would have said.  
Shareholders would have been eagerly anticipating this year’s proxy season in Japan. Over the past three years, momentum had been building, with more and more shareholders exercising their right to put proposals to the will of the majority. 
COVID-19 has probably taken some of the wind out of the activists’ sails, at least for this year. Still, we count fourteen proposals delivered so far and we dig a little deeper into the upcoming votes at Takeda Pharmaceutical (4502 JP) , Shinsei Bank (8303 JP) , Mitsubishi Logistics (9301 JP) and Mitsui Mining &amp; Smelting Co (5706 JP) 

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/055/original/2020-05-13_05-37-45.png?1589315906" class="editor-image img-responsive" data-smartkarma-image-id="133055"></figure><div class="content-caption">Source • Japan Analytics</div>CASCADE - As expected, with many more of the larger listed companies reporting, our three Scores are falling in unison and at the fastest rate since 2008/9. With still over two-thirds of companies yet to report, there is more 'pain' ahead in this elongated 'season' of announcements. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/056/original/2020-05-13_06-21-24.png?1589318495" class="editor-image img-responsive" data-smartkarma-image-id="133056"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/057/original/2020-05-13_06-22-14.png?1589318598" class="editor-image img-responsive" data-smartkarma-image-id="133057"></figure><div class="content-caption">Source • Japan Analytics</div>In the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies yesterday:-<div><ul>
<li>The balance between positive/neutral/negative of the 269 results announcements was 117:23:129. The average change in Results Score was -0.8.</li>
<li>For the 129 revisions/initial forecasts, the split was 39:7:83, and the average Revision Score was -4.6. Of the 213 companies declaring full-year results, 46% made forecasts for the current year.</li>
<li>
313 companies will announce on today, the largest of which by market capitalisation will be <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a>,  and <a href="https://www.smartkarma.com/entities/eisai-co-ltd" target="_blank" data-smartkarma-citation="entities:21001:1" rel="noopener">Eisai (4523 JP)</a>. </li>
<li>Tuesday's 'best' and 'worst' scoring results were from  <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a>  and <a href="https://www.smartkarma.com/entities/nissin-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:18567:1" rel="noopener">Nissin Electric (6641 JP)</a>, respectively. </li>
</ul></div>

Source • Japan AnalyticsCASCADE - As expected, with many more of the larger listed companies reporting, our three Scores are falling in unison and at the fastest rate since 2008/9. With still over two-thirds of companies yet to report, there is more 'pain' ahead in this elongated 'season' of announcements. Source • Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies yesterday:-
The balance between positive/neutral/negative of the 269 results announcements was 117:23:129. The average change in Results Score was -0.8.
For the 129 revisions/initial forecasts, the split was 39:7:83, and the average Revision Score was -4.6. Of the 213 companies declaring full-year results, 46% made forecasts for the current year.

313 companies will announce on today, the largest of which by market capitalisation will be Sony (6758 JP), Takeda Pharmaceutical (4502 JP),  and Eisai (4523 JP). 
Tuesday's 'best' and 'worst' scoring results were from  GMO Internet (9449 JP)  and Nissin Electric (6641 JP), respectively. 


🇯🇵 JAPAN • Results & Revisions 12th May - Secom, Shiseido, Toyota, Sysmex, Mitsui Fudosan

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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/342/original/2020-03-11_11-02-32.png?1583892183" class="editor-image img-responsive" data-smartkarma-image-id="122342"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/590/original/2020-03-12_07-42-03.png?1583966536" class="editor-image img-responsive" data-smartkarma-image-id="122590"></figure><div class="content-caption">Source • Japan Analytics</div>CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-<ul>
<li>
Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.</li>
<li>
Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.</li>
<li>
Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. </li>
<li>
Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.</li>
<li>
Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.</li>
<li>Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. </li>
</ul>EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <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> which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP).</a><a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.<div class="content-highlight">In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. </div>

Source • Japan AnalyticsCUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-

Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.

Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.

Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. 

Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.

Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.
Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. 
EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - Z Holdings (4689 JP), Rakuten (4755 JP), Sony (6758 JP), Japan Post (6178 JP) which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in Japan Display (6740 JP).Toshiba (6502 JP)-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. 

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

After the worst week in US equity markets in a long time, with sharply rising equity volatility causing risk parity funds and their ilk to shed what looked like $100bn+ of delta, and S&amp;P500 ETFs to see $20bn+ redeemed (amid fears of the possible uncontrollable spread of COVID-19 coronavirus), there were strong rumours of imminent coordinated central bank action over the weekend to prove that governments around the world were willing to act quickly to counter fears of economic weakness.We didn't get that. We got suggestions from Italy they would produce a stimulus package. German lawmakers tussled over whether or not stimulus was appropriate. EU officials high and low suggested that for the moment EU-level spending was inappropriate, some US politicians got upset that coronavirus test kits for the uninsured cost $3000+ (they don't), other politicians suggested $3000 was fine because the free market determined the price, and a president suggested the entire coronavirus thing was simultaneously a terrible blow to China and "fake news" - a hoax by the "deep state" and Democrats to try to injure his presidency (whatever else will be remembered by history in the decades to come, there will be memes).One central bank on Monday, however, did its thing.The BOJ governor issued an inter-meeting statement for the first time in many years. It was a simple statement, which said very little. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/121/375/original/Screenshot%202020-03-04%20at%2010.08.27%20PM.png?1583330921" class="editor-image img-responsive" data-smartkarma-image-id="121375"></figure>Given an ongoing program of ETF buying and JGB YCC/QQE, it was not clear what this meant, however, by day-end, it WAS clear.<div class="content-highlight">The BOJ had symbolically stepped in to buy ¥100.2bn of ETFs - its largest one-day purchase program in many years. </div>That leaves us with a "What Next" question. Discussion ensues below.

After the worst week in US equity markets in a long time, with sharply rising equity volatility causing risk parity funds and their ilk to shed what looked like $100bn+ of delta, and S&amp;P500 ETFs to see $20bn+ redeemed (amid fears of the possible uncontrollable spread of COVID-19 coronavirus), there were strong rumours of imminent coordinated central bank action over the weekend to prove that governments around the world were willing to act quickly to counter fears of economic weakness.We didn't get that. We got suggestions from Italy they would produce a stimulus package. German lawmakers tussled over whether or not stimulus was appropriate. EU officials high and low suggested that for the moment EU-level spending was inappropriate, some US politicians got upset that coronavirus test kits for the uninsured cost $3000+ (they don't), other politicians suggested $3000 was fine because the free market determined the price, and a president suggested the entire coronavirus thing was simultaneously a terrible blow to China and "fake news" - a hoax by the "deep state" and Democrats to try to injure his presidency (whatever else will be remembered by history in the decades to come, there will be memes).One central bank on Monday, however, did its thing.The BOJ governor issued an inter-meeting statement for the first time in many years. It was a simple statement, which said very little. Given an ongoing program of ETF buying and JGB YCC/QQE, it was not clear what this meant, however, by day-end, it WAS clear.The BOJ had symbolically stepped in to buy ¥100.2bn of ETFs - its largest one-day purchase program in many years. That leaves us with a "What Next" question. Discussion ensues below.

Japan

Takeda Pharmaceutical Co Ltd focuses on the Research & Development, Manufacturing, Sales and Marketing and Import/Export of Pharmaceutical Drugs. The Company focuses on the following core therapeutic areas: Cardiovascular & Metabolic, Oncology, Central Nervous System, Respiratory & Immunology, General Medicine (Gastrointestinal & Genitourinary) and Vaccine.

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Takeda Pharmaceutical (4502 JP)

Takeda Offloads Asia-Focused Drugs to South Korea’s Celltrion

The Japanese drug maker, Takeda Pharmaceutical (4502 JP) announced yesterday (11th June 2020) that it has entered into an agreement to divest a...

Shifara Samsudeen, ACMA, CGMA

Japan Proxy Season - Power to the People

Shareholders are the owners, and owners have the power. I doubt that John Lennon would have written a song about shareholders, but if he had, that...

Mark Chadwick

🇯🇵 JAPAN • Results & Revisions 12th May - Secom, Shiseido, Toyota, Sysmex, Mitsui Fudosan

CASCADE - As expected, with many more of the larger listed companies reporting, our three Scores are falling in unison and at the fastest rate...

Campbell Gunn

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds, ...

Campbell Gunn

Coronavirus QE, the BOJ, and ETF Buying

After the worst week in US equity markets in a long time, with sharply rising equity volatility causing risk parity funds and their ilk to shed...

Travis Lundy

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