Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Forensic Accounting

In Q3, <a href="https://www.smartkarma.com/entities/13359" target="_blank" data-smartkarma-citation="entities:13359:1">Lenovo (992 HK)</a> reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us - and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the <a href="https://www.smartkarma.com/entities/16968" target="_blank" data-smartkarma-citation="entities:16968:1">Fujitsu Ltd (6702 JP)</a> acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.

In Q3, Lenovo (992 HK) reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us - and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the Fujitsu Ltd (6702 JP) acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.

Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

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 Capital Markets

Coverage of <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank Corp (9434 JP)</a>'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take has been relatively subdued, leaning to the bearish side but only significantly so in the event that Docomo follows through with its announced price cuts and Rakuten's entry as a full-fledged MNO is particularly aggressive.By and large we consider the issue to be overvalued but felt that significant downside risk only existed if the dividend were to be cut, which we consider a distinct possibility but by no means a sure thing. This long -term view has not changed, however, we now consider some modest downside to be likely in the short term.

Coverage of Softbank Corp (9434 JP)'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take has been relatively subdued, leaning to the bearish side but only significantly so in the event that Docomo follows through with its announced price cuts and Rakuten's entry as a full-fledged MNO is particularly aggressive.By and large we consider the issue to be overvalued but felt that significant downside risk only existed if the dividend were to be cut, which we consider a distinct possibility but by no means a sure thing. This long -term view has not changed, however, we now consider some modest downside to be likely in the short term.

Softbank IPO: Signs Point to Risk of Early IPO Price Break

'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/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-<ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul>THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>.


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

Specialist in Japanese equities, Kheiron Group

Nathan Ramler, CFA

Specialist in Japanese equities

Kheiron Group

Tokyo-based with experience in global equity markets and M&A. Striving to add value and insight. 

Specialists in Japan

Thematic (Sector/Industry)

5G sounds great, right? – faster speeds, more capacity, improved efficiency – but what does that really mean? The reality is that 5G isn’t needed for consumer services. In Japan, 4G and its improvements can be more than sufficient to deliver network speeds and capacity that give consumers a good experience. That doesn’t mean that 5G won’t improve consumers’ service experience, but we expect the main use cases for 5G to be industrial, not consumer. We do anticipate 5G in Japan will open up opportunities for new services and revenue streams.Japanese telco capex has been trending lower. <a href="https://www.smartkarma.com/entities/623" target="_blank" data-smartkarma-citation="entities:623:1">NTT (9432 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, and even <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a> are all investing in 5G, but telco cash flows are not waiting to be crushed by 5G spending because 5G can piggyback on existing infrastructure. The technology comes as a more gradual shift and is complementary to 4G technologies, so we do not expect 5G to result in material changes or pressures on absolute capex spending. Yes, there are some new technological elements needed in the networks and previous generational shifts of technology have not always been smooth, but we see no call to panic about 5G.In this insight we look at:<ol>
<li>The timeline for 5G and an explanation of what 5G is</li>
<li>Use cases for the technology and competitive threats to the network operators</li>
<li>A deep dive into the technology itself – if you want to know your MIMO from your NOMA, come join us as we let our inner geek run rampant</li>
</ol>

5G sounds great, right? – faster speeds, more capacity, improved efficiency – but what does that really mean? The reality is that 5G isn’t needed for consumer services. In Japan, 4G and its improvements can be more than sufficient to deliver network speeds and capacity that give consumers a good experience. That doesn’t mean that 5G won’t improve consumers’ service experience, but we expect the main use cases for 5G to be industrial, not consumer. We do anticipate 5G in Japan will open up opportunities for new services and revenue streams.Japanese telco capex has been trending lower. NTT (9432 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Softbank (9984 JP), and even Rakuten (4755 JP) are all investing in 5G, but telco cash flows are not waiting to be crushed by 5G spending because 5G can piggyback on existing infrastructure. The technology comes as a more gradual shift and is complementary to 4G technologies, so we do not expect 5G to result in material changes or pressures on absolute capex spending. Yes, there are some new technological elements needed in the networks and previous generational shifts of technology have not always been smooth, but we see no call to panic about 5G.In this insight we look at:
The timeline for 5G and an explanation of what 5G is
Use cases for the technology and competitive threats to the network operators
A deep dive into the technology itself – if you want to know your MIMO from your NOMA, come join us as we let our inner geek run rampant


5G Is Coming – Don’t Panic. Sensible Plans from SoftBank (9984 JP), Docomo (9437 JP), KDDI (9433 JP)

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Today during trading hours, when minor Fujitsu subsidiary <a href="https://www.smartkarma.com/entities/12423" target="_blank" data-smartkarma-citation="entities:12423:1">Fujitsu Component (6719 JP)</a> which makes communications equipment and connectors announced Q1 earnings and raised its full-year and half-year guidance for net profit (only item changed was net profit), the company also <a href="http://www.fujitsu.com/jp/group/fcl/documents/finance/2018/20180726-1.pdf" target="_blank">announced</a> that private equity fund Longreach (and its Bidco Founder's Consultants Holdings) had reached an agreement with <a href="https://www.smartkarma.com/entities/16968" target="_blank" data-smartkarma-citation="entities:16968:1">Fujitsu Ltd (6702 JP)</a> to conduct a Tender Offer on Fujitsu Component in order to take it over and…

Today during trading hours, when minor Fujitsu subsidiary Fujitsu Component (6719 JP) which makes communications equipment and connectors announced Q1 earnings and raised its full-year and half-year guidance for net profit (only item changed was net profit), the company also announced that private equity fund Longreach (and its Bidco Founder's Consultants Holdings) had reached an agreement with Fujitsu Ltd (6702 JP) to conduct a Tender Offer on Fujitsu Component in order to take it over and…

Fujitsu Component - Looks Easier Than It Is

Japan

Fujitsu Ltd manufactures semiconductor, computer, and communication equipment. The Company provides comprehensive information technology, network and telecommunication solutions, and Internet services.

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Fujitsu Ltd (6702 JP)

Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

In Q3, Lenovo (992 HK) reported revenue growth - well ahead of market expectations, improved margins and US$1.9bn of cashflow. This was a...

Bucephalus Research Partnership

Softbank IPO: Signs Point to Risk of Early IPO Price Break

Coverage of Softbank Corp (9434 JP)'s IPO on Smartkarma has offered a mix of viewpoints with some bullish and some bearish opinions. Our own take...

Mio Kato

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

5G Is Coming – Don’t Panic. Sensible Plans from SoftBank (9984 JP), Docomo (9437 JP), KDDI (9433 JP)

5G sounds great, right? – faster speeds, more capacity, improved efficiency – but what does that really mean? The reality is that 5G isn’t needed...

Nathan Ramler, CFA

Fujitsu Component - Looks Easier Than It Is

Today during trading hours, when minor Fujitsu subsidiary Fujitsu Component (6719 JP) which makes communications equipment and connectors announced...

Travis Lundy

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