Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

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>Hoya reported its 4QFY03/20 results on Friday (8<sup>th</sup> May) which saw YoY decline in both revenue and operating profit as a result of the Covid-19 outbreak and a JPY4.7bn fine related to a settlement with the US Department of Justice. The reported revenue was 2.7% below consensus estimates while OP beat consensus estimates by 20.1%.</li>
</ul>
<table class="table table-striped">
<colgroup> <col> <col span="2"> <col> <col> <col> </colgroup>
<tbody>
<tr>
<td style="width: 126.8px;">JPY (bn)</td>
<td style="text-align: right; width: 85.2px;">4QFY03/19</td>
<td style="text-align: right; width: 85.2px;">4QFY03/20</td>
<td style="text-align: right; width: 75.2px;">% YoY</td>
<td style="text-align: right; width: 100.8px;">Consensus</td>
<td style="text-align: right; width: 128px;">Actual Vs Consensus</td>
</tr>
<tr>
<td style="width: 126.8px;">Revenue</td>
<td style="text-align: right; width: 85.2px;">141.5</td>
<td style="text-align: right; width: 85.2px;">135.1</td>
<td style="text-align: right; width: 75.2px;">-4.5%</td>
<td style="text-align: right; width: 100.8px;">138.9</td>
<td style="text-align: right; width: 128px;">-2.7%</td>
</tr>
<tr>
<td style="width: 126.8px;">Operating Profit</td>
<td style="text-align: right; width: 85.2px;">35.1</td>
<td style="text-align: right; width: 85.2px;">32.6</td>
<td style="text-align: right; width: 75.2px;">-7.1%</td>
<td style="text-align: right; width: 100.8px;">27.1</td>
<td style="text-align: right; width: 128px;">20.1%</td>
</tr>
<tr>
<td style="width: 126.8px;">OPM</td>
<td style="text-align: right; width: 85.2px;">24.8%</td>
<td style="text-align: right; width: 85.2px;">24.1%</td>
<td style="text-align: right; width: 75.2px;"> </td>
<td style="text-align: right; width: 100.8px;">19.5%</td>
<td style="text-align: right; width: 128px;"> </td>
</tr>
<tr>
<td style="width: 126.8px;">Pre-Tax Profit</td>
<td style="text-align: right; width: 85.2px;">31.4</td>
<td style="text-align: right; width: 85.2px;">27.7</td>
<td style="text-align: right; width: 75.2px;">-11.8%</td>
<td style="text-align: right; width: 100.8px;">26.4</td>
<td style="text-align: right; width: 128px;">4.9%</td>
</tr>
<tr>
<td style="width: 126.8px;">Pre-tax Margin</td>
<td style="text-align: right; width: 85.2px;">22.2%</td>
<td style="text-align: right; width: 85.2px;">20.5%</td>
<td style="text-align: right; width: 75.2px;"> </td>
<td style="text-align: right; width: 100.8px;">19.0%</td>
<td style="text-align: right; width: 128px;"> </td>
</tr>
<tr>
<td style="width: 126.8px;">Net Income</td>
<td style="text-align: right; width: 85.2px;">29.2</td>
<td style="text-align: right; width: 85.2px;">19.7</td>
<td style="text-align: right; width: 75.2px;">-32.5%</td>
<td style="text-align: right; width: 100.8px;">24.9</td>
<td style="text-align: right; width: 128px;">-20.9%</td>
</tr>
<tr>
<td style="width: 126.8px;">Net Margin</td>
<td style="text-align: right; width: 85.2px;">20.6%</td>
<td style="text-align: right; width: 85.2px;">14.6%</td>
<td style="width: 75.2px;"> </td>
<td style="text-align: right; width: 100.8px;">17.9%</td>
<td style="width: 128px;"> </td>
</tr>
</tbody>
</table>
<div class="content-caption"><em>Source: Company Disclosures, Cap IQ</em></div>
<ul class="">
<li>On a segmental basis, the Lifecare segment’s revenue decreased as a result the Japanese consumption tax hike and the Covid-19 outbreak which led to store closures.</li>
<li>However, the IT segment continued to perform strongly and reported a 5% YoY increase in revenue driven by EUV mask blanks and 3.5” HDD substrates which helped offset the decline in 2.5” substrates and imaging products.</li>
</ul>


Hoya reported its 4QFY03/20 results on Friday (8th May) which saw YoY decline in both revenue and operating profit as a result of the Covid-19 outbreak and a JPY4.7bn fine related to a settlement with the US Department of Justice. The reported revenue was 2.7% below consensus estimates while OP beat consensus estimates by 20.1%.


      


JPY (bn)
4QFY03/19
4QFY03/20
% YoY
Consensus
Actual Vs Consensus


Revenue
141.5
135.1
-4.5%
138.9
-2.7%


Operating Profit
35.1
32.6
-7.1%
27.1
20.1%


OPM
24.8%
24.1%
 
19.5%
 


Pre-Tax Profit
31.4
27.7
-11.8%
26.4
4.9%


Pre-tax Margin
22.2%
20.5%
 
19.0%
 


Net Income
29.2
19.7
-32.5%
24.9
-20.9%


Net Margin
20.6%
14.6%
 
17.9%
 



Source: Company Disclosures, Cap IQ

On a segmental basis, the Lifecare segment’s revenue decreased as a result the Japanese consumption tax hike and the Covid-19 outbreak which led to store closures.
However, the IT segment continued to perform strongly and reported a 5% YoY increase in revenue driven by EUV mask blanks and 3.5” HDD substrates which helped offset the decline in 2.5” substrates and imaging products.


Hoya 4Q Results: Temporary Drop in Lifecare Revenues; EUV Blanks/HDD Deliver Excellent Results

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/966/original/2020-05-08_05-43-09.png?1588884207" class="editor-image img-responsive" data-smartkarma-image-id="131966"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>7TH MAY</strong> - As we pick up again after the Golden Week holidays, the results and revisions 'reality' will increasingly take over the market narrative. Our cap-weighted aggregate Results &amp; Revision Score continues to decline, reaching a fresh three-year low.  A new ten-year low will follow next week, which we expect will curb any upside enthusiasm.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/970/original/File%202020-05-07%204%2029%2028.jpeg?1588886994" class="editor-image img-responsive" data-smartkarma-image-id="131970"></figure><div class="content-caption">Source • SUTD Data-Driven Innovation Lab</div><p><strong>THE ROAD TO ZERO</strong> - Having extended the nationwide state of emergency, the Japanese government is already relaxing restrictions in less-affected prefectures and has hinted that the measures limited activity in the remainder could be lifted before the end of the month. A simulation by the Singapore University of Technology and Design's Data-Driven Innovation Lab suggests that the goal of zero daily new confirmed new cases could be reached as early as 8th June. Testing is now being ramped up as the bureaucratic 'hurdles' are being overcome, and overly-strict preconditions have been relaxed. Nevertheless, the economic consequences of the extension are such that a second supplementary budget and an easing of the requirements for business interruption subsidies will be necessary.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/971/original/2020-05-08_06-52-52.png?1588888396" class="editor-image img-responsive" data-smartkarma-image-id="131971"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE OTHER SHOE? -</strong> The strength of the yen against the US Dollar and by extension against most emerging market currencies is a factor that has received less attention but has a bearing on the earnings of many Japanese exporters. We are preparing an <strong>Insight</strong> on the likely impact and those companies whose absolute and relative share prices are most and least correlated.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/972/original/2020-05-08_06-59-20.png?1588888777" class="editor-image img-responsive" data-smartkarma-image-id="131972"></figure><div class="content-caption">Source • Japan Analytics</div><p>In the<strong> DETAIL </strong>below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday.  On another relatively quiet day, the balance between positive/neutral/negative of the 51 results announcements was 15:6:30. The average change in Score was -83. For the 29 revisions/initial forecasts, the split was 11:1:17  and the average Score was -2. Of the 32 companies declaring full-year results, just nine made interim or annual forecasts for the current year. Two hundred twenty-three companies will announce today, the largest of which by market capitalisation will be <a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya (7741 JP)</a>, <a href="https://www.smartkarma.com/entities/mitsubishi-corp" target="_blank" data-smartkarma-citation="entities:20668:1" rel="noopener">Mitsubishi Corp (8058 JP)</a>, and <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu (8001 JP)</a>. </p>

Source • Japan Analytics7TH MAY - As we pick up again after the Golden Week holidays, the results and revisions 'reality' will increasingly take over the market narrative. Our cap-weighted aggregate Results &amp; Revision Score continues to decline, reaching a fresh three-year low.  A new ten-year low will follow next week, which we expect will curb any upside enthusiasm.Source • SUTD Data-Driven Innovation LabTHE ROAD TO ZERO - Having extended the nationwide state of emergency, the Japanese government is already relaxing restrictions in less-affected prefectures and has hinted that the measures limited activity in the remainder could be lifted before the end of the month. A simulation by the Singapore University of Technology and Design's Data-Driven Innovation Lab suggests that the goal of zero daily new confirmed new cases could be reached as early as 8th June. Testing is now being ramped up as the bureaucratic 'hurdles' are being overcome, and overly-strict preconditions have been relaxed. Nevertheless, the economic consequences of the extension are such that a second supplementary budget and an easing of the requirements for business interruption subsidies will be necessary.Source • Japan AnalyticsTHE OTHER SHOE? - The strength of the yen against the US Dollar and by extension against most emerging market currencies is a factor that has received less attention but has a bearing on the earnings of many Japanese exporters. We are preparing an Insight on the likely impact and those companies whose absolute and relative share prices are most and least correlated.Source • Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday.  On another relatively quiet day, the balance between positive/neutral/negative of the 51 results announcements was 15:6:30. The average change in Score was -83. For the 29 revisions/initial forecasts, the split was 11:1:17  and the average Score was -2. Of the 32 companies declaring full-year results, just nine made interim or annual forecasts for the current year. Two hundred twenty-three companies will announce today, the largest of which by market capitalisation will be Hoya (7741 JP), Mitsubishi Corp (8058 JP), and Itochu (8001 JP). 

🇯🇵 JAPAN • Results & Revisions Update 7th May - Yamaha, Misumi, FANCL, Workman, Nintendo

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p>On 31 July 2019, <a href="https://www.smartkarma.com/entities/essilor-international" target="_blank" data-smartkarma-citation="entities:21443:1" rel="noopener">Essilor International (EI FP)</a> announced an agreement to acquire HAL’s 76.72% stake in <a href="https://www.smartkarma.com/entities/grandvision-nv" target="_blank" data-smartkarma-citation="entities:21114:1" rel="noopener">GrandVision NV (GVNV NA)</a> for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. </p><div class="content-highlight"><p>The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   </p></div>

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   

EssilorLuxottica/GrandVision Attractive Spread

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due to relative value unwinds that were being rushed for completion prior to the long weekend. This morning the skews are reversing and with Nikkei now outperforming Topix (+02.7% vs. -0.87% at the time of this writing) we believe this opportunity is being realised quickly. Our thoughts on next steps below.</p>

On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due to relative value unwinds that were being rushed for completion prior to the long weekend. This morning the skews are reversing and with Nikkei now outperforming Topix (+02.7% vs. -0.87% at the time of this writing) we believe this opportunity is being realised quickly. Our thoughts on next steps below.

Japan Long Weekend Portfolio Blowout Theme Is Working Quickly

<p>We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.</p>

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

Japan

Hoya Corp manufactures electro-optics products such as mask blanks for semiconductors, photomasks for LCD panels, optical glasses, glass memory disks for HDDs, medical flexible endoscopes, eyeglasses, and contact lenses. The Company also provides information system architecture.

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Hoya Corp (7741 JP)

Hoya 4Q Results: Temporary Drop in Lifecare Revenues; EUV Blanks/HDD Deliver Excellent Results

Hoya reported its 4QFY03/20 results on Friday (8th May) which saw YoY decline in both revenue and operating profit as a result of the Covid-19...

Shifara Samsudeen, ACMA, CGMA

🇯🇵 JAPAN • Results & Revisions Update 7th May - Yamaha, Misumi, FANCL, Workman, Nintendo

7TH MAY - As we pick up again after the Golden Week holidays, the results and revisions 'reality' will increasingly take over the market narrative....

Campbell Gunn

EssilorLuxottica/GrandVision Attractive Spread

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share,...

Arun George

Japan Long Weekend Portfolio Blowout Theme Is Working Quickly

On Thursday we highlighted a number of stock pairs that had seen extreme levels of relative performance dislocations, speculating that this was due...

Mio Kato

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei....

Mio Kato

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