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.

Equity Bottom-Up

<p>Mazda reported 2Q results that were slightly better than expected as revenue of ¥739bn (consensus ¥725bn) and OP of -¥7.6bn (consensus -¥8.4bn) both beat slightly. The results were on the less impressive end of overall auto sector results, but volume trends are improving and details on the company’s forward strategy were encouraging.</p>

Mazda reported 2Q results that were slightly better than expected as revenue of ¥739bn (consensus ¥725bn) and OP of -¥7.6bn (consensus -¥8.4bn) both beat slightly. The results were on the less impressive end of overall auto sector results, but volume trends are improving and details on the company’s forward strategy were encouraging.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/948/original/2020-11-08_12-52-02.png?1604807697" class="editor-image img-responsive" data-smartkarma-image-id="169948"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>AUTOS ▲</strong> - Positive results and full-year upward revisions from <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda (7267 JP)</a> have confirmed that Japan's overall revenue and earnings momentum has bottomed and is now in an uptrend.  Although <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a> has yet to report, the auto assembler Peer Group's Forecast/Revision Score is at a five-year high following its largest-ever single-quarter increase. </p></section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/950/original/2020-11-08_13-11-05.png?1604808678" class="editor-image img-responsive" data-smartkarma-image-id="169950"></figure></section><p><strong>MARKET ▲</strong> - Since bottoming in mid-September, the  Results Score has gained 147 basis points, and the Forecast/Revision Score has rallied 509 bps. Total Market Value ex REITs has rallied to a new post-COVID high of ¥661 trillion but remains 12.6% below the 2017 peak. In TOPIX terms, the 'gap to peak' is 15.3%.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/951/original/2020-11-08_14-37-14.png?1604813847" class="editor-image img-responsive" data-smartkarma-image-id="169951"></figure></section><p><strong>SECTORS</strong> -  The <strong>Auto</strong> Sector joins the <strong>Machinery</strong>,<strong> Electrical Equipment</strong> Sectors as the top-three gainers. Only six Sectors have seen a decline in Score, led by <strong>Other Commercial Products</strong>, <strong>Information Technology</strong> and<strong> Non-Bank Finance</strong>.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/952/original/2020-11-08_14-45-33.png?1604814353" class="editor-image img-responsive" data-smartkarma-image-id="169952"></figure></section><p><strong>MULTIPLES</strong> - The uptick in forecast all0market Net Income has capped the market's forward multiple at 34 times and reduced the 'gap' to trailing earnings to ¥1.3 trillion.  </p>
<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div>
<div><p>Our 'best' and 'worst' pairing from Friday's announcements is <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda (7267 JP)</a> and <a href="https://www.smartkarma.com/entities/square-enix-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15003:1" rel="noopener">Square Enix (9684 JP)</a> </p></div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/953/original/2020-11-08_14-54-54.png?1604814911" class="editor-image img-responsive" data-smartkarma-image-id="169953"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/954/original/2020-11-08_15-05-04.png?1604815536" class="editor-image img-responsive" data-smartkarma-image-id="169954"></figure></section><div>
<hr>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div>
<div><p>Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6 points lower. 50% of annual revisions are negative, but the average change in score has improved to a decline of 1.4 points.</p></div>
<hr>
<div><p style="text-align: center;"><strong>377 Quarterly Results</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 41% Positive / 8% Neutral / 51% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> -1.4 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -6.1% Quarter YoY / -3.3% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change:</strong> -1.6ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 21%</p></li>
</ul></div>
<hr>
<div><p style="text-align: center;"><strong>167 Annual • 22 Interim Forecasts/Revisions</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p><strong>Annual Forecast/Revision Score:</strong> 40% Positive / 10% Neutral / 50% Negative</p></li>
<li><p><strong>Interim Forecast/Revision Score Change:</strong> 68% Positive / 9% Neutral / 23% Negative</p></li>
<li><p><strong>Average Forecast/Revision Score Change:</strong> -1.4 points</p></li>
</ul></div></section>

Source for all charts &amp; tables: Japan AnalyticsAUTOS ▲ - Positive results and full-year upward revisions from Toyota (7203 JP) and Honda (7267 JP) have confirmed that Japan's overall revenue and earnings momentum has bottomed and is now in an uptrend.  Although Nissan (7201 JP) has yet to report, the auto assembler Peer Group's Forecast/Revision Score is at a five-year high following its largest-ever single-quarter increase. MARKET ▲ - Since bottoming in mid-September, the  Results Score has gained 147 basis points, and the Forecast/Revision Score has rallied 509 bps. Total Market Value ex REITs has rallied to a new post-COVID high of ¥661 trillion but remains 12.6% below the 2017 peak. In TOPIX terms, the 'gap to peak' is 15.3%.
SECTORS -  The Auto Sector joins the Machinery, Electrical Equipment Sectors as the top-three gainers. Only six Sectors have seen a decline in Score, led by Other Commercial Products, Information Technology and Non-Bank Finance.
MULTIPLES - The uptick in forecast all0market Net Income has capped the market's forward multiple at 34 times and reduced the 'gap' to trailing earnings to ¥1.3 trillion.  
• BEST &amp; WORST •
Our 'best' and 'worst' pairing from Friday's announcements is Honda (7267 JP) and Square Enix (9684 JP) 


DAILY STATS

Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6 points lower. 50% of annual revisions are negative, but the average change in score has improved to a decline of 1.4 points.

377 Quarterly Results

Results Score: 41% Positive / 8% Neutral / 51% Negative
Average Results Score Change: -1.4 points
Average % Change in Revenue: -6.1% Quarter YoY / -3.3% Rolling TTM YoY 
Average Operating Profit Margin Change: -1.6ppt
Percentage Making Quarterly Losses: 21%


167 Annual • 22 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 40% Positive / 10% Neutral / 50% Negative
Interim Forecast/Revision Score Change: 68% Positive / 9% Neutral / 23% Negative
Average Forecast/Revision Score Change: -1.4 points


🇯🇵 JAPAN • Results & Revisions 11/06 - Autos Lead the Way

<p>Toyota 2Q results out after lunch reinforced the overall themes within the auto sector. Recovery is well under way except in Asia which still lags. Profitability trends are clearly diverging between stronger and weaker players however and Toyota’s 7.5% OPM in 2Q was impressive.</p>

Toyota 2Q results out after lunch reinforced the overall themes within the auto sector. Recovery is well under way except in Asia which still lags. Profitability trends are clearly diverging between stronger and weaker players however and Toyota’s 7.5% OPM in 2Q was impressive.

<p>Subaru posted strong 2Q results before lunch today and raised guidance above consensus at the revenue line and to the same level as consensus at the OP line. Nevertheless, we believe the OP projection is conservative and consensus is, as usual, late in picking up on how strong the recovery in earnings for the auto sector is likely to be.</p>

Subaru posted strong 2Q results before lunch today and raised guidance above consensus at the revenue line and to the same level as consensus at the OP line. Nevertheless, we believe the OP projection is conservative and consensus is, as usual, late in picking up on how strong the recovery in earnings for the auto sector is likely to be.

Subaru – Pointing the Way for Auto Sector Recovery

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 30 October, <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> announced its Q2 earnings and <a href="https://www.smartkarma.com/profiles/kirk-boodry" target="_blank" data-smartkarma-citation="accounts:1920" rel="noopener">Kirk Boodry</a> ably takes an initial crack at them in <a href="https://www.smartkarma.com/insights/kddi-q2-20-results-embracing-the-industry-s-new-look" target="_blank" data-smartkarma-citation="insights:44747" rel="noopener">KDDI - Q2 20 Results: Embracing the Industry’s New Look</a>.</p><p>The big news of the day was that KDDI <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4757.html" target="_blank" rel="noopener">announced</a> a ¥200bn buyback. This is big for a couple of reasons. </p><ol>
<li>This is the first telco buyback in Japan announced since the administration changed. The pressure exerted by and to be exerted by the new Suga administration to lower costs to consumers (and therefore pressure returns to shareholders) is not seen as being great enough to not buy back shares. </li>
<li>Other than Softbank, which also announced buybacks (having sold significant assets) after covid-19 became a problem, this is a significantly large buyback among Japanese corporations.</li>
<li>This continues KDDI's trend of buying back large amounts of stock for a fifth year in a row.</li>
</ol><p>The buyback was accompanied by <a href="https://www.kddi.com/extlib/files/english/corporate/ir/library/presentation/2021/pdf/kddi_201030_e_statement_full_xzE6ba.pdf" target="_blank" rel="noopener">slightly-ahead-of-consensus earnings</a> (and no change in full-year guidance) and a planned <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4756.html" target="_blank" rel="noopener">share placement</a> to <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> of 18.3mm shares for ¥52.2bn to further promote the relationship, create a <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4755.html" target="_blank" rel="noopener">business alliance</a>, and further R&amp;D into next-gen connected cars and more, shown on p16 of the <a href="https://www.kddi.com/extlib/files/english/corporate/ir/library/presentation/2021/pdf/kddi_201030_e_main_S7bBS2.pdf" target="_blank" rel="noopener">Q2 presentation</a>. </p><p>Toyota, of course, has been one of KDDI's largest shareholders since KDDI was formed from the three-way merger of KDDI, IDO, and Dai-Ni Denden twenty years ago. </p><div class="content-highlight">
<p>Below I look at the share buyback dynamics. </p>
<p>In this case, the buyback is about 8-9% of ADV over the expected buyback period. The impact on volume during the day, however, is different, and buyback programmes change the VWAP curve, sometimes significantly. </p>
<p>As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period to take advantage of the impact on the VWAP curve.</p>
</div>

On 30 October, KDDI Corp (9433 JP) announced its Q2 earnings and Kirk Boodry ably takes an initial crack at them in KDDI - Q2 20 Results: Embracing the Industry’s New Look.The big news of the day was that KDDI announced a ¥200bn buyback. This is big for a couple of reasons. 
This is the first telco buyback in Japan announced since the administration changed. The pressure exerted by and to be exerted by the new Suga administration to lower costs to consumers (and therefore pressure returns to shareholders) is not seen as being great enough to not buy back shares. 
Other than Softbank, which also announced buybacks (having sold significant assets) after covid-19 became a problem, this is a significantly large buyback among Japanese corporations.
This continues KDDI's trend of buying back large amounts of stock for a fifth year in a row.
The buyback was accompanied by slightly-ahead-of-consensus earnings (and no change in full-year guidance) and a planned share placement to Toyota Motor (7203 JP) of 18.3mm shares for ¥52.2bn to further promote the relationship, create a business alliance, and further R&amp;D into next-gen connected cars and more, shown on p16 of the Q2 presentation. Toyota, of course, has been one of KDDI's largest shareholders since KDDI was formed from the three-way merger of KDDI, IDO, and Dai-Ni Denden twenty years ago. 
Below I look at the share buyback dynamics. 
In this case, the buyback is about 8-9% of ADV over the expected buyback period. The impact on volume during the day, however, is different, and buyback programmes change the VWAP curve, sometimes significantly. 
As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period to take advantage of the impact on the VWAP curve.


Japan

Toyota Motor Corporation manufactures, sells, leases, and repairs passenger cars, trucks, buses, and their related parts worldwide. The Company also operates financing services through their subsidiaries. Toyota Motor builds homes, produces pleasure boats, and develops intelligent transportation systems including radar cruise control and electronic toll collection systems.

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Toyota Motor (7203 JP)

Mazda – Closer and Closer to Toyota

We believe Mazda has the potential to emulate Subaru's 2012-2015 performance by executing on its strategy to raise brand value and localise...

Mio Kato

🇯🇵 JAPAN • Results & Revisions 11/06 - Autos Lead the Way

Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6...

Campbell Gunn

Toyota – Leading the Way

Toyota demonstrated a significant improvement in profitability in the North American region. We have been flagging this development for some time...

Mio Kato

Subaru – Pointing the Way for Auto Sector Recovery

We expect a strong 2H recovery in earnings for the auto sector and Subaru, as an early reporter, appears to be confirming this view.

Mio Kato

New KDDI (9433 JP) Buyback Dynamics

KDDI has announced earnings, a new strategic tieup with Toyota, and a buyback to continue its now 5-year tradition. It is 8% of ADV for 7 months,...

Travis Lundy

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