Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

Travis Lundy

Equity Bottom-Up

<p>On 19 April I wrote about Ricoh's big buyback potential, saying the timing was right in <a href="https://www.smartkarma.com/insights/ricoh-s-big-buyback-potential-the-timing-is-right" target="_blank" data-smartkarma-citation="insights:38518" rel="noopener">Ricoh's BIG Buyback Potential - The Timing Is Right</a>. I followed up three weeks later with <a href="https://www.smartkarma.com/insights/ricoh-redux-get-long-vs-comps" target="_blank" data-smartkarma-citation="insights:39155" rel="noopener">Ricoh Redux:  Get Long Vs Comps</a> just before the earnings announcement which I expected would deliver on the share buyback. </p><p>We didn't get it. No buyback. And there was no earnings forecast for the year to March 2021. Talk in the meeting and presentation about how orders were OK but deliveries in Europe weren't because of the lockdown rules so who knew when things would come back to normal. The "new normal" of WFH had not made the outlook better. </p><p>The stock itself rose sharply despite the lack of guidance, but has since fallen back to below March 2020 "covid-crash" lows. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/165/504/original/Screenshot%202020-10-16%20at%2010.19.40%20AM.png?1602814817" class="editor-image img-responsive" data-smartkarma-image-id="165504"></figure></section><p>Since April 17 and May 8, TOPIX is up 13% and 12%, TOPIX Electrical Appliances is up 22.5% and 18.3%, and TOPIX Precision Instruments is up 16.1% and 19.0%. </p><p>Ricoh, on the other hand, is -9.4% and -12.8% now. </p><p>But the trade was to buy <a href="https://www.smartkarma.com/entities/ricoh-company-ltd" target="_blank" data-smartkarma-citation="entities:15359:1" rel="noopener">Ricoh Company Ltd (7752 JP)</a> against a basket of <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> and <a href="https://www.smartkarma.com/entities/konica-minolta-inc" target="_blank" data-smartkarma-citation="entities:17287:1" rel="noopener">Konica Minolta (4902 JP)</a>. That trade has done well at +26.2% and +19.6% in 23 weeks and 21 weeks respectively.  </p><p>The question is what does one do now.</p>

On 19 April I wrote about Ricoh's big buyback potential, saying the timing was right in Ricoh's BIG Buyback Potential - The Timing Is Right. I followed up three weeks later with Ricoh Redux:  Get Long Vs Comps just before the earnings announcement which I expected would deliver on the share buyback. We didn't get it. No buyback. And there was no earnings forecast for the year to March 2021. Talk in the meeting and presentation about how orders were OK but deliveries in Europe weren't because of the lockdown rules so who knew when things would come back to normal. The "new normal" of WFH had not made the outlook better. The stock itself rose sharply despite the lack of guidance, but has since fallen back to below March 2020 "covid-crash" lows. Since April 17 and May 8, TOPIX is up 13% and 12%, TOPIX Electrical Appliances is up 22.5% and 18.3%, and TOPIX Precision Instruments is up 16.1% and 19.0%. Ricoh, on the other hand, is -9.4% and -12.8% now. But the trade was to buy Ricoh Company Ltd (7752 JP) against a basket of Canon Inc (7751 JP) and Konica Minolta (4902 JP). That trade has done well at +26.2% and +19.6% in 23 weeks and 21 weeks respectively.  The question is what does one do now.

Ricoh (Reductively) - Reduced Bullishness So Take Off the Trade

'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)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/118/original/2020-10-03_15-34-01.png?1601706874" class="editor-image img-responsive" data-smartkarma-image-id="163118"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<p><strong>WARMING UP</strong> - Earnings momentum is finally on the 'up'. Our Interim Forecast/Revision Score data series which runs from March to September finished 2020 on a two-month high, while both the Annual series are above their September low points. The divergence between domestic non-manufacturing and globally-orientated manufacturing companies continues to widen exemplified by <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>'s announcement of their decision to pull out of Formula 1 from the end of the 2021 season. Although trailing earnings have also stabilised, operating and net income forecasts and their 'gap to trailing' continue to increase. The forward multiple is 32.5 times. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/261/original/2020-10-04_07-12-52.png?1601763187" class="editor-image img-responsive" data-smartkarma-image-id="163261"></figure><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p>
</div><div><p>Our best and worst pair is home centre <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu (8184 JP)</a> for whom a rumoured bid from peer DCM has emerged and diaper machinery maker and small-cap value investor favourite and Unicharm proxy<a href="https://www.smartkarma.com/entities/zuiko-corp" target="_blank" data-smartkarma-citation="entities:5568:1" rel="noopener"> Zuiko (6279 JP)</a>. </p></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/135/original/2020-10-03_17-07-27.png?1601712488" class="editor-image img-responsive" data-smartkarma-image-id="163135"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/136/original/2020-10-03_17-08-41.png?1601712545" class="editor-image img-responsive" data-smartkarma-image-id="163136"></figure><hr><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p style="text-align: center;"><strong>18 Quarterly Results</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 56% Positive / 11% Neutral / 33% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> 0.0 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -9.6% Quarter YoY / -5.2% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change:</strong> -2.6ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 33%</p></li>
</ul></div><hr><div><p style="text-align: center;"><strong>9 Annual • 6 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Annual Forecast/Revision Score:</strong> 33% Positive /22% Neutral / 44% Negative</p></li>
<li><p><strong>Interim Forecast/Revision Score Change:</strong> 50% Positive / 17% Neutral / 33% Negative</p></li>
<li><p><strong>Average Forecast/Revision Score Change:</strong> -2.1 points</p></li>
</ul></div>


Source for all charts &amp; tables: Japan Analytics
WARMING UP - Earnings momentum is finally on the 'up'. Our Interim Forecast/Revision Score data series which runs from March to September finished 2020 on a two-month high, while both the Annual series are above their September low points. The divergence between domestic non-manufacturing and globally-orientated manufacturing companies continues to widen exemplified by Honda Motor (7267 JP)'s announcement of their decision to pull out of Formula 1 from the end of the 2021 season. Although trailing earnings have also stabilised, operating and net income forecasts and their 'gap to trailing' continue to increase. The forward multiple is 32.5 times. 
• BEST &amp; WORST •
Our best and worst pair is home centre Shimachu (8184 JP) for whom a rumoured bid from peer DCM has emerged and diaper machinery maker and small-cap value investor favourite and Unicharm proxy Zuiko (6279 JP). DAILY STATS18 Quarterly Results
Results Score: 56% Positive / 11% Neutral / 33% Negative
Average Results Score Change: 0.0 points
Average % Change in Revenue: -9.6% Quarter YoY / -5.2% Rolling TTM YoY 
Average Operating Profit Margin Change: -2.6ppt
Percentage Making Quarterly Losses: 33%
9 Annual • 6 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 33% Positive /22% Neutral / 44% Negative
Interim Forecast/Revision Score Change: 50% Positive / 17% Neutral / 33% Negative
Average Forecast/Revision Score Change: -2.1 points


🇯🇵 JAPAN • Results & Revisions 10/​​​​​02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/693/original/2020-09-14_09-50-37.png?1600044664" class="editor-image img-responsive" data-smartkarma-image-id="158693"></figure><div class="content-caption">Source for all charts &amp; tables except as stated: Japan Analytics</div><p><strong>EQUITY-DRIVEN</strong> - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/694/original/File%202020-09-14%2010%2007%2037.jpeg?1600045681" class="editor-image img-responsive" data-smartkarma-image-id="158694"></figure><div class="content-caption">Source: multpl.com</div><p><strong>BOOK VALUE PER SHARE </strong>- In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a> which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as <a href="https://www.smartkarma.com/entities/sosei-group-corp" target="_blank" data-smartkarma-citation="entities:770:1" rel="noopener">Sosei (4565 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/696/original/2020-09-14_10-26-48.png?1600046818" class="editor-image img-responsive" data-smartkarma-image-id="158696"></figure><p><strong>WINNERS</strong> - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">Monotaro (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, and <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>. Some of the more surprising entries are <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/697/original/2020-09-14_10-33-13.png?1600047204" class="editor-image img-responsive" data-smartkarma-image-id="158697"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/698/original/2020-09-14_10-33-41.png?1600047231" class="editor-image img-responsive" data-smartkarma-image-id="158698"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/701/original/2020-09-14_10-47-56.png?1600048087" class="editor-image img-responsive" data-smartkarma-image-id="158701"></figure><p><strong>LOSERS</strong> - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, <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>, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a>, and <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon (8267 JP)</a>).  Also among the latter are two medical-related business - the now remained <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca) and recent Bain PE target <a href="https://www.smartkarma.com/entities/nichii-gakkan-co" target="_blank" data-smartkarma-citation="entities:6790:1" rel="noopener">Nichii Gakkan (9792 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/706/original/2020-09-14_10-57-45.png?1600048692" class="editor-image img-responsive" data-smartkarma-image-id="158706"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/707/original/2020-09-14_10-59-22.png?1600048774" class="editor-image img-responsive" data-smartkarma-image-id="158707"></figure><p>In the <strong>DETAIL</strong> section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.</p>

Source for all charts &amp; tables except as stated: Japan AnalyticsEQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.Source: multpl.comBOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as NTT (9432 JP) which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as Sosei (4565 JP).WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as Monotaro (3064 JP), M3 (2413 JP), GMO Payment Gateway (3769 JP), and Kobe Bussan (3038 JP). Some of the more surprising entries are mixi (2121 JP) and Tokyo Electric Power (9501 JP).  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (Toshiba (6502 JP), Nissan (7201 JP), Kirin (2503 JP), Lixil (5938 JP), and Aeon (8267 JP)).  Also among the latter are two medical-related business - the now remained H.U. Group (4544 JP) (formerly Miraca) and recent Bain PE target Nichii Gakkan (9792 JP).In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the Japanese market overall offers value investors rich pickings relative to valuations that had been getting more stretched by the day in other regions, especially the US. Below, we provide a quick synopsis of the trading companies’ business models and our thoughts on other potential investments that could attract Berkshire.</p>

Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the Japanese market overall offers value investors rich pickings relative to valuations that had been getting more stretched by the day in other regions, especially the US. Below, we provide a quick synopsis of the trading companies’ business models and our thoughts on other potential investments that could attract Berkshire.

A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons

Japan

Canon Inc. is a professional and consumer imaging solutions company and patent-holder of digital imaging technologies. The Company's products include networked multifunction devices, digital and analog copiers, computer peripherals, facsimile machines, image filing systems, camcorders, cameras and lenses, semiconductor, and broadcast and medical equipment.

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Canon Inc (7751 JP)

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Ricoh (Reductively) - Reduced Bullishness So Take Off the Trade

Forward earnings forecasts are worsening by the day and the ratio of Ricoh vs Comp future EBIT took a sharp turn for the worse since early October....

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 10/02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

• BEST & WORST • The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear...

Campbell Gunn

A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons

Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the...

Mio Kato

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Ricoh (Reductively) - Reduced Bullishness So Take Off the Trade

Forward earnings forecasts are worsening by the day and the ratio of Ricoh vs Comp future EBIT took a sharp turn for the worse since early October....

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 10/​​​​​02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

• BEST & WORST • The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear...

Campbell Gunn

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

EQUITY-DRIVEN - Japans

Campbell Gunn

A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons

Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the...

Mio Kato

🇯🇵 JAPAN • Results & Revisions 10/02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon