'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)

<p style="text-align: center;"><strong>• THE POST-COVID ROTATION •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/193/original/2021-02-06_10-51-22.png?1612670102" class="editor-image img-responsive" data-smartkarma-image-id="187193"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/194/original/2021-02-06_10-51-43.png?1612670115" class="editor-image img-responsive" data-smartkarma-image-id="187194"></figure><div class="content-caption"> Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>THE 2021 ROTATION BEGINS</strong> -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the <strong>Technology Hardware</strong>, <strong>Electrical Equipment</strong>, <strong>Internet</strong>, and <strong>Healthcare</strong> Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 Inc (2413 JP)</a> +163%, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> +151%, <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO (3064 JP)</a> +108%, <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> +110%, and <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a> +97%. The only deep cyclical Sector that saw a significant recovery was <strong>Energy</strong>. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.</p><p></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/199/original/2021-02-06_10-52-30.png?1612678419" class="editor-image img-responsive" data-smartkarma-image-id="187199"></figure></section><p><strong>THE VALUE RENAISSANCE</strong> - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been <strong>Media</strong>,<strong> Telecommunications</strong>, <strong>Restaurants</strong>, <strong>Building Material</strong>s, and <strong>Consumer Services</strong>. The best-performing larger caps have included <a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan Railway (9021 JP)</a> +26%, <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu (4324 JP)</a> +25%, <a href="https://www.smartkarma.com/entities/create-restaurants-holdings-inc" target="_blank" data-smartkarma-citation="entities:11513:1" rel="noopener">create restaurants (3387 JP)</a> +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/216/original/2021-02-07_17-08-33.png?1612685331" class="editor-image img-responsive" data-smartkarma-image-id="187216"></figure></section><p><strong>RESULTS &amp; REVISION-DRIVEN</strong> - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as <strong>Metals</strong>, <strong>Media</strong>, <strong>Consumer Services</strong>, <strong>Wholesale</strong>, <strong>Transport</strong>, and<strong> Real Estate</strong> are 'outperforming' the market's average earnings momentum, while the I<strong>nternet</strong>, <strong>Healthcare</strong>,<strong> Commerical Services</strong>, and <strong>Energy</strong> are lagging.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/306/original/2021-02-08_05-28-53.png?1612729747" class="editor-image img-responsive" data-smartkarma-image-id="187306"></figure><p><strong>TRAILING &amp; FORECAST EARNINGS BOTTOM</strong><strong>OUT</strong> -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.</p></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/227/original/2021-02-06_12-20-31.png?1612688721" class="editor-image img-responsive" data-smartkarma-image-id="187227"></figure></section><p></p><div>
<hr>
<p style="text-align: center;"><strong>• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •</strong></p>
</div><div><p>Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.</p></div><div>
<p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p>
<p style="text-align: left;">Friday's 'best' pair of larger-cap companies is <a href="https://www.smartkarma.com/entities/agc-inc" target="_blank" data-smartkarma-citation="entities:2167:1" rel="noopener">AGC (5201 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-fudosan-co-ltd" target="_blank" data-smartkarma-citation="entities:565:1" rel="noopener">Mitsui Fudosan (8801 JP)</a>, while the worst two announcements came from <a href="https://www.smartkarma.com/entities/fuji-heavy-industries-ltd" target="_blank" data-smartkarma-citation="entities:5439:1" rel="noopener">Subaru (7270 JP)</a> and the overvalued and overbought <a href="https://www.smartkarma.com/entities/daifuku-co-ltd" target="_blank" data-smartkarma-citation="entities:10408:1" rel="noopener">Daifuku (6383 JP)</a>.   For more, see the <strong>DETAIL</strong> section below.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/304/original/2021-02-08_05-26-25.png?1612729598" class="editor-image img-responsive" data-smartkarma-image-id="187304"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/305/original/2021-02-08_05-27-07.png?1612729640" class="editor-image img-responsive" data-smartkarma-image-id="187305"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/307/original/2021-02-08_05-31-32.png?1612729905" class="editor-image img-responsive" data-smartkarma-image-id="187307"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/308/original/2021-02-08_05-32-44.png?1612729980" class="editor-image img-responsive" data-smartkarma-image-id="187308"></figure></section><p></p>
</div>

• THE POST-COVID ROTATION • Source for all charts &amp; tables: Japan AnalyticsTHE 2021 ROTATION BEGINS -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the Technology Hardware, Electrical Equipment, Internet, and Healthcare Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were M3 Inc (2413 JP) +163%, Lasertec (6920 JP) +151%, MonotaRO (3064 JP) +108%, GMO Payment Gateway (3769 JP) +110%, and Nidec (6594 JP) +97%. The only deep cyclical Sector that saw a significant recovery was Energy. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.THE VALUE RENAISSANCE - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been Media, Telecommunications, Restaurants, Building Materials, and Consumer Services. The best-performing larger caps have included West Japan Railway (9021 JP) +26%, Dentsu (4324 JP) +25%, create restaurants (3387 JP) +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. RESULTS &amp; REVISION-DRIVEN - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as Metals, Media, Consumer Services, Wholesale, Transport, and Real Estate are 'outperforming' the market's average earnings momentum, while the Internet, Healthcare, Commerical Services, and Energy are lagging.TRAILING &amp; FORECAST EARNINGS BOTTOMOUT -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.

• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •
Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.
• BEST &amp; WORST •
Friday's 'best' pair of larger-cap companies is AGC (5201 JP) and Mitsui Fudosan (8801 JP), while the worst two announcements came from Subaru (7270 JP) and the overvalued and overbought Daifuku (6383 JP).   For more, see the DETAIL section below.



🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><div>
<p>With only two large-cap announcements yesterday, our best and worst pairing is self-selecting - <a href="https://www.smartkarma.com/entities/sekisui-house-ltd" target="_blank" data-smartkarma-citation="entities:4508:1" rel="noopener">Sekisui House (1928 JP)</a> and <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu (4324 JP)</a>. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/177/063/original/2020-12-08_06-32-00.png?1607376736" class="editor-image img-responsive" data-smartkarma-image-id="177063"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/177/064/original/2020-12-08_06-33-14.png?1607376824" class="editor-image img-responsive" data-smartkarma-image-id="177064"></figure></section>
</div><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>

• BEST &amp; WORST •
With only two large-cap announcements yesterday, our best and worst pairing is self-selecting - Sekisui House (1928 JP) and Dentsu (4324 JP). 

Source for all charts &amp; tables: Japan Analytics

🇯🇵 JAPAN • Results & Revisions 12/​​​​​​​​​​​​​​​​​​​​​​​​​​​​​07 Sekisui House & Oh Dear! Dentsu

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Recruit Holdings / Equity Capital Markets

<p>Today (30 Nov 2020) after the close, <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a><a href="https://recruit-holdings.co.jp/ir/ir_news/20201130_01.html" target="_blank" rel="noopener">announced</a> (Japanese only so far) a selldown of shares by eight different companies with a total share sale amounting to 86.111mm shares (plus greenshoe) for an ex-ante expected Offering size of ¥416.8bn or US$4.0 billion. </p><p>This has happened twice before since IPO as corporate shareholders who owned most of Recruit prior to its IPO sell shares down. </p><p>Like in large secondary share sales conducted in previous years, there is a <a href="https://recruit-holdings.co.jp/ir/ir_news/20201130_02.html" target="_blank" rel="noopener">buyback</a> (Japanese only so far) attached where Recruit will buy back a non-negligible portion of the offering, and having learned from the mini-debacle in 2016, in 2019 the company started its buyback post-offering. This year it is the same.</p><p>There are, as always, interesting investor placement dynamics and buyback and index implications, discussed below, along with the history of the prior events.</p><p>The real difference this year is that pricing happens speedily. This week. Probably on Wednesday. That's fast. The last two were 9 and 13 days after announcement. </p>

Today (30 Nov 2020) after the close, Recruit Holdings (6098 JP)announced (Japanese only so far) a selldown of shares by eight different companies with a total share sale amounting to 86.111mm shares (plus greenshoe) for an ex-ante expected Offering size of ¥416.8bn or US$4.0 billion. This has happened twice before since IPO as corporate shareholders who owned most of Recruit prior to its IPO sell shares down. Like in large secondary share sales conducted in previous years, there is a buyback (Japanese only so far) attached where Recruit will buy back a non-negligible portion of the offering, and having learned from the mini-debacle in 2016, in 2019 the company started its buyback post-offering. This year it is the same.There are, as always, interesting investor placement dynamics and buyback and index implications, discussed below, along with the history of the prior events.The real difference this year is that pricing happens speedily. This week. Probably on Wednesday. That's fast. The last two were 9 and 13 days after announcement. 

A Speedy Recruit Offering (And Slower Buyback)

Quantitative Analysis

<div>
<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE •</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/735/original/2020-09-23_11-03-49.png?1600826665" class="editor-image img-responsive" data-smartkarma-image-id="160735"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<p><strong><a href="https://www.dropbox.com/s/6h3m1giwbtzcupg/2020-09-23_11-03-49.png?dl=0" target="_blank" rel="noopener">PEAK OUTLIER</a></strong> - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/736/original/2020-09-23_11-11-07.png?1600827080" class="editor-image img-responsive" data-smartkarma-image-id="160736"></figure>
</div><p><strong>SECTOR TIMELINE</strong> - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the <strong>Healthcare</strong> and <strong>FB&amp;T</strong> market of 2016/17. On the downside, there is greater Oversold 'persistence' in the <strong>Energy</strong>, <strong>Banks</strong>, <strong>Multi-Industry</strong> ( <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP))</a>  and <strong>Utilities</strong> Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/741/original/2020-09-23_11-39-24.png?1600828791" class="editor-image img-responsive" data-smartkarma-image-id="160741"></figure><p>In the<strong> DETAIL</strong> section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.</p><div class="content-highlight"><p style="text-align: left;"><strong>RELATIVE PRICE SCORE OUTLIERS</strong> - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, <strong>'Overbought'</strong> and <strong>'Oversold' </strong>outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at <strong>+4</strong> &amp; <strong>-2</strong> for Companies, <strong>+3</strong> &amp; <strong>-1.5</strong> for Peer Groups and<strong> +2</strong> and<strong> -1</strong> for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over <strong>3.2</strong> million observations.</p></div>


• RELATIVE PRICE SCORE •
Source for all charts &amp; tables: Japan Analytics
PEAK OUTLIER - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  

SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( Japan Post (6178 JP))  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

Equity Bottom-Up

<blockquote>
<p>“I don’t believe BlackRock will be ever 100% back in [the] office - maybe 60% or 70%, and maybe that’s a rotation of people. I don’t believe we’ll ever have a full cadre of people in [the] office [again]. It’s going to be a new workforce. It’s going to be a new paradigm, but I do believe it will be a better paradigm for the firm."</p>
<h3>Larry Fink, CEO, Blackrock Inc.</h3>
<p><strong>Thursday 17rh September 2020</strong></p>
</blockquote><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/259/original/2020-09-21_08-28-32.png?1600644541" class="editor-image img-responsive" data-smartkarma-image-id="160259"></figure><div class="content-caption">Source for all charts: Japan Analytics</div><p><strong><a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit (6098 JP)</a></strong>- Since listing in October 2014 has been a key 'Abe-era stock' - rising by 284% from its February 2016 low. As a prime beneficiary of more flexible working practices and the rise of the temporary workforce in Japan.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/264/original/2020-09-21_08-56-49.png?1600646221" class="editor-image img-responsive" data-smartkarma-image-id="160264"></figure><p><strong>PEAK TEMP</strong> - Using a sample of all currently-listed companies, the number of temporary workers has increased tenfold to 4.7 million since 2000 and ratio of 'temps' to full-time employees has more than quadrupled, reaching a peak of 23.2% in 2018. Much of the rise has come at consolidated subsidiaries - the number of temps at head offices has not changed materially since reaching one million in 2006. As in other countries, many Japanese manufacturing companies face a material reduction in demand which will eventually result in 'reductions-in-force'  with temps bearing the initial brunt.  Also, tighter <a href="https://asia.nikkei.com/Politics/Japan-to-implement-fair-pay-rule-for-temporary-workers" target="_blank" rel="noopener">regulation</a> on abuse of the working terms conditions offered to temporary workers has forced many companies to offer full-time employment to temp staff.</p><p><strong>THE REVELATION OF WFH</strong> - The COVID-induced experience of working-from-home (WFH) has been a revelation for many office staff in central Tokyo who had previously endured tortuous two-hour-long-daily commutes on crowded trains. Many do not wish to return to the past ways of working and commuting, echoing Larry Fink thoughts above. For Japanese HR departments, WFH will require a substantial commitment in terms of IT infrastructure. In many companies, employees have to log out while in the office every time they leave their desk. It is unlikely that companies will make such an investment and extend such trust to temporary workers. With 20% of revenues generated in the US and a further 25% from 'Other Regions', Recruit is heavily exposed to global COVID and WFH trends. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/320/original/File%202020-09-21%2013%2023%2023.jpeg?1600662226" class="editor-image img-responsive" data-smartkarma-image-id="160320"></figure><p><strong>LESS OFFICE SPACE, LESS PAPERWORK, FEWER TEMPS</strong> - Overall, WFH will result in a decline in demand for CBD office space, but also will lead to less paperwork, more efficient working methods, and a reduction in the requirement for 'temps'. This trend has now been given government-backing with the creation of a new <a href="https://jp.reuters.com/article/us-japan-politics/japan-pm-suga-aims-to-get-flagship-digital-agency-running-by-autumn-2021-nikkei-idUSKBN2683DK" target="_blank" rel="noopener">Digital Agency</a> by 2021.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/280/original/2020-09-21_10-09-11.png?1600650563" class="editor-image img-responsive" data-smartkarma-image-id="160280"></figure><p><strong>REVENUES ▲</strong> - Recruit has grown revenues faster than any other larger Commercial Services company in Japan since 2013, outshining peers <a href="https://www.smartkarma.com/entities/temp-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1428:1" rel="noopener">Persol (2181 JP)</a> and <a href="https://www.smartkarma.com/entities/outsourcing-inc" target="_blank" data-smartkarma-citation="entities:7431:1" rel="noopener">Outsourcing (2427 JP)</a>.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/284/original/2020-09-21_10-13-19.png?1600650809" class="editor-image img-responsive" data-smartkarma-image-id="160284"></figure><p><strong>PROFITS ►</strong> - Recruit's 'bottom-lin'  has been much less impressive and since recovering from a period of losses in FY17, Comprehensive Income to Common (CITC) has failed to grow over the last three years.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/286/original/2020-09-21_10-16-07.png?1600650978" class="editor-image img-responsive" data-smartkarma-image-id="160286"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/287/original/2020-09-21_10-17-29.png?1600651062" class="editor-image img-responsive" data-smartkarma-image-id="160287"></figure><p><strong>MIDDLING MARGINS</strong> - Indeed, within the Employment and Staffing Services Peer Group, Recruit ranks eighteenth out sixty in terms of trailing CITC margin at 6.3%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/290/original/2020-09-21_10-22-57.png?1600651387" class="editor-image img-responsive" data-smartkarma-image-id="160290"></figure><p><strong>RELATIVE PRICE SCORE ▲</strong> -Recruit accounts for 75% of its Peer Group's market capitalisation and has been the prime driver taking both to new Relative Price Score highs in recent weeks.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/291/original/2020-09-21_10-25-45.png?1600651558" class="editor-image img-responsive" data-smartkarma-image-id="160291"></figure><p><strong>RESULTS &amp; REVISION SCORE ▼ -</strong> The trend in Rescuit and the Peer Group's earning momentum since 2018 has been down, which COVID-19 has accelerated. </p><p>In the <strong>DETAIL</strong> below,  we shall review Recruit's financial performance and valuation and assess if Recruit is a 'structural short'.</p>


“I don’t believe BlackRock will be ever 100% back in [the] office - maybe 60% or 70%, and maybe that’s a rotation of people. I don’t believe we’ll ever have a full cadre of people in [the] office [again]. It’s going to be a new workforce. It’s going to be a new paradigm, but I do believe it will be a better paradigm for the firm."
Larry Fink, CEO, Blackrock Inc.
Thursday 17rh September 2020
Source for all charts: Japan AnalyticsRecruit (6098 JP)- Since listing in October 2014 has been a key 'Abe-era stock' - rising by 284% from its February 2016 low. As a prime beneficiary of more flexible working practices and the rise of the temporary workforce in Japan.PEAK TEMP - Using a sample of all currently-listed companies, the number of temporary workers has increased tenfold to 4.7 million since 2000 and ratio of 'temps' to full-time employees has more than quadrupled, reaching a peak of 23.2% in 2018. Much of the rise has come at consolidated subsidiaries - the number of temps at head offices has not changed materially since reaching one million in 2006. As in other countries, many Japanese manufacturing companies face a material reduction in demand which will eventually result in 'reductions-in-force'  with temps bearing the initial brunt.  Also, tighter regulation on abuse of the working terms conditions offered to temporary workers has forced many companies to offer full-time employment to temp staff.THE REVELATION OF WFH - The COVID-induced experience of working-from-home (WFH) has been a revelation for many office staff in central Tokyo who had previously endured tortuous two-hour-long-daily commutes on crowded trains. Many do not wish to return to the past ways of working and commuting, echoing Larry Fink thoughts above. For Japanese HR departments, WFH will require a substantial commitment in terms of IT infrastructure. In many companies, employees have to log out while in the office every time they leave their desk. It is unlikely that companies will make such an investment and extend such trust to temporary workers. With 20% of revenues generated in the US and a further 25% from 'Other Regions', Recruit is heavily exposed to global COVID and WFH trends. LESS OFFICE SPACE, LESS PAPERWORK, FEWER TEMPS - Overall, WFH will result in a decline in demand for CBD office space, but also will lead to less paperwork, more efficient working methods, and a reduction in the requirement for 'temps'. This trend has now been given government-backing with the creation of a new Digital Agency by 2021.   REVENUES ▲ - Recruit has grown revenues faster than any other larger Commercial Services company in Japan since 2013, outshining peers Persol (2181 JP) and Outsourcing (2427 JP).  PROFITS ► - Recruit's 'bottom-lin'  has been much less impressive and since recovering from a period of losses in FY17, Comprehensive Income to Common (CITC) has failed to grow over the last three years.MIDDLING MARGINS - Indeed, within the Employment and Staffing Services Peer Group, Recruit ranks eighteenth out sixty in terms of trailing CITC margin at 6.3%.RELATIVE PRICE SCORE ▲ -Recruit accounts for 75% of its Peer Group's market capitalisation and has been the prime driver taking both to new Relative Price Score highs in recent weeks.RESULTS &amp; REVISION SCORE ▼ - The trend in Rescuit and the Peer Group's earning momentum since 2018 has been down, which COVID-19 has accelerated. In the DETAIL below,  we shall review Recruit's financial performance and valuation and assess if Recruit is a 'structural short'.

🇯🇵 JAPAN • Recruit (6098 JP) & The 'New Workforce Paradigm'

Japan

DENTSU INC. mainly provides comprehensive advertising services.  The Company also provides marketing and event planning & promotion services.  Dentsu has associated companies in the US, Europe, and Asia.

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Dentsu Inc (4324 JP)

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Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

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Campbell Gunn

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A Large and Speedily-Executed Secondary Offering by Recruit may test investor appetite. The reaction could be sharp in the next two days, leading...

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• RELATIVE PRICE SCORE • RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX...

Campbell Gunn

🇯🇵 JAPAN • Recruit (6098 JP) & The 'New Workforce Paradigm'

“I don’t believe BlackRock will be ever 100% back in [the[ office,” Fink told the Morningstar Investment Conference on Thursday, according to CNBC....

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 12/07 Sekisui House & Oh Dear! Dentsu