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

<ul>
<li>Daikin 3Q results were mixed with revenue of ¥743bn (-2.2% QoQ, 21.3% YoY) looking strong but OP of ¥66.8bn, implying an OPM decline to 9.0% from 10.3% last quarter. </li>
<li>Reported revenue was 6.0% higher than consensus while OP was 4.2% lower. </li>
<li>The company revised its FY22 revenue guidance to ¥3,050bn (+4.1%) but OP was raised just ¥10bn to ¥310bn (+3.3%) which may disappoint.</li>
</ul>


Daikin 3Q results were mixed with revenue of ¥743bn (-2.2% QoQ, 21.3% YoY) looking strong but OP of ¥66.8bn, implying an OPM decline to 9.0% from 10.3% last quarter. 
Reported revenue was 6.0% higher than consensus while OP was 4.2% lower. 
The company revised its FY22 revenue guidance to ¥3,050bn (+4.1%) but OP was raised just ¥10bn to ¥310bn (+3.3%) which may disappoint.


Daikin – Material Costs Look to Be Impacting Margins

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

Fujitsu General’s 2Q results were weak as the company fell into the red at the OP level, however, aside from some unrecoverable weakness in Japan a lot of the impact seems to be pushed out sales which should be recovered in 2H. The name remains cheap for its underappreciated growth potential in the Middle East and India.

Fujitsu General’s 2Q results were weak as the company fell into the red at the OP level, however, aside from some unrecoverable weakness in Japan a lot of the impact seems to be pushed out sales which should be recovered in 2H. The name remains cheap for its underappreciated growth potential in the Middle East and India.

Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, Japanese equities

In the three months from early June to early September, Daikin's share price rose 49% to a new record high of ¥29,595. This move was supported by by strong June quarter results and an upward revision to FY Mar-22 sales and profit guidance.The shares gave up more than 80% of that gain by early October, but have since recovered to ¥25,570. At this price, in our view, they are still attractive. The new guidance looks conservative and the company is positioned for longer term growth.Over the next four years, growth in markets overseas, M&amp;A, and focus on profitability could add nearly 30% to sales and 50% to operating profit.Results for the six months to September are expected in early November.

In the three months from early June to early September, Daikin's share price rose 49% to a new record high of ¥29,595. This move was supported by by strong June quarter results and an upward revision to FY Mar-22 sales and profit guidance.The shares gave up more than 80% of that gain by early October, but have since recovered to ¥25,570. At this price, in our view, they are still attractive. The new guidance looks conservative and the company is positioned for longer term growth.Over the next four years, growth in markets overseas, M&amp;A, and focus on profitability could add nearly 30% to sales and 50% to operating profit.Results for the six months to September are expected in early November.

Daikin (6367 JP): Buy for the Rebound and the Long Term

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

The remarkable political pact (MoU) signed between PM Ismail Sabri Yaakob and 4 leaders of the constituent parties of the PH opposition alliance ensures political and economic-policy stability until the end of July 2022. PH gained an assurance of political reforms (an anti-defection law, lowering the voting age to 18, greater representation in parliamentary committees and equal funding for opposition and ruling-party MPs) in exchange for its conditional pledge not to dislodge the government for nearly 11 months, and support the Budget for 2022. The pact does not contain any steps to counter the gerrymandering of constituencies that UMNO and BN have effected over the past five decades. And it says nothing about policies other than purely budgetary matters. The UMNO-PAS-Bersatu alliance (a pure Malay-Muslim ruling group) has since moved swiftly to exploit those loopholes -- by advancing a series of discriminatory steps that deepen the racist underpinnings of Malaysia's constitution (negotiated by the departing British in 1948-57). A key policy being advanced requires all freight-forwarding and logistics companies to be 51% Bumiputera owned by end-2021; this will have a severely negative impact on non-Muslim-owned companies big and small (with most conglomerates having a freight-forwarding unit, and numerous small-businesses being based on trucking and logistics).The 12th Malaysia Plan (tabled last month) includes a policy requiring that all Bumiputera companies only be sold to Bumiputeras. And the infamous RUU 355 legislation (enhancing the powers of Shariah Courts over criminal cases, and allowing them to use traditional Islamic punishments) is progressing rapidly under this government.  These 3 legislations may endear the UMNO-PAS alliance to Malays nationally. They are aimed at putting PH's leader Anwar Ibrahim on the spot, as (despite founding the Islamic students' movement ABIM in the 1970s) Anwar leads an explicitly multi-racial party (at the head of a genuinely multi-racial alliance) and has eloquently advocated a race-neutral Malaysia over the past decade. More enduringly, these policies (unless reversed by a future PH government) risk permanently alienating much of Malaysia's business community (who will then choose to invest outside Malaysia rather than within it, turning Malaysia increasingly into an economy of generally-inefficient GLCs and foreign-owned MNCs). Despite the appearance of policy stability from this pact, the policies of this government are permanently handicapping Malaysia and threaten its longer-term economic viability.

The remarkable political pact (MoU) signed between PM Ismail Sabri Yaakob and 4 leaders of the constituent parties of the PH opposition alliance ensures political and economic-policy stability until the end of July 2022. PH gained an assurance of political reforms (an anti-defection law, lowering the voting age to 18, greater representation in parliamentary committees and equal funding for opposition and ruling-party MPs) in exchange for its conditional pledge not to dislodge the government for nearly 11 months, and support the Budget for 2022. The pact does not contain any steps to counter the gerrymandering of constituencies that UMNO and BN have effected over the past five decades. And it says nothing about policies other than purely budgetary matters. The UMNO-PAS-Bersatu alliance (a pure Malay-Muslim ruling group) has since moved swiftly to exploit those loopholes -- by advancing a series of discriminatory steps that deepen the racist underpinnings of Malaysia's constitution (negotiated by the departing British in 1948-57). A key policy being advanced requires all freight-forwarding and logistics companies to be 51% Bumiputera owned by end-2021; this will have a severely negative impact on non-Muslim-owned companies big and small (with most conglomerates having a freight-forwarding unit, and numerous small-businesses being based on trucking and logistics).The 12th Malaysia Plan (tabled last month) includes a policy requiring that all Bumiputera companies only be sold to Bumiputeras. And the infamous RUU 355 legislation (enhancing the powers of Shariah Courts over criminal cases, and allowing them to use traditional Islamic punishments) is progressing rapidly under this government.  These 3 legislations may endear the UMNO-PAS alliance to Malays nationally. They are aimed at putting PH's leader Anwar Ibrahim on the spot, as (despite founding the Islamic students' movement ABIM in the 1970s) Anwar leads an explicitly multi-racial party (at the head of a genuinely multi-racial alliance) and has eloquently advocated a race-neutral Malaysia over the past decade. More enduringly, these policies (unless reversed by a future PH government) risk permanently alienating much of Malaysia's business community (who will then choose to invest outside Malaysia rather than within it, turning Malaysia increasingly into an economy of generally-inefficient GLCs and foreign-owned MNCs). Despite the appearance of policy stability from this pact, the policies of this government are permanently handicapping Malaysia and threaten its longer-term economic viability.          

Malaysia: Stability Paves Way for Better Policy; UMNO-PAS Long-Term Challenge

Japan

DAIKIN INDUSTRIES, LTD. manufactures air conditioning equipment for household and commercial use.  The Company also produces fluorine chemical products such as fluorinated hydrocarbon gas and shells and warheads for defense industry.

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Daikin Industries (6367 JP)

Daikin – Material Costs Look to Be Impacting Margins

Margins and valuations are a concern for Daikin as multiples look to be correcting from inflated levels around 25x EV/EBIT towards the historical...

Mio Kato

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

Fujitsu General – Just a Little Hiccup

Fujitsu General’s 2Q results were weak as the company fell into the red at the OP level, however, the name remains cheap for its underappreciated...

Mio Kato

Daikin (6367 JP): Buy for the Rebound and the Long Term

The shares are rebounding from a sell-off that was overdone, in our view. In the 4-5 years, new products and technology plus M&A could add nearly...

Scott Foster

Malaysia: Stability Paves Way for Better Policy; UMNO-PAS Long-Term Challenge

MoU between PM and opposition PH (13 Sept) provides stability in exchange for political reform. But UMNO-PAS are using it to advance Malay...

Prasenjit K. Basu

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