Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

<ul>
<li>Nidec plans to nearly triple speed reduction gear capacity this fiscal year and aims to overtake market leader HDS by 2025. That would require another tripling of capacity.</li>
<li>The investments look manageable. The issues are price competition and profit margins, particularly for HDS.</li>
<li>Positive for Nidec, in the long term. Negative for HDS. More details expected when Nidec announces results on Thursday.</li>
</ul>


Nidec plans to nearly triple speed reduction gear capacity this fiscal year and aims to overtake market leader HDS by 2025. That would require another tripling of capacity.
The investments look manageable. The issues are price competition and profit margins, particularly for HDS.
Positive for Nidec, in the long term. Negative for HDS. More details expected when Nidec announces results on Thursday.


Nidec (6594 JP): Robot Gear Expansion to Put Pressure on HDS (6324 JP)

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<ul>
<li>On 7 April, the JPX announced the changes to the Free Float Weights (FFW) for the TOPIX Index. There are some big changes due to the updated FFW methodology.</li>
<li>From April to June, we see a one-way turnover of 2.87% and a one-way trade of ¥2,285bn. Some stocks have opposite way flows in different months.</li>
<li>Stocks with inflows outperformed stocks with outflows from Oct-Dec 2021 before giving up all the gains. These stocks have started to outperform and could continue outperforming over the next quarter.</li>
</ul>


On 7 April, the JPX announced the changes to the Free Float Weights (FFW) for the TOPIX Index. There are some big changes due to the updated FFW methodology.
From April to June, we see a one-way turnover of 2.87% and a one-way trade of ¥2,285bn. Some stocks have opposite way flows in different months.
Stocks with inflows outperformed stocks with outflows from Oct-Dec 2021 before giving up all the gains. These stocks have started to outperform and could continue outperforming over the next quarter.


TOPIX FFW Transition - Big Flows from April to June

Harmonic Drive Systems / Equity Bottom-Up

<ul>
<li>Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.</li>
<li>HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.</li>
<li>The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments. </li>
</ul>


Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.
HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.
The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments. 


Harmonic Drive Systems (6324 JP): Consider the Competition

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<ul>
<li>After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off.</li>
<li>It did so slowly, however and was outperforming Nikkei when last we checked despite being down slightly. </li>
<li>Thankfully, a lot of the idiosyncratic volatility hurting the skew trade has reversed now and it is positive and outperforming Nikkei consistently.</li>
</ul>


After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off.
It did so slowly, however and was outperforming Nikkei when last we checked despite being down slightly. 
Thankfully, a lot of the idiosyncratic volatility hurting the skew trade has reversed now and it is positive and outperforming Nikkei consistently.


TOPIX-Nikkei Skew Trade Starting to Work Nicely

<ul>
<li>Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high. </li>
<li>The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production - which is scheduled to continue until 2025.</li>
<li>But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.</li>
</ul>


Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high. 
The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production - which is scheduled to continue until 2025.
But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.


Japan

NIDEC CORPORATION is the world's leading manufacturer of small precision motors mainly used in HDD and optical disk drives. The company has extended its focus to the home appliance and automotive markets. NIDEC is active in M&A and its subsidiaries include the world's leading manufacturers of LCD panel handling robots and camera shutters.

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Nidec Corp (6594 JP)

Nidec (6594 JP): Robot Gear Expansion to Put Pressure on HDS (6324 JP)

Nidec planning to nearly triple output of speed reduction gears this year and overtake HDS by 2025. That would require another tripling of...

Scott Foster

TOPIX FFW Transition - Big Flows from April to June

Changes to the Topix FFW methodology will result in a turnover of 2.87% & trade of ¥2,285bn from April to June. There is a lot to trade on some...

Brian Freitas

Harmonic Drive Systems (6324 JP): Consider the Competition

Sales are rebounding, but the stock is expensive and profits are likely to be capped by growing competition from Nidec and Leaderdrive. Consider...

Scott Foster

TOPIX-Nikkei Skew Trade Starting to Work Nicely

After initially grinding up slowly but underperforming the Nikkei our suggested skew trade gave up ground during the new year sell off. It is now...

Mio Kato

Nidec (6594): Catch a Falling Knife

Nidec's share price has dropped 31% since the start of the year, wiping out over-optimism regarding how fast EV motors and other initiatives might...

Scott Foster

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