Equity Analyst, LightStream Research

Aqila Ali

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.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" data-smartkarma-citation="entities:9924:1" rel="noopener">Taiyo Yuden (6976 JP)</a>’s 1Q FY03/21 was weak but surpassed market expectations on OP significantly. 1Q revenue and OP declined by 11.9% YoY and  17% YoY respectively. Sales fell below consensus estimates by 3% and our estimate by 10%. However, OP exceeded consensus by 108% and our estimate by 14%. Taiyo also managed to surpass its 1Q FY03/21 guidance. As expected COVID-19 impact in Malaysia and the Philippines affected the company’s 1Q results.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/651/original/image_56216613341597032376925.png?1597032377" class="editor-image img-responsive" data-smartkarma-image-id="151651"></figure>Source: Company Disclosures, CapIQ, LSR<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/652/original/image_1465125651597032387868.png?1597032391" class="editor-image img-responsive" data-smartkarma-image-id="151652"></figure>Source: Company DisclosuresThe company’s 1H FY03/21E guidance looks achievable with 46% of revenue and 53% of the OP target already achieved in 1Q. However the slowdown in consumer and auto demand is likely to affect the company through this FY, That being said, we believe that the company’s increasing focus on auto’s and IT infrastructure than smartphones, is like to give Taiyo a more stable business that is not affected by seasonal demand (smartphones) over the long term. For the short term, however, 5G deployment and recovery in the Auto sector are key growth drivers.The company’s share price did not take a significant hit during March 2020 similar to its peers <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> and <a href="https://www.smartkarma.com/entities/kyocera-corp" target="_blank" data-smartkarma-citation="entities:753:1" rel="noopener">Kyocera Corp (6971 JP)</a>. Also, the share price rebounded quite quickly to reach near pre-COVID 19 levels. The company is currently trading at 14.5x FY2 PE, marginally below its historical average and at a discount to peers. Though <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> Murata is likely to retain leadership in the MLCC sector, we feel Taiyo has higher potential for growth. Therefore, we recommend owning Taiyo for its long term prospects.We go through the details below.

Taiyo Yuden (6976 JP)’s 1Q FY03/21 was weak but surpassed market expectations on OP significantly. 1Q revenue and OP declined by 11.9% YoY and  17% YoY respectively. Sales fell below consensus estimates by 3% and our estimate by 10%. However, OP exceeded consensus by 108% and our estimate by 14%. Taiyo also managed to surpass its 1Q FY03/21 guidance. As expected COVID-19 impact in Malaysia and the Philippines affected the company’s 1Q results.Source: Company Disclosures, CapIQ, LSRSource: Company DisclosuresThe company’s 1H FY03/21E guidance looks achievable with 46% of revenue and 53% of the OP target already achieved in 1Q. However the slowdown in consumer and auto demand is likely to affect the company through this FY, That being said, we believe that the company’s increasing focus on auto’s and IT infrastructure than smartphones, is like to give Taiyo a more stable business that is not affected by seasonal demand (smartphones) over the long term. For the short term, however, 5G deployment and recovery in the Auto sector are key growth drivers.The company’s share price did not take a significant hit during March 2020 similar to its peers TDK Corp (6762 JP) and Kyocera Corp (6971 JP). Also, the share price rebounded quite quickly to reach near pre-COVID 19 levels. The company is currently trading at 14.5x FY2 PE, marginally below its historical average and at a discount to peers. Though Murata Manufacturing (6981 JP) Murata is likely to retain leadership in the MLCC sector, we feel Taiyo has higher potential for growth. Therefore, we recommend owning Taiyo for its long term prospects.We go through the details below.

Taiyo’s OP Outperforms Consensus Amidst COVID-19

<a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a>’s 1Q FY03/21 was weak but better than expected. 1Q revenue declined by 8.6% YoY and operating profits declined by 18% YoY. However, sales and OP beat consensus estimates by +1% and 30% respectively and our estimates by nearly 3% and 8% respectively.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/166/original/image_39261655421596444097611.png?1596444098" class="editor-image img-responsive" data-smartkarma-image-id="150166"></figure>Source: Company Disclosures, CapIQ, LSRDecline in revenue was mainly due to the decline in demand for smartphone and automotive electronics post-COVID-19. As expected, the delay in 5G and Apple’s delay in 5G smartphone launch has had its effect on Murata during the quarter. However, on the brighter side demand for 5G base stations has been strong with Telco providers continuing the development of 5G alongside the rising demand for computers during COVID-19 lockdowns.The OP decline was mainly due to the decline in average sales prices following the pandemic. Despite the decline, Murata still outperformed market expectations and maintained an  OPM of 15.7%, compared to <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)'</a>s (6.0%) and <a href="https://www.smartkarma.com/entities/kyocera-corp" target="_blank" data-smartkarma-citation="entities:753:1" rel="noopener">Kyocera Corp (6971 JP)</a>’s (2.4%).<div class="content-caption">Murata Outperforms; Peers Disappoint</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/150/167/original/image_76919538531596444146301.png?1596444148" class="editor-image img-responsive" data-smartkarma-image-id="150167"></figure>The company’s share price increased around 9% since we last wrote about the company and it is currently trading at 19.5x FY2 PE, marginally above the historical average. We are hopeful, Murata will continue to outperform peers over the medium-term, however, the current valuation makes Murata’s risk-reward relatively unattractive.We go through the details below.

Murata Manufacturing (6981 JP)’s 1Q FY03/21 was weak but better than expected. 1Q revenue declined by 8.6% YoY and operating profits declined by 18% YoY. However, sales and OP beat consensus estimates by +1% and 30% respectively and our estimates by nearly 3% and 8% respectively.Source: Company Disclosures, CapIQ, LSRDecline in revenue was mainly due to the decline in demand for smartphone and automotive electronics post-COVID-19. As expected, the delay in 5G and Apple’s delay in 5G smartphone launch has had its effect on Murata during the quarter. However, on the brighter side demand for 5G base stations has been strong with Telco providers continuing the development of 5G alongside the rising demand for computers during COVID-19 lockdowns.The OP decline was mainly due to the decline in average sales prices following the pandemic. Despite the decline, Murata still outperformed market expectations and maintained an  OPM of 15.7%, compared to TDK Corp (6762 JP)'s (6.0%) and Kyocera Corp (6971 JP)’s (2.4%).Murata Outperforms; Peers DisappointThe company’s share price increased around 9% since we last wrote about the company and it is currently trading at 19.5x FY2 PE, marginally above the historical average. We are hopeful, Murata will continue to outperform peers over the medium-term, however, the current valuation makes Murata’s risk-reward relatively unattractive.We go through the details below.

Murata Outperforms Despite a Weak 1QFY03/21

<a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: <a href="https://www.smartkarma.com/entities/kyocera-corp" target="_blank" data-smartkarma-citation="entities:753:1" rel="noopener">Kyocera Corp (6971 JP)</a> released underwhelming results on Monday, and <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance, especially on the revenue front.Murata’s peers: Kyocera Corp (6971 JP) released underwhelming results on Monday, and TDK Corp (6762 JP) revised its FY03/20E guidance downwards at the end of March due to COVID concerns (to release FY03/20 results on the 15th of May). However, Murata did not announce revisions to its earnings guidance and appears quite optimistic about meeting its target despite COVID concerns during 4Q.While we have been bullish on the company’s long-term growth prospects, short term risks are as apparent for Murata as they are for its peers. We expect an underwhelming 4Q for Murata as well.Although results in prior quarters could cushion a downturn this FY, a more serious impact is likely to be seen through 1H of FY03/21E, if 5G demand does not come through.The consensus earnings estimates have been brought down for Murata, but are still above the company’s guidance. We are quite skeptical about the company’s ability to surpass (or even achieve) its guidance for reasons discussed below.

Murata FY03/20 Earnings Preview: Expect A Miss

Thematic (Sector/Industry)

We mentioned about the possible launch of 5G and the process involved in ‘ <a href="https://www.smartkarma.com/insights/5g-for-the-next-big-turn-of-a-new-decade" target="_blank" data-smartkarma-citation="insights:20444" rel="noopener">5G for the Next Big Turn of a New Decade</a>’. It was expected that 5G networks would successfully hit the markets by early 2020. However, the COVID-19 pandemic has led to uncertainties on this.
This insight takes a look at the current stage of the 5G launch process and the Covid impact on mobile phone manufacturers and telecommunication providers (with regards to 5G).
<ul>
<li>According to 3GPP’s (one of the most important bodies in planning the launch of 5G networks) IMT2020 plan, two phases have to be completed for the 5G launch.</li>
<li>The first phase, which involves releasing-15 standards for 5G (Non-Standalone and Standalone), was successfully completed by June last year. This was also evidenced by some mobile manufacturers like LG and Samsung, releasing 5G-enabled phones through 2019.</li>
<li>However, for successful deployment, phase 2 has to be completed, and completion was expected by early 2020. However, it seems that the phase is likely to run through to the end of 2020.</li>
<li>There is still a possibility for the successful deployment of 5G in 2020, though towards the end of the year. This is if no second-wave of the coronavirus impacts the economy, especially China’s.</li>
<li>That risk apart, except for Apple, most mobile manufacturers have been releasing 5G enabled phones since 2019. Samsung is optimistic on meeting its target launch of new 5G models in August this year, despite the pandemic.</li>
<li>Mobile carriers across countries also expect expansion of 5G services through 2020.</li>
<li>China is taking the lead in the 5G race.</li>
<li>The delay in 5G is likely to primarily impact the semiconductor manufacturers.</li>
</ul>
We go through the details below.

We mentioned about the possible launch of 5G and the process involved in ‘ 5G for the Next Big Turn of a New Decade’. It was expected that 5G networks would successfully hit the markets by early 2020. However, the COVID-19 pandemic has led to uncertainties on this.
This insight takes a look at the current stage of the 5G launch process and the Covid impact on mobile phone manufacturers and telecommunication providers (with regards to 5G).

According to 3GPP’s (one of the most important bodies in planning the launch of 5G networks) IMT2020 plan, two phases have to be completed for the 5G launch.
The first phase, which involves releasing-15 standards for 5G (Non-Standalone and Standalone), was successfully completed by June last year. This was also evidenced by some mobile manufacturers like LG and Samsung, releasing 5G-enabled phones through 2019.
However, for successful deployment, phase 2 has to be completed, and completion was expected by early 2020. However, it seems that the phase is likely to run through to the end of 2020.
There is still a possibility for the successful deployment of 5G in 2020, though towards the end of the year. This is if no second-wave of the coronavirus impacts the economy, especially China’s.
That risk apart, except for Apple, most mobile manufacturers have been releasing 5G enabled phones since 2019. Samsung is optimistic on meeting its target launch of new 5G models in August this year, despite the pandemic.
Mobile carriers across countries also expect expansion of 5G services through 2020.
China is taking the lead in the 5G race.
The delay in 5G is likely to primarily impact the semiconductor manufacturers.

We go through the details below.

Will 2020 See Successful Deployment of 5G?

'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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/124/787/original/2020-03-26_05-50-57.png?1585169482" class="editor-image img-responsive" data-smartkarma-image-id="124787"></figure><div class="content-caption">Source • Japan Analytics</div>EARLY WARNINGS - This Insight is the second is a series of posts that will provide a 'real-time' update of the damage to corporate Japan's revenues and profits from the unfolding Covid-19 recession. Tuesday saw twenty-one forecast revisions by twenty companies and one withdrawal of forecasts and dividend cancellation by noodle restaurant <a href="https://www.smartkarma.com/entities/gourmet-kineya-co-ltd" target="_blank" data-smartkarma-citation="entities:11937:1" rel="noopener">Gourmet Kineya (9850 JP)</a>. Jewellery retailer <a href="https://www.smartkarma.com/entities/happiness-and-d-co-ltd" target="_blank" data-smartkarma-citation="entities:1246:1" rel="noopener">Happiness and D (3174 JP)</a> also reported interim results. The most significant revision was from <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK (6762 JP)</a> shown above.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/124/792/original/File%202020-03-26%204%2009%2018.jpeg?1585171207" class="editor-image img-responsive" data-smartkarma-image-id="124792"></figure><div class="content-caption">Source • covid19japan.com</div>COVID-19 - As we discussed in an earlier <a href="https://www.smartkarma.com/insights/japan-market-update-hit-the-boj-bid-and-wait-for-the-absolute-value-opportunity" target="_blank" data-smartkarma-citation="insights:37670" rel="noopener">Insight</a>, Japan's 'softly-softly' approach to the virus was likely to be 'tested' as the country was being encouraged to operate as close to normal last weekend. Yesterday saw the largest jump in new cases in one day since the outbreak Japan - 97 and 2 more deaths bringing the totals to 1,299 confirmed cases and 44 deaths from 23,521 people tested. Tokyo is now the epicentre with 220 cases which has prompted Governor Koike to recommend that people work from home as much as possible and avoid leaving home at this weekend as well as eating and drinking in groups - so no hanami parties! Despite the Governor's preference for cancellation and her scathing comments about an event in Saitama last weekend, another K-1 event to be held at Korakuen will go ahead behind closed doors. The Olympic torch relays have been cancelled. It remains to be seen if these persuasive measures will slow the spread. The rational assumption would be that Tokyo is now on the same path as London and New York.

Source • Japan AnalyticsEARLY WARNINGS - This Insight is the second is a series of posts that will provide a 'real-time' update of the damage to corporate Japan's revenues and profits from the unfolding Covid-19 recession. Tuesday saw twenty-one forecast revisions by twenty companies and one withdrawal of forecasts and dividend cancellation by noodle restaurant Gourmet Kineya (9850 JP). Jewellery retailer Happiness and D (3174 JP) also reported interim results. The most significant revision was from TDK (6762 JP) shown above.Source • covid19japan.comCOVID-19 - As we discussed in an earlier Insight, Japan's 'softly-softly' approach to the virus was likely to be 'tested' as the country was being encouraged to operate as close to normal last weekend. Yesterday saw the largest jump in new cases in one day since the outbreak Japan - 97 and 2 more deaths bringing the totals to 1,299 confirmed cases and 44 deaths from 23,521 people tested. Tokyo is now the epicentre with 220 cases which has prompted Governor Koike to recommend that people work from home as much as possible and avoid leaving home at this weekend as well as eating and drinking in groups - so no hanami parties! Despite the Governor's preference for cancellation and her scathing comments about an event in Saitama last weekend, another K-1 event to be held at Korakuen will go ahead behind closed doors. The Olympic torch relays have been cancelled. It remains to be seen if these persuasive measures will slow the spread. The rational assumption would be that Tokyo is now on the same path as London and New York.

🇯🇵 JAPAN • Revisions Early Warning System (EWS) 25th March

Japan

TDK CORPORATION manufactures electronics components such as magnetic tapes and ferrite cores.  The Company also sells power supplies, inductors, transformers, ceramic capacitors, magnets, LAN (Local Area Network) components, sensors, and semiconductors.  TDK markets its products worldwide.

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TDK Corp (6762 JP)

Taiyo’s OP Outperforms Consensus Amidst COVID-19

Taiyo Yuden (6976 JP)’s 1Q FY03/21 was weak but surpassed market expectations on OP significantly. 1Q revenue and OP declined by 11.9% YoY and 17%...

Aqila Ali

Murata Outperforms Despite a Weak 1QFY03/21

Murata Manufacturing (6981 JP)’s 1Q FY03/21 was weak but better than expected. 1Q revenue declined by 8.6% YoY and operating profits declined by...

Aqila Ali

Murata FY03/20 Earnings Preview: Expect A Miss

Murata Manufacturing (6981 JP) is expected to release FY03/20 results tomorrow. We feel that Murata might underperform its FY03/20 guidance,...

Aqila Ali

Will 2020 See Successful Deployment of 5G?

We mentioned about the possible launch of 5G and the process involved in ‘ 5G for the Next Big Turn of a New Decade’. It was expected that 5G...

Aqila Ali

🇯🇵 JAPAN • Revisions Early Warning System (EWS) 25th March

EARLY WARNINGS - This Insight is the second is a series of posts that will provide a 'real-time' update of the damage to corporate Japan's revenues...

Campbell Gunn

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