'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/342/original/2020-03-11_11-02-32.png?1583892183" class="editor-image img-responsive" data-smartkarma-image-id="122342"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/590/original/2020-03-12_07-42-03.png?1583966536" class="editor-image img-responsive" data-smartkarma-image-id="122590"></figure><div class="content-caption">Source • Japan Analytics</div>CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-<ul>
<li>
Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.</li>
<li>
Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.</li>
<li>
Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. </li>
<li>
Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.</li>
<li>
Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.</li>
<li>Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. </li>
</ul>EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <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> which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP).</a><a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.<div class="content-highlight">In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. </div>

Source • Japan AnalyticsCUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-

Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.

Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.

Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. 

Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.

Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.
Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. 
EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - Z Holdings (4689 JP), Rakuten (4755 JP), Sony (6758 JP), Japan Post (6178 JP) which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in Japan Display (6740 JP).Toshiba (6502 JP)-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. 

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Thematic (Sector/Industry)

In this report, we provide South Korea's response to Japan's economic sanctions as well as an analysis of the recent visitors trend to South Korea and Japan. Plus, we analyze the likely probabilities of Abe and the Japanese government enforcing another round of economic sanctions on South Korea including visa restrictions to Japan. In our view, the first round of economic sanctions by Japan on South Korea may not be enough for President Moon Jae-In to change his mind. The higher probability event is that South Korea just waits and makes no major moves until Japan makes a few more economic sanctions on South Korea before the South Korean government is forced to give in. Right now, one of the growing probability is that Abe's Japanese government enforces another round of economic sanctions on South Korea including <a href="https://www.scmp.com/news/asia/east-asia/article/3001530/travel-firms-fear-japan-will-stop-visas-south-koreans-row-over" target="_blank" rel="noopener">restrictions on visas</a> of South Koreans to Japan in the coming weeks. We provide a list of stocks that will be negatively impacted by a potential visa restrictions of South Koreans to Japan.

In this report, we provide South Korea's response to Japan's economic sanctions as well as an analysis of the recent visitors trend to South Korea and Japan. Plus, we analyze the likely probabilities of Abe and the Japanese government enforcing another round of economic sanctions on South Korea including visa restrictions to Japan. In our view, the first round of economic sanctions by Japan on South Korea may not be enough for President Moon Jae-In to change his mind. The higher probability event is that South Korea just waits and makes no major moves until Japan makes a few more economic sanctions on South Korea before the South Korean government is forced to give in. Right now, one of the growing probability is that Abe's Japanese government enforces another round of economic sanctions on South Korea including restrictions on visas of South Koreans to Japan in the coming weeks. We provide a list of stocks that will be negatively impacted by a potential visa restrictions of South Koreans to Japan.

South Korea's Response to Japan's Sanctions and Recent Visitors Trend to Japan & South Korea

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

Equity Bottom-Up

<ul><li>High earnings quality and solid long-term earnings growth relative to its sector</li><li>Continued growth in international travel to support further profit growth in 2018, outbound travelers up by 19% YoY in 2017 and operating profit for outbound segment grew by 55% YoY in 2017</li><li>Duty-free business should see narrowed loss following the opening of new shop at Incheon Airport Terminal 2. The recently opened Terminal 2 has recorded about 30% higher sales on average compared to Terminal 1</li><li>Trades above Asian sector at 18CE* 5.9x PB, offers almost double the sector ROE and has about 18% of market cap in cash</li><li>Risks: High non-operating expenses related to the duty-free business</li></ul>* Consensus Estimates

High earnings quality and solid long-term earnings growth relative to its sectorContinued growth in international travel to support further profit growth in 2018, outbound travelers up by 19% YoY in 2017 and operating profit for outbound segment grew by 55% YoY in 2017Duty-free business should see narrowed loss following the opening of new shop at Incheon Airport Terminal 2. The recently opened Terminal 2 has recorded about 30% higher sales on average compared to Terminal 1Trades above Asian sector at 18CE* 5.9x PB, offers almost double the sector ROE and has about 18% of market cap in cashRisks: High non-operating expenses related to the duty-free business* Consensus Estimates

Hanatour (039130 KS): Cash-Loaded Korean Tour Operator

Japan

Hanatour Japan Co., Ltd. provides travel services. The Company offers domestic and international travel, hotel booking, ticketing, and other services. Hanatour Japan serves customers worldwide.

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Hanatour Japan (6561 JP)

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds, ...

Campbell Gunn

South Korea's Response to Japan's Sanctions and Recent Visitors Trend to Japan & South Korea

In this report, we provide South Korea's response to Japan's economic sanctions as well as an analysis of the recent visitors trend to South Korea...

Douglas Kim

Hanatour (039130 KS): Cash-Loaded Korean Tour Operator

High earnings quality and solid long-term earnings growth relative to its sector Continued growth in international travel to support further...

A. Stotz Investment Research

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