'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/363/original/2019-01-11_14-16-49.png?1547292773" class="editor-image img-responsive" data-smartkarma-image-id="75363"></figure>
<p></p>
Source: Japan Analytics</div>
<p style="text-align: left;"><strong>CURRENCY DRIVER</strong> - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including <a href="https://www.smartkarma.com/profiles/381" target="_blank" data-smartkarma-citation="accounts:381">Thomas Schroeder </a> <a href="https://www.smartkarma.com/insights/dollar-yen-big-short-phase-ii" target="_blank" data-smartkarma-citation="insights:27163">here</a> on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/287/original/2019-01-11_14-44-07.png?1547185462" class="editor-image img-responsive" data-smartkarma-image-id="75287"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>¥ &lt; 100</strong> - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/313/original/2019-01-12_10-50-14.png?1547257825" class="editor-image img-responsive" data-smartkarma-image-id="75313"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>EARNINGS DRIVER</strong> - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/319/original/2019-01-12_13-40-19.png?1547268030" class="editor-image img-responsive" data-smartkarma-image-id="75319"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>CURRENCY CORRELATIONS</strong> - In the <strong>DETAIL</strong> below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/318/original/2019-01-12_13-15-40.png?1547266553" class="editor-image img-responsive" data-smartkarma-image-id="75318"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<p><strong>THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT </strong>- We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.</p>




Source: Japan Analytics
CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX and technical specialists (including Thomas Schroeder  here on Smartkarma) to call for a more sustained bout of US$ weakness. A period of Yen strength is far from a consensus forecast for most Japanese equity investors, and historically a stronger Yen has resulted in a weaker Japanese equity market. The three Yen 'peaks' highlighted by the vertical lines in the chart above all coincided with medium-term lows in TOPIX.  

Source: Japan Analytics
¥ &lt; 100 - If we isolate only the 1,484 days in the last forty years when the USDJPY cross has traded above ¥100, the average TOPIX index is 975, which would imply 36% downside for Japanese equities were the Yen to rise above ¥90. Nevertheless, the three Yen peaks we have isolated have proved to be excellent entry points with the subsequent trough-to-peak performance being 28% in 1995~1996, 108% in 2011~2015 and 48% in 2016~2018. Long-term Japan 'bulls' should welcome the coming US dollar bear market. 

Source: Japan Analytics
EARNINGS DRIVER - The USDJPY cross remains an important driver of earnings and earnings momentum in Japan. As measured by our Results and Revision Scores, there is a good correlation between the trends in both scores and the year-on-year change in USDJPY lagged by six months, especially around significant turning points for the cross rate (marked by the vertical lines). The Results and Revision Scores have declined since January 2018 in line with the stronger Yen. A move up to above the ¥90 level would, without doubt, take both scores into negative territory again- the only question being, are we replaying 2009/10 or 2016/17? 

Source: Japan Analytics
CURRENCY CORRELATIONS - In the DETAIL below, we list the larger capitalisation companies whose share price performance most closely correlated with the dollar-yen cross rate. As a preview, the most correlated larger capitalisation company that has been listed since 2006 is, unsurprisingly, Toyota Motor (7203 JP).

Source: Japan Analytics
THE FOREIGN CURRENCY TRANSLATION ADJUSTMENT - We also go one step further and use the 'Foreign Currency Translation Adjustment' that forms part of Other Comprehensive Income (which has been disclosed in corporate balance sheets and income statements since 2001 and 2011, respectively) to measure the extent of each company's global business and the embedded currency risk. The correlation of the aggregate FCTA for all non-financial companies is, as would be expected, reasonably tight after adding two-month lag for the reporting cycle. As these amounts are directly deducted from Net Assets for companies adopting JGAAP and from Shareholders' Equity for those companies reporting under SEC or IFRS standards, the impact on valuations cannot be ignored.

Japan: What to Buy & Sell if the ¥ Rises to 90

Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

Global Automotive Stocks/EV Focus/Event Driven

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

Equity Bottom-Up

<ul><li>Yamaha Corp (7951) had a weaker than expected Q1 due to one-off inventory valuation issues, but momentum should be strong from Q2, which is scheduled to be announced on November 1st. The company is forecasting Q2 OP of Y14.9bn and consensus is at Y15.3bn. Our estimates are at Y16.5bn due to higher currency gains and stronger digital piano sales. </li><li>Yamaha is one of the greatest "bad company becomes good company" stories we've seen in Japan, having shed many loss-making businesses and focused on growing its prestigious musical equipment brand name and market share. The company has gone from generating only 3.5% OP margins back in FY10 to around 12% this fiscal year, while RoE has gone from 2% to 11% during the same period. And there is ample room for further improvements.</li><li>Profits should continue growing higher than consensus due to Yamaha's dominance in the digital piano and professional sound equipment markets in the developed world, while China and other emerging markets provide growth for Yamaha's musical instrument sales. Sales in China--where household budgets for musical education is growing--should have grown by +40% between FY12 and the end of FY17. </li><li>Because of this, valuations are increasing at Yamaha, with the FY17 PER at 20x (in line with the 5-year average) and the EV/EBITDA multiple at 11x versus the 5-year average of 7x. </li><li>There could be a further increase in valuations due to rising pressure for Yamaha to unload some of its massive cash and securities holdings. Yamaha has roughly Y100bn ($885m) in net cash and a Y203bn ($1.8bn) investment securities account (of which legacy holdings of Yamaha Motor accounts for $1.4bn).</li><li>Combined, this amounts to 77% of shareholders equity. Free cash flow as a percentage of equity has averaged at 7% over the past 5 years, so we expect some type of major shareholder return event by the time the company's current mid-term plan comes to an end in FY19.  </li><li>While the stock is trading near all-time highs, we would be buyers at Y3,800, roughly 13% lower than where it is now. Yamaha is the largest musical equipment maker in the world and continues to grow its brand value and market share at the behest of rivals, who are all much smaller players. </li></ul>

Yamaha Corp (7951) had a weaker than expected Q1 due to one-off inventory valuation issues, but momentum should be strong from Q2, which is scheduled to be announced on November 1st. The company is forecasting Q2 OP of Y14.9bn and consensus is at Y15.3bn. Our estimates are at Y16.5bn due to higher currency gains and stronger digital piano sales. Yamaha is one of the greatest "bad company becomes good company" stories we've seen in Japan, having shed many loss-making businesses and focused on growing its prestigious musical equipment brand name and market share. The company has gone from generating only 3.5% OP margins back in FY10 to around 12% this fiscal year, while RoE has gone from 2% to 11% during the same period. And there is ample room for further improvements.Profits should continue growing higher than consensus due to Yamaha's dominance in the digital piano and professional sound equipment markets in the developed world, while China and other emerging markets provide growth for Yamaha's musical instrument sales. Sales in China--where household budgets for musical education is growing--should have grown by +40% between FY12 and the end of FY17. Because of this, valuations are increasing at Yamaha, with the FY17 PER at 20x (in line with the 5-year average) and the EV/EBITDA multiple at 11x versus the 5-year average of 7x. There could be a further increase in valuations due to rising pressure for Yamaha to unload some of its massive cash and securities holdings. Yamaha has roughly Y100bn ($885m) in net cash and a Y203bn ($1.8bn) investment securities account (of which legacy holdings of Yamaha Motor accounts for $1.4bn).Combined, this amounts to 77% of shareholders equity. Free cash flow as a percentage of equity has averaged at 7% over the past 5 years, so we expect some type of major shareholder return event by the time the company's current mid-term plan comes to an end in FY19.  While the stock is trading near all-time highs, we would be buyers at Y3,800, roughly 13% lower than where it is now. Yamaha is the largest musical equipment maker in the world and continues to grow its brand value and market share at the behest of rivals, who are all much smaller players. 

Yamaha Corp (7951)--Stronger Momentum to Lead to Better Shareholder Returns

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

<p>We can see no reason to buy this name now. There is too much that is unknown and uncertain for us to make any sensible projections as to the future direction of earnings.</p><p>Last year operating profit came in at Y30.6bn, way below the original forecast of Y48bn. There were a number of factors, the strong yen, BREXIT, weaker than expected watch sales, front loading of costs ahead of new product launches (mainly for watches) this year for example. This year management forecast Y34bn. This assumes…</p>

We can see no reason to buy this name now. There is too much that is unknown and uncertain for us to make any sensible projections as to the future direction of earnings.Last year operating profit came in at Y30.6bn, way below the original forecast of Y48bn. There were a number of factors, the strong yen, BREXIT, weaker than expected watch sales, front loading of costs ahead of new product launches (mainly for watches) this year for example. This year management forecast Y34bn. This assumes…

Making sense of the Global Market, Euromonitor International Ltd.

Yu Mitsuhashi

Making sense of the Global Market

Euromonitor International Ltd.

We are a global market research company focused on industries, countries, economies and consumers worldwide. Our cross-country comparable research helps your organisation identify opportunities and develop growth strategies in countries and regions across the globe. With offices around the world, 1,200 analysts in 100 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change.

Thematic (Sector/Industry)

<ul><li>Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017.</li><li>Fixed lens cameras loses ground in digital cameras to SLR cameras and compact cistern cameras in 2017 as its volume share falls to 58%</li><li>Compact system cameras records strong positive growth in 2017 while fixed lens cameras loses ground despite the launch of new action cameras</li><li>Digital camcorders registers a 7% decline in retail volume sales in 2017 as sales fall to 921,000 units</li><li>Overall, imaging devices is set to register a -4% retail volume CAGR over the forecast period</li></ul>

Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017.Fixed lens cameras loses ground in digital cameras to SLR cameras and compact cistern cameras in 2017 as its volume share falls to 58%Compact system cameras records strong positive growth in 2017 while fixed lens cameras loses ground despite the launch of new action camerasDigital camcorders registers a 7% decline in retail volume sales in 2017 as sales fall to 921,000 unitsOverall, imaging devices is set to register a -4% retail volume CAGR over the forecast period

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

<p><a href="https://www.smartkarma.com/entities/5206" target="_blank" data-smartkarma-citation="entities:5206:1">Singapore Myanmar Investco Ltd (SMI SP)</a> has 5 main business units (tourism, heavy machinery, car rental, telecommunication, and storage) that fulfill at least one of the following criteria; <strong>leadership position, early-mover advantage, and monopoly position</strong>. Despite the small market capitalization, the company boasts market leadership and monopoly in the business areas they operate combined with <strong>a highly adequate</strong> management team with previous experience that is transportable to the current SMI business. </p><p>An hour spent on face to face meeting with the CEO has shed more lights on how the company operates its various business units and its market position in Myanmar. Some of the internationally acclaimed names SMI has managed to bring to Myanmar include <strong>Crystal Jade, Ramen Ippudo, Sany Heavy, </strong>EuropCar<strong> and Duty-Free Shop. </strong></p>

Singapore Myanmar Investco Ltd (SMI SP) has 5 main business units (tourism, heavy machinery, car rental, telecommunication, and storage) that fulfill at least one of the following criteria; leadership position, early-mover advantage, and monopoly position. Despite the small market capitalization, the company boasts market leadership and monopoly in the business areas they operate combined with a highly adequate management team with previous experience that is transportable to the current SMI business. An hour spent on face to face meeting with the CEO has shed more lights on how the company operates its various business units and its market position in Myanmar. Some of the internationally acclaimed names SMI has managed to bring to Myanmar include Crystal Jade, Ramen Ippudo, Sany Heavy, EuropCar and Duty-Free Shop. 

Want to Make Money in Myanmar? Visit Sing-Myanmar Please...

Japan

CASIO COMPUTER CO., LTD. manufactures various consumer electronics such as calculators, electronic dictionaries, digital cameras, and watches.  The Company also makes mobile phone sets, office computers, and electronic musical instruments.  Casio Computer exports its products to North America, Europe, and Asia.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Casio Computer (6952 JP)

Japan: What to Buy & Sell if the ¥ Rises to 90

CURRENCY DRIVER - The ¥/US$ cross rate has strengthened by 5.3% since the recent US$ peak of ¥114.20 on November 12th 2018, which has led some FX...

Campbell Gunn

Yamaha Corp (7951)--Stronger Momentum to Lead to Better Shareholder Returns

Yamaha Corp (7951) had a weaker than expected Q1 due to one-off inventory valuation issues, but momentum should be strong from Q2, which is...

SC Capital

Casio (6952) No Visibility Whatsoever

We can see no reason to buy this name now. There is too much that is unknown and uncertain for us to make any sensible projections as to the future...

Pearl Hill Advisors

Sector Capsule: Imaging Devices in Japan

Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017. Fixed lens cameras loses ground in digital cameras to SLR...

Euromonitor International Ltd.

Want to Make Money in Myanmar? Visit Sing-Myanmar Please...

Singapore Myanmar Investco Ltd (SMI SP) has 5 main business units (tourism, heavy machinery, car rental, telecommunication, and storage) that...

Henry Soediarko

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)