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.

Thematic (Sector/Industry)

<h3>What’s Original?</h3>
In this original, we have discussed some of the key aspects highlighted in Kishida’s policy statements along with the current status of these policies and companies that are likely to benefit.

What’s Original?
In this original, we have discussed some of the key aspects highlighted in Kishida’s policy statements along with the current status of these policies and companies that are likely to benefit.

Kishida as Prime Minister: The Path Ahead

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

<ul>
<li>
Our Q3-2021 All Cap High-Risk screen of stocks produced a market-cap-weighted average price return of 2% and a simple average decline of 0.2%.</li>
<li>
Out of the 34 stocks that appeared in our Q3-2021 screen, 15 stocks saw an average share price decline of 11.5%, whilst 19 stocks appreciated on average by 14%. The two biggest declining stock  were down 25% and 19% respectively.</li>
<li>Our Q4 2021 screen, with 38 names (up from 34 seen in Q3 and Q2 2021) delivers an interesting composition this quarter, </li>
<li>
As in the previous few quarters, we anticipate the possibility of a risk of deteriorating credit metrics during the next few quarters: Q4 2021’s Altman Z score rests at 1.23, which is just up on Q3 2021’s level of 1.19.</li>
</ul>



Our Q3-2021 All Cap High-Risk screen of stocks produced a market-cap-weighted average price return of 2% and a simple average decline of 0.2%.

Out of the 34 stocks that appeared in our Q3-2021 screen, 15 stocks saw an average share price decline of 11.5%, whilst 19 stocks appreciated on average by 14%. The two biggest declining stock  were down 25% and 19% respectively.
Our Q4 2021 screen, with 38 names (up from 34 seen in Q3 and Q2 2021) delivers an interesting composition this quarter, 

As in the previous few quarters, we anticipate the possibility of a risk of deteriorating credit metrics during the next few quarters: Q4 2021’s Altman Z score rests at 1.23, which is just up on Q3 2021’s level of 1.19.


Screening the Silk Road: Q4 2021 High-Risk Names to Avoid

Equity Bottom-Up

Hitachi Construction Machinery / Equity Bottom-Up

HCM 2QFY21 results were strong with ¥246bn in revenue (+7.6% QoQ, +28.7% YoY) and OP of ¥26bn (OPM of 10.7% compared to 3.2% and 5.2% respectively in 2QFY21 and 1QFY22). FY guidance was revised up to revenue of ¥920bn (+4.5% vs. previous guidance) and OP of ¥62bn (+19.4% but implying an OPM of 8% in 2HFY22).

HCM 2QFY21 results were strong with ¥246bn in revenue (+7.6% QoQ, +28.7% YoY) and OP of ¥26bn (OPM of 10.7% compared to 3.2% and 5.2% respectively in 2QFY21 and 1QFY22). FY guidance was revised up to revenue of ¥920bn (+4.5% vs. previous guidance) and OP of ¥62bn (+19.4% but implying an OPM of 8% in 2HFY22).

HCM – Could Retest All-Time Highs Given Time But…

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> has had a tough time of things for years, but they have been problems largely of the company's own manufacture. Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-ceo-gets-his-mbo-bidder-and-toshiba-will-get-interestinger" target="_blank" data-smartkarma-citation="insights:50058" rel="noopener">Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger</a> and <a href="https://www.smartkarma.com/insights/gaming-out-a-cvc-bid-for-toshiba-the-right-noises-the-wrong-price-and-toast" target="_blank" data-smartkarma-citation="insights:50229" rel="noopener">Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast</a> (the first of which, coincidentally, followed on exactly a year after I wrote <a href="https://www.smartkarma.com/insights/an-mbo-for-toshiba-not-as-silly-as-it-sounds" target="_blank" data-smartkarma-citation="insights:38199" rel="noopener">An MBO for Toshiba? Not As Silly As It Sounds</a>)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-king-is-dead-long-live-the-king" target="_blank" data-smartkarma-citation="insights:50309" rel="noopener">Toshiba - The King Is Dead, Long Live the King</a>). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (<a href="https://www.smartkarma.com/insights/toshiba-s-2020-agm-investigative-report-is-damning" target="_blank" data-smartkarma-citation="insights:52868" rel="noopener">Toshiba's 2020 AGM Investigative Report Is Damning</a>). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. There are noises of either an IPO (more likely) or a take-private of the <a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a <a href="https://www.global.toshiba/ww/news/corporate/2021/09/news-20210908-01.html" target="_blank" rel="noopener">press release</a> regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). <h2>Today's News Is BIG</h2>The FT posted an <a href="https://www.ft.com/content/8c1c3cf0-951d-4032-9826-8c4576824db5?shareType=nongift" target="_blank" rel="noopener">article</a> this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. But the FT article is super-interesting, and deserves to be read closely.And I have some more thoughts about that below the fold.

Toshiba Corp (6502 JP) has had a tough time of things for years, but they have been problems largely of the company's own manufacture. Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger and Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast (the first of which, coincidentally, followed on exactly a year after I wrote An MBO for Toshiba? Not As Silly As It Sounds)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in Toshiba - The King Is Dead, Long Live the King). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (Toshiba's 2020 AGM Investigative Report Is Damning). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. There are noises of either an IPO (more likely) or a take-private of the Kioxia (6600 JP) unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a press release regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). Today's News Is BIGThe FT posted an article this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. But the FT article is super-interesting, and deserves to be read closely.And I have some more thoughts about that below the fold.  

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

PHC Holdings and its shareholders aim to raise around US$1.8bn via selling a mix of primary and secondary shares in its Japan IPO. The company is backed by KKR (48.7% stake pre-listing), Mistui (21.5%), Life Science Institute (13.4%) and Panasonic (11.5%).PHC is engaged in the development, manufacturing and sale of healthcare devices and services. The company has three main segments: Diabetes Management (35% of FY21 revenue); Healthcare Services (37.9% of FY21 revenue); and Diagnosis/Life Science (26.1% of FY21 revenue).PHC’s revenue has increased by 64% over FY19-FY21 and it was up another 29% in 1Q22. The growth has mainly been driven by acquisition of a number of firms over the reporting period. Although, its main division, Diabetes Management appears to be suffering from a decline in revenue that has been going on for a while. In addition, it's difficult to pinpoint the growth of its other segments owing to the acquisitions having been completed mid-year.Furthermore, it's not clear to us how the company acts as one firm, as all of its acquired firms appear to be working independently and there hasn’t been much mention of synergies.

PHC Holdings and its shareholders aim to raise around US$1.8bn via selling a mix of primary and secondary shares in its Japan IPO. The company is backed by KKR (48.7% stake pre-listing), Mistui (21.5%), Life Science Institute (13.4%) and Panasonic (11.5%).PHC is engaged in the development, manufacturing and sale of healthcare devices and services. The company has three main segments: Diabetes Management (35% of FY21 revenue); Healthcare Services (37.9% of FY21 revenue); and Diagnosis/Life Science (26.1% of FY21 revenue).PHC’s revenue has increased by 64% over FY19-FY21 and it was up another 29% in 1Q22. The growth has mainly been driven by acquisition of a number of firms over the reporting period. Although, its main division, Diabetes Management appears to be suffering from a decline in revenue that has been going on for a while. In addition, it's difficult to pinpoint the growth of its other segments owing to the acquisitions having been completed mid-year.Furthermore, it's not clear to us how the company acts as one firm, as all of its acquired firms appear to be working independently and there hasn’t been much mention of synergies.

PHC Holdings Pre-IPO - Many Companies Rolled into One

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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Hitachi Ltd (6501 JP)

Kishida as Prime Minister: The Path Ahead

In this original, we have discussed some of the key aspects highlighted in Kishida’s policy statements along with the current status of these...

Mio Kato

Screening the Silk Road: Q4 2021 High-Risk Names to Avoid

As we move through into Q1 2022, we expect to see volatility around highly priced & leveraged names. This screen is a key starting point towards...

David Lepper

HCM – Could Retest All-Time Highs Given Time But…

HCM 2Q results reassured with margins rebounding and the stock is up 6.8% with guidance for 2H still looking far too conservative, but there is the...

Mio Kato

Toshiba - Elliott Jumps Into The Fray

Elliott has joined the fray. They probably own 10-20mm shares to start. The rest of the register has changed by an additional 38mm shares since...

Travis Lundy

PHC Holdings Pre-IPO - Many Companies Rolled into One

PHC Holdings and its shareholders aim to raise around US$1.8bn via selling a mix of primary and secondary shares in its Japan IPO.

Sumeet Singh

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52-week Range

Market Cap (USDm)

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