'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/586/original/2020-09-02_15-03-28.png?1599026640" class="editor-image img-responsive" data-smartkarma-image-id="156586"></figure>
<div class="content-caption">Source for all charts: Japan Analytics</div>
<p><strong>NEV IN JAPAN</strong> - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV). Based on a sample of 842,133 traded months for the 3,826 currently-listed non-financial companies in our universe since 1993, NEV-traded months represent 8%. One thousand and eleven companies have spent at least one month with a negative EV and the average NEV 'period' is just over two years.  The number of NEV companies has varied over the last thirty years, from only one in 1994 (Sanyu Construction 1841 JP) to a peak of 437 in 2009 - 15.4% of the universe. In the last two years, the percentage has doubled to 10% or 366 companies, most of which are small-cap.</p>
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<p><strong>50 BPS</strong> -Accordingly, the aggregate (inverted) value of NEV stocks is ¥2.5 trillion or just 50 basis points of the aggregate of the universe. Nevertheless, the current value is at the upper end of the thirty-year range. We have excluded four non-financial companies - Z Holdings, Rakuten, Japan Post, and Sony - as they have financial subsidiaries on their balance sheets.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/595/original/2020-09-02_15-36-40.png?1599028611" class="editor-image img-responsive" data-smartkarma-image-id="156595"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/866/original/2020-09-03_16-43-25.png?1599119017" class="editor-image img-responsive" data-smartkarma-image-id="156866"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/596/original/2020-09-02_15-37-56.png?1599028687" class="editor-image img-responsive" data-smartkarma-image-id="156596"></figure>
<p><strong>NEV 'BUYS'</strong> - Brief periods, and occasionally extended, when higher-quality companies dip into NEV are often good long-term buying opportunities as shown above with <a href="https://www.smartkarma.com/entities/temp-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1428:1" rel="noopener">Persol (2181 JP)</a>, <a href="https://www.smartkarma.com/entities/toei-animation-co-ltd" target="_blank" data-smartkarma-citation="entities:18641:1" rel="noopener">Toei Animation (4816 JP)</a>  and <a href="https://www.smartkarma.com/entities/hakuhodo-dy-holdings-inc" target="_blank" data-smartkarma-citation="entities:8736:1" rel="noopener">Hakuhodo DY (2433 JP)</a>. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/623/original/2020-09-02_17-57-38.png?1599037069" class="editor-image img-responsive" data-smartkarma-image-id="156623"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/625/original/2020-09-02_18-04-05.png?1599037457" class="editor-image img-responsive" data-smartkarma-image-id="156625"></figure>
<p><strong>NEV 'TRAPS'</strong> - Conversely, NEV can persist for years, 'trapping' both value investors and activists, particularly where management remain 'cloth-eared' such as <a href="https://www.smartkarma.com/entities/tokyo-broadcasting-system" target="_blank" data-smartkarma-citation="entities:12981:1" rel="noopener">Tokyo Broadcasting System (9401 JP)</a> and <a href="https://www.smartkarma.com/entities/toppan-printing-co-ltd" target="_blank" data-smartkarma-citation="entities:11875:1" rel="noopener">Toppan Printing (7911 JP).</a></p>
<div class="content-highlight">
<p>In the <strong>DETAIL</strong> section below, we will review the current large-cap NEV companies, as well the most persistent and the largest peak to trough NEV ranges and make some specific stock recommendations.</p>
</div>


Source for all charts: Japan Analytics
NEV IN JAPAN - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV). Based on a sample of 842,133 traded months for the 3,826 currently-listed non-financial companies in our universe since 1993, NEV-traded months represent 8%. One thousand and eleven companies have spent at least one month with a negative EV and the average NEV 'period' is just over two years.  The number of NEV companies has varied over the last thirty years, from only one in 1994 (Sanyu Construction 1841 JP) to a peak of 437 in 2009 - 15.4% of the universe. In the last two years, the percentage has doubled to 10% or 366 companies, most of which are small-cap.

50 BPS -Accordingly, the aggregate (inverted) value of NEV stocks is ¥2.5 trillion or just 50 basis points of the aggregate of the universe. Nevertheless, the current value is at the upper end of the thirty-year range. We have excluded four non-financial companies - Z Holdings, Rakuten, Japan Post, and Sony - as they have financial subsidiaries on their balance sheets.



NEV 'BUYS' - Brief periods, and occasionally extended, when higher-quality companies dip into NEV are often good long-term buying opportunities as shown above with Persol (2181 JP), Toei Animation (4816 JP)  and Hakuhodo DY (2433 JP). 


NEV 'TRAPS' - Conversely, NEV can persist for years, 'trapping' both value investors and activists, particularly where management remain 'cloth-eared' such as Tokyo Broadcasting System (9401 JP) and Toppan Printing (7911 JP).

In the DETAIL section below, we will review the current large-cap NEV companies, as well the most persistent and the largest peak to trough NEV ranges and make some specific stock recommendations.


🇯🇵 JAPAN • Looking for Value in Negative Enterprise Value

Founder & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

<p><strong><a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> stock closed near $2,100 per share on Friday</strong>, making it more expensive at more than $381 billion versus the combined equity of its next five competitors <a href="https://www.smartkarma.com/entities/general-motors-co" target="_blank" data-smartkarma-citation="entities:18811:1" rel="noopener">General Motors Co (GM US)</a>, <a href="https://www.smartkarma.com/entities/ford-motor-co" target="_blank" data-smartkarma-citation="entities:19225:1" rel="noopener">Ford Motor Co (F US)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp-spon-adr" target="_blank" data-smartkarma-citation="entities:8245:1" rel="noopener">Toyota Motor Corp Spon Adr (TM US)</a>, <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>, and <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd-adr" target="_blank" data-smartkarma-citation="entities:8768:1" rel="noopener">Nissan Motor (ADR) (NSANY US)</a>. </p><p><strong>Notice I didn't say more "valuable."</strong> That's because the stock now is selling at <strong>1153x earnings</strong>, with enterprise value <strong>84x my 2020 EBITDA estimate</strong> (as affirmed in my report <a href="https://www.smartkarma.com/insights/investors-aren-t-worried-but-tesla-seems-to-be" target="_blank" data-smartkarma-citation="insights:39074" rel="noopener">Investors Aren't Worried, But Tesla Seems To Be</a> on 8/17/20).</p><p>Now, this doesn't mean I am a Tesla "hater" (or a seventh-grader) or "in the pocket of big oil." But then, people say a lot of dubious things to justify Tesla's stock price like:</p><ul>
<li>Tesla should be priced like a <strong>tech company</strong>, not an auto company. </li>
<li>Tesla is <strong>profitable and generates free cash flow</strong>.</li>
<li>Analysts just <strong>don't understand</strong> Tesla's business.</li>
<li>Tesla's <strong>insane demand</strong> plus its prospective <strong>battery-making business makes it worth the valuation</strong>.</li>
<li>Panic over COVID-19 is <strong>"dumb"</strong> and it will be <strong>over by April</strong>. Wait, those <a href="https://www.theguardian.com/technology/2020/may/01/coronavirus-has-elon-musk-acting-like-just-another-used-car-salesman" target="_blank" rel="noopener">statements came from Tesla CEO Elon Musk</a> and they were <strong>categorically false and dangerous misinformation when he said them</strong>.</li>
</ul><p>Meanwhile, we're still waiting for the <strong>"more than one million" Tesla "robotaxis"</strong> with "<strong>full self-driving hardware, feature complete</strong> at a reliably level that we would consider that <strong>no one needs to pay attention</strong>" as <strong>Musk promised by July of this year on Autonomy Day in April 2019</strong> and which <strong>now are significantly overdue</strong> (see <a href="https://www.smartkarma.com/insights/tesla-autonomy-day-takes-investors-for-another-ride" target="_blank" data-smartkarma-citation="insights:29339" rel="noopener">Tesla "Autonomy Day" Takes Investors For Another Ride</a> on 4/24/19).</p><p>I mean, if you can't trust claims from Elon Musk what about Tesla's bulls? </p><div class="content-highlight"><p><em>Read on as <strong>Bond Angle the Curmudgeon</strong> takes on Tesla myths <strong>even bigger than its stock price</strong>.</em></p></div>

Tesla Motors (TSLA US) stock closed near $2,100 per share on Friday, making it more expensive at more than $381 billion versus the combined equity of its next five competitors General Motors Co (GM US), Ford Motor Co (F US), Toyota Motor Corp Spon Adr (TM US), Volkswagen (VOW GR), and Nissan Motor (ADR) (NSANY US). Notice I didn't say more "valuable." That's because the stock now is selling at 1153x earnings, with enterprise value 84x my 2020 EBITDA estimate (as affirmed in my report Investors Aren't Worried, But Tesla Seems To Be on 8/17/20).Now, this doesn't mean I am a Tesla "hater" (or a seventh-grader) or "in the pocket of big oil." But then, people say a lot of dubious things to justify Tesla's stock price like:
Tesla should be priced like a tech company, not an auto company. 
Tesla is profitable and generates free cash flow.
Analysts just don't understand Tesla's business.
Tesla's insane demand plus its prospective battery-making business makes it worth the valuation.
Panic over COVID-19 is "dumb" and it will be over by April. Wait, those statements came from Tesla CEO Elon Musk and they were categorically false and dangerous misinformation when he said them.
Meanwhile, we're still waiting for the "more than one million" Tesla "robotaxis" with "full self-driving hardware, feature complete at a reliably level that we would consider that no one needs to pay attention" as Musk promised by July of this year on Autonomy Day in April 2019 and which now are significantly overdue (see Tesla "Autonomy Day" Takes Investors For Another Ride on 4/24/19).I mean, if you can't trust claims from Elon Musk what about Tesla's bulls? Read on as Bond Angle the Curmudgeon takes on Tesla myths even bigger than its stock price.

Things People Believe: Flat Earth, Faked Moon Landings, and Tesla $2100

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Nichii Gakkan, Car Inc, Mcdonalds, Lynas, Casetek, Unicom, Evergrande

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>The <a href="https://www.ft.com/content/89efb01d-b5f9-427b-b779-b118cd4383f0" target="_blank" rel="noopener">FT has an article</a> out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of a merger between the two companies. This is not especially surprising to us and we had touted the possibility earlier this year as being more plausible than it would appear on the surface. According to the FT, the idea was rather roundly shot down by both sides. This too is not particularly surprising, but we believe that while now is not the ideal time for a merger, it is one of the few options which could help the companies regain vigour… if done correctly, which will be difficult.</p>

The FT has an article out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of a merger between the two companies. This is not especially surprising to us and we had touted the possibility earlier this year as being more plausible than it would appear on the surface. According to the FT, the idea was rather roundly shot down by both sides. This too is not particularly surprising, but we believe that while now is not the ideal time for a merger, it is one of the few options which could help the companies regain vigour… if done correctly, which will be difficult.

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p>Having increased its global market share from fifth to second in 2018 thanks to the technological advantages, the company's share price has disappointed its shareholders and underperformed its customers' in China due to its heavy reliance on US customers such as Ford and GM.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/291/original/image_44632301051596175067736.png?1596175067" class="editor-image img-responsive" data-smartkarma-image-id="149291"></figure><div class="content-remarks"><p>source: Capital IQ</p></div><div>With the new initiative to focus more on China and Emerging Markets, the company creates an opportunity to diversify its revenue geographically and participate in the rebound in the Chinese auto sector. </div><div></div><div>The company is severely undervalued compared to the peers by 68% in PER and 38% in EV/EBITDA despite higher profitability (560% higher ROE) and leaner capital structure (50% better in D/E), showing <span>potential for re-rating</span>. </div><div></div><div>
<p>If the company's AES is to be implemented this year and adopted by various customers in China to start with, then the revenue that the company receives will bolster its current net income (USD 232.4 million) by around 38% to 570% in the next few years depending on the pace of the adoption and market share. Buy <a href="https://www.smartkarma.com/entities/nexteer-automotive-group-ltd" target="_blank" data-smartkarma-citation="entities:15483:1" rel="noopener">Nexteer Automotive (1316 HK)</a> .</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/289/original/image_65787491341596174865541.png?1596174865" class="editor-image img-responsive" data-smartkarma-image-id="149289"></figure><div class="content-remarks"><p>source: Capital IQ</p></div>
</div>

Having increased its global market share from fifth to second in 2018 thanks to the technological advantages, the company's share price has disappointed its shareholders and underperformed its customers' in China due to its heavy reliance on US customers such as Ford and GM.source: Capital IQWith the new initiative to focus more on China and Emerging Markets, the company creates an opportunity to diversify its revenue geographically and participate in the rebound in the Chinese auto sector. The company is severely undervalued compared to the peers by 68% in PER and 38% in EV/EBITDA despite higher profitability (560% higher ROE) and leaner capital structure (50% better in D/E), showing potential for re-rating. 
If the company's AES is to be implemented this year and adopted by various customers in China to start with, then the revenue that the company receives will bolster its current net income (USD 232.4 million) by around 38% to 570% in the next few years depending on the pace of the adoption and market share. Buy Nexteer Automotive (1316 HK) .
source: Capital IQ


Japan

NISSAN MOTOR CO., LTD. manufactures and distributes automobiles and related parts. It also provides financing services. Nissan delivers a comprehensive range of products under various brands. The Company manufactures in Japan, the United States, Mexico, the United Kingdom and many other countries.

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Nissan Motor (7201 JP)

🇯🇵 JAPAN • Looking for Value in Negative Enterprise Value

NEV IN JAPAN - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV)....

Campbell Gunn

Things People Believe: Flat Earth, Faked Moon Landings, and Tesla $2100

Tesla Motors (TSLA US) stock closed near $2,100 per share on Friday, making it more expensive at more than $381 billion versus the combined equity...

Vicki Bryan

Last Week in Event SPACE: Nichii Gakkan, Car Inc, Mcdonalds, Lynas, Casetek, Unicom, Evergrande

Last Week in Event SPACE ... At Nichii Gakkan Co (9792 JP) forthcoming EGM, investors will get squeezed out; but most of the ugliness about...

David Blennerhassett

Revisiting Our Nissan-Honda Merger Idea

The FT has an article out saying that the Japanese government had directed some initial feelers towards Honda and Nissan raising the possibility of...

Mio Kato

Nexteer (1316): AES to the Rescue

Having increased its global market share from fifth to second in 2018 thanks to the technological advantages, the company's share price has...

Henry Soediarko

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