'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/452/original/2019-11-17_11-54-09.png?1573959284" class="editor-image img-responsive" data-smartkarma-image-id="106452"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>4TH DOWN AND A FEW MORE TO GO</strong> - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/458/original/2019-11-17_12-49-55.png?1573962614" class="editor-image img-responsive" data-smartkarma-image-id="106458"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/459/original/2019-11-17_13-10-47.png?1573963867" class="editor-image img-responsive" data-smartkarma-image-id="106459"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>THE EARNINGS CYCLE HAS YET TO BOTTOM</strong> -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.</p><div class="content-highlight"><p><strong>WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.</strong></p></div><p><strong>In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.</strong></p>

Source: Japan Analytics4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.Source: Japan AnalyticsTHE EARNINGS CYCLE HAS YET TO BOTTOM -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/205/original/2019-11-03_13-09-55.png?1572754223" class="editor-image img-responsive" data-smartkarma-image-id="104205"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>FIRST WAVE</strong> - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In the last two weeks, there have been 967 results announcements, 426 annual forecasts or revisions and 263 interim forecasts or revisions. This Insight will review the Market Aggregate, Sector and Peer Group results and revisions using actual data and our earnings momentum-based scoring methodology as well as looking at individual company 'winners' and 'losers' and those with the most significant discrepancies between Relative Price and Results &amp; Revision Score. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/206/original/2019-11-03_13-33-51.png?1572755646" class="editor-image img-responsive" data-smartkarma-image-id="104206"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/104/207/original/2019-11-03_13-44-57.png?1572756308" class="editor-image img-responsive" data-smartkarma-image-id="104207"></figure><p>Source: Japan Analytics</p>
</div><p><strong>CALLING A BOTTOM?</strong> - The market aggregate (excluding REITs) capitalisation is at a new one-year high, despite the continuing downward drift in actual and forecast earnings, resulting in new eighteen-month high price-earnings ratios of 16.0 (TTM) and 15.5 (Forecast). Operating Profits are 5.3% below the peak of December 2018, while Net Income has declined by 15.5% Forecasts for both are falling sharply, but are still 1.1% and 3.4% above TTM, respectively. Operating and Net margins have declined 64 bps and 102 bps - both new two-year lows. The 11% rally in the aggregate market capitalisation since 29th August suggests that 'Mr Market' believes the low-point in the earnings cycle could be reached in the current or next quarter.  With only 8.6% and 13.1% upside to the 2018 and 2017 'highs', this is a bold call.  In the <strong>DETAIL</strong> section below, we shall examine just how bold a call this is and the potential for further upside.</p><p><strong>Among the stocks mentioned below are <a href="https://www.smartkarma.com/entities/autobacs-seven-co-ltd" target="_blank" data-smartkarma-citation="entities:2142:1" rel="noopener">Autobacs Seven (9832 JP)</a>, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1" rel="noopener">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex (8698 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/fujitsu-ltd" target="_blank" data-smartkarma-citation="entities:16968:1" rel="noopener">Fujitsu (6702 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-tec-corp" target="_blank" data-smartkarma-citation="entities:17697:1" rel="noopener">Toshiba Tec (6588 JP)</a>, and <a href="https://www.smartkarma.com/entities/m-a-capital-partners-co-ltd" target="_blank" data-smartkarma-citation="entities:10401:1" rel="noopener">M&amp;A Capital Partners (6080 JP)</a>. </strong></p>

Source: Japan AnalyticsFIRST WAVE - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In the last two weeks, there have been 967 results announcements, 426 annual forecasts or revisions and 263 interim forecasts or revisions. This Insight will review the Market Aggregate, Sector and Peer Group results and revisions using actual data and our earnings momentum-based scoring methodology as well as looking at individual company 'winners' and 'losers' and those with the most significant discrepancies between Relative Price and Results &amp; Revision Score. 
Source: Japan Analytics
CALLING A BOTTOM? - The market aggregate (excluding REITs) capitalisation is at a new one-year high, despite the continuing downward drift in actual and forecast earnings, resulting in new eighteen-month high price-earnings ratios of 16.0 (TTM) and 15.5 (Forecast). Operating Profits are 5.3% below the peak of December 2018, while Net Income has declined by 15.5% Forecasts for both are falling sharply, but are still 1.1% and 3.4% above TTM, respectively. Operating and Net margins have declined 64 bps and 102 bps - both new two-year lows. The 11% rally in the aggregate market capitalisation since 29th August suggests that 'Mr Market' believes the low-point in the earnings cycle could be reached in the current or next quarter.  With only 8.6% and 13.1% upside to the 2018 and 2017 'highs', this is a bold call.  In the DETAIL section below, we shall examine just how bold a call this is and the potential for further upside.Among the stocks mentioned below are Autobacs Seven (9832 JP), Nomura Holdings (8604 JP), Monex (8698 JP), Keyence (6861 JP), Fujitsu (6702 JP), Toshiba Tec (6588 JP), and M&amp;A Capital Partners (6080 JP). 

🇯🇵 Japan • Results & Revisions Roundup Part 1 - Mr Market Calls a Bottom

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

<p>Keyence’s 2Q results were slightly weaker than consensus with revenue down 6% YoY (6% below consensus) and OP down 13% YoY (4% below consensus). Despite the slight miss we believe there are some positives to the recent results and discuss these below.</p>

Keyence’s 2Q results were slightly weaker than consensus with revenue down 6% YoY (6% below consensus) and OP down 13% YoY (4% below consensus). Despite the slight miss we believe there are some positives to the recent results and discuss these below.

Keyence – Moderating SG&A Deviation Makes Us Turn Positive

<p>We have been highlighting what we consider to be overexuberance in the rallies within the semiconductor and factory automation sectors lately. The sectors have demonstrated a high degree of correlation of late and we would argue that while fundamentals look like they are bottoming in both sectors, prospects for a strong recovery in the near-term look faint. We thus feel that the current rallies are building in excessive expectations whereas we expect a very tame recovery, due to a lack of strong upside drivers and the strength of the previous peak which needs to be digested.</p><p>We would refer readers to Jim Handy’s excellent work on the semiconductor sector fundamentals, while we discuss the fundamentals for the FA sector below.</p>

We have been highlighting what we consider to be overexuberance in the rallies within the semiconductor and factory automation sectors lately. The sectors have demonstrated a high degree of correlation of late and we would argue that while fundamentals look like they are bottoming in both sectors, prospects for a strong recovery in the near-term look faint. We thus feel that the current rallies are building in excessive expectations whereas we expect a very tame recovery, due to a lack of strong upside drivers and the strength of the previous peak which needs to be digested.We would refer readers to Jim Handy’s excellent work on the semiconductor sector fundamentals, while we discuss the fundamentals for the FA sector below.

Readthrough to Japanese FA Sector from Capital's SK Hynix Block Sale

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The TOPIX 2019 Free Float Weight Rebalance announcement was made on the 7th of October and the moves in the basket so far are limited. </p><p>It is still a near-$20bn trade for month-end so investors should be aware of what is moving. There may be portfolio rebalance opportunities for your stocks trading on a LOC basis on the event day.</p><p>Comprehensive basket performance and excess volume measurements where it matters below.</p>

The TOPIX 2019 Free Float Weight Rebalance announcement was made on the 7th of October and the moves in the basket so far are limited. It is still a near-$20bn trade for month-end so investors should be aware of what is moving. There may be portfolio rebalance opportunities for your stocks trading on a LOC basis on the event day.Comprehensive basket performance and excess volume measurements where it matters below.

Japan

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.

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Keyence Corp (6861 JP)

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the...

Campbell Gunn

🇯🇵 Japan • Results & Revisions Roundup Part 1 - Mr Market Calls a Bottom

FIRST WAVE - 42% of Japanese companies have now reported quarterly earnings, with the balance due to announce over the next eight trading days. In...

Campbell Gunn

Keyence – Moderating SG&A Deviation Makes Us Turn Positive

Keyence’s 2Q results were slightly weaker than consensus with revenue down 6% YoY (6% below consensus) and OP down 13% YoY (4% below consensus)....

Mio Kato

Readthrough to Japanese FA Sector from Capital's SK Hynix Block Sale

We have been highlighting what we consider to be overexuberance in the rallies within the semiconductor and factory automation sectors lately. The...

Mio Kato

TOPIX FFW Rebalance - Halfway There

The TOPIX 2019 Free Float Weight Rebalance announcement was made on the 7th of October and the moves in the basket so far are limited. It is still...

Travis Lundy

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