Japan Equity Analyst, all sectors

David Rubenstein

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. 

Equity Bottom-Up

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has sent Hitachi Chemical and its parent into a frenzy with Hitachi Chemical ADR up 13% last Friday. We believe this news is relevant for Hitachi High Tech because both subsidiaries are 51-52% consolidated by the parent Hitachi, and both have arguably businesses with little synergy with the parent. We believe that Hitachi High Tech is also rumored to be on the block for sale or spin-off.  Media sources say that Hitachi is considering a sale of Hitachi Chemical and would reap Y300bn.  The current value of their 51% ownership in Hitachi Chemical is Y211bn, and thus there is 42% implied upside if the Y300bn figure is achieved.To recap Q3 results for Hitachi High Tech from January 31, 2019, the numbers were decent with earnings above consensus forecasts by 33% for Q3 (Y15.8bn OP versus Y13.8bn forecast). The profit rise was due to improved margins in medical and continued strength in process semiconductor equipment. The shares are up 20% year-to-date, outperforming the Nikkei by 15%. Some of the fears of a sharp slowdown in semiconductor have been nullified by the continued strength in logic chip investments as well as the improved profitability in medical clinical analyzers. Medical profits soared 46% YoY in Q3 to Y7.6bn on a 13% YoY increase in revenues. OP margin improved from 12.3% to 15.8% YoY.

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has sent Hitachi Chemical and its parent into a frenzy with Hitachi Chemical ADR up 13% last Friday. We believe this news is relevant for Hitachi High Tech because both subsidiaries are 51-52% consolidated by the parent Hitachi, and both have arguably businesses with little synergy with the parent. We believe that Hitachi High Tech is also rumored to be on the block for sale or spin-off.  Media sources say that Hitachi is considering a sale of Hitachi Chemical and would reap Y300bn.  The current value of their 51% ownership in Hitachi Chemical is Y211bn, and thus there is 42% implied upside if the Y300bn figure is achieved.To recap Q3 results for Hitachi High Tech from January 31, 2019, the numbers were decent with earnings above consensus forecasts by 33% for Q3 (Y15.8bn OP versus Y13.8bn forecast). The profit rise was due to improved margins in medical and continued strength in process semiconductor equipment. The shares are up 20% year-to-date, outperforming the Nikkei by 15%. Some of the fears of a sharp slowdown in semiconductor have been nullified by the continued strength in logic chip investments as well as the improved profitability in medical clinical analyzers. Medical profits soared 46% YoY in Q3 to Y7.6bn on a 13% YoY increase in revenues. OP margin improved from 12.3% to 15.8% YoY.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

After almost three months of preparation after the initial news came out in October, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> launched its Tender Offer for <a href="https://www.smartkarma.com/entities/14121" target="_blank" data-smartkarma-citation="entities:14121:1">Yungtay Engineering (1507 TT)</a> in mid-January 2019. 
The background of the two companies' relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in <a href="https://www.smartkarma.com/insights/going-up-hitachi-tender-for-yungtay-engineering-1507-tt" target="_blank" data-smartkarma-citation="insights:25395">Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)</a>at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in <a href="https://www.smartkarma.com/insights/hitachi-tender-for-yungtay-engineering-launches" target="_blank" data-smartkarma-citation="insights:27308">Hitachi Tender for Yungtay Engineering Launches</a>.
Since then, there has been a litany of small "nuisance" events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay Engineering (1507 TT) in mid-January 2019. 
The background of the two companies' relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in Hitachi Tender for Yungtay Engineering Launches.
Since then, there has been a litany of small "nuisance" events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.

Yungtay Noises Haven't Produced a Result Yet

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/341/original/2019-02-10_05-07-57.png?1549742898" class="editor-image img-responsive" data-smartkarma-image-id="78341"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi (6501 JP)</a> were the most significant contributors, each declining by more than ¥200b. Three 'financials', <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a>, and <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358 JP)</a> subtracted ¥400b between them. Only <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a> and <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba (6502 JP)</a> added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.<div class="content-highlight">In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on <a href="https://www.smartkarma.com/entities/13176" target="_blank" data-smartkarma-citation="entities:13176:1">Nabtesco Corp (6268 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20823" target="_blank" data-smartkarma-citation="entities:20823:1">Nakanishi (7716 JP)</a>, and <a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">DeNA (2432 JP)</a></div>

Source: Japan AnalyticsBOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which Toyota Motor (7203 JP), Honda Motor (7267 JP), Softbank Group (9984 JP), Hitachi (6501 JP) were the most significant contributors, each declining by more than ¥200b. Three 'financials', Nomura Holdings (8604 JP), Mizuho Financial Group (8411 JP), and Suruga Bank (8358 JP) subtracted ¥400b between them. Only Sony (6758 JP) and Toshiba (6502 JP) added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on Nabtesco Corp (6268 JP), Workman (7564 JP), Nakanishi (7716 JP), and DeNA (2432 JP)

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

On 26 October <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> and  <a href="https://www.smartkarma.com/entities/21451" target="_blank" data-smartkarma-citation="entities:21451:1">Faurecia (EO FP)</a><a href="https://www.hitachi.com/New/cnews/month/2018/10/f_181026a.pdf" target="_blank">announced</a> that Faurecia would take over Hitachi car audio and infotainment equipment subsidiary <a href="https://www.smartkarma.com/entities/7888" target="_blank" data-smartkarma-citation="entities:7888:1">Clarion Co Ltd (6796 JP)</a> in a tender offer to be launched 3+ months hence. This was discussed in <a href="https://www.smartkarma.com/insights/faurecia-to-buy-clarion-at-2500-share" target="_blank" data-smartkarma-citation="insights:25382">Faurecia to Buy Clarion at ¥2500/Share</a>. At the time I had looked at the situation and the question about whether the price was fair and concluded that yes it was, and investors should take the money and run. The investors for whom the deal was most important on a forward-looking basis the day after that announcement were not Clarion investors but investors in Alpine (6816 JP). At that time, there was a question as to whether investors would look at the 10+x EV/EBITDA multiple being paid for Clarion against a multiple in the 2x EV/EBITDA range after cash and other financial assets were  accounted for to be paid for Alpine and suggest that Alpine management and directors had not done a good enough job getting an appropriate valuation (they did not). In addition, the buyer proposed a 5.7x multiple on a post-synergies basis 18-24 months out was a reasonable level to buy a company. I did not disagree, but that made Alpine investors' submission to <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Electric (6770 JP)</a> later in 2018 all the more disappointing. <h2>The New News</h2>As noted in the original announcement, Faurecia planned to commence their Tender Offer for Clarion shares in January 2019 and the Tender Offer would run for 20 days. Clarion today announced a <a href="https://www.clarion.com/jp/ja/pdf/190129_02.pdf" target="_blank">forecast revision</a> for the fiscal year to 31 March 2019 which involves a shortfall in revenue of 9.1%, a 16.7% drop in forecast Operating Profit, and a drop in Net Profit from ¥1.7 billion to a loss of ¥500 million (a ¥2.2bn swing), but...In a development which will cause Clarion investors to breathe a sigh of relief, Faurecia also announced will go through with the deal with no changes (other than to extend the Tender Offer to 21 business days).

On 26 October Hitachi Ltd (6501 JP) and  Faurecia (EO FP)announced that Faurecia would take over Hitachi car audio and infotainment equipment subsidiary Clarion Co Ltd (6796 JP) in a tender offer to be launched 3+ months hence. This was discussed in Faurecia to Buy Clarion at ¥2500/Share. At the time I had looked at the situation and the question about whether the price was fair and concluded that yes it was, and investors should take the money and run. The investors for whom the deal was most important on a forward-looking basis the day after that announcement were not Clarion investors but investors in Alpine (6816 JP). At that time, there was a question as to whether investors would look at the 10+x EV/EBITDA multiple being paid for Clarion against a multiple in the 2x EV/EBITDA range after cash and other financial assets were  accounted for to be paid for Alpine and suggest that Alpine management and directors had not done a good enough job getting an appropriate valuation (they did not). In addition, the buyer proposed a 5.7x multiple on a post-synergies basis 18-24 months out was a reasonable level to buy a company. I did not disagree, but that made Alpine investors' submission to Alps Electric (6770 JP) later in 2018 all the more disappointing. The New NewsAs noted in the original announcement, Faurecia planned to commence their Tender Offer for Clarion shares in January 2019 and the Tender Offer would run for 20 days. Clarion today announced a forecast revision for the fiscal year to 31 March 2019 which involves a shortfall in revenue of 9.1%, a 16.7% drop in forecast Operating Profit, and a drop in Net Profit from ¥1.7 billion to a loss of ¥500 million (a ¥2.2bn swing), but...In a development which will cause Clarion investors to breathe a sigh of relief, Faurecia also announced will go through with the deal with no changes (other than to extend the Tender Offer to 21 business days). 

Faurecia Launches Tender Offer for Clarion

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Thematic (Sector/Industry)

The start of the year has been bullish on the Korean and Japanese stock markets. KOSPI is up 4% and Nikkei is up 3% YTD. Some of the most beaten down stocks in the last 3 months of 2018 in Korea and Japan have been rebounding nicely YTD. In the past week, the following reports that are relevant for Japan and Korea have received a lot of interest:<ul>
<li><a href="https://www.smartkarma.com/insights/yaskawa-electric-we-are-probably-now-close-to-the-bottom-for-this-lt-structural-growth-story" target="_blank" data-smartkarma-citation="insights:27287">Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story</a></li>
<li><a href="https://www.smartkarma.com/insights/workman-vs-decathlon-the-upcoming-battle-for-japan-s-sports-market" target="_blank" data-smartkarma-citation="insights:27288">Workman Vs. Decathlon: The Upcoming Battle for Japan's Sports Market</a></li>
<li>
<a href="https://www.smartkarma.com/insights/softbank-a-sizeable-and-tactical-tender" target="_blank" data-smartkarma-citation="insights:27313">Softbank - A Sizeable and Tactical Tender?</a> </li>
<li><a href="https://www.smartkarma.com/insights/hitachi-tender-for-yungtay-engineering-launches" target="_blank" data-smartkarma-citation="insights:27308">Hitachi Tender for Yungtay Engineering Launches</a></li>
<li><a href="https://www.smartkarma.com/insights/trade-idea-amorepacific-002790-ks-stub-a-beautiful-opportunity" target="_blank" data-smartkarma-citation="insights:27111">TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity</a></li>
<li><a href="https://www.smartkarma.com/insights/full-list-of-korea-s-single-sub-holdcos-with-current-sigma-quick-thought-on-amorepacific" target="_blank" data-smartkarma-citation="insights:27275">Full List of Korea's Single-Sub Holdcos with Current Sigma % - Quick Thought on Amorepacific</a></li>
</ul>Finally, it was announced that <a href="http://time.com/5508197/trump-north-korean-summit-vietnam/" target="_blank">Trump plans to meet North Korea's Kim Jong-Un in late February in Vietnam</a>. It has been nearly seven months since their last meeting in Singapore and there has been no progress in terms of nuclear weapons inspection or dismantling of its nuclear weapons and ICBM missiles. In April 2009, North Korea reactivated its nuclear facilities, after more than two years of North Korea promising to not to restart its nuclear programs. They lied and got away with it. And it seems like they are replaying this story-line once again.

The start of the year has been bullish on the Korean and Japanese stock markets. KOSPI is up 4% and Nikkei is up 3% YTD. Some of the most beaten down stocks in the last 3 months of 2018 in Korea and Japan have been rebounding nicely YTD. In the past week, the following reports that are relevant for Japan and Korea have received a lot of interest:
Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story
Workman Vs. Decathlon: The Upcoming Battle for Japan's Sports Market

Softbank - A Sizeable and Tactical Tender? 
Hitachi Tender for Yungtay Engineering Launches
TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
Full List of Korea's Single-Sub Holdcos with Current Sigma % - Quick Thought on Amorepacific
Finally, it was announced that Trump plans to meet North Korea's Kim Jong-Un in late February in Vietnam. It has been nearly seven months since their last meeting in Singapore and there has been no progress in terms of nuclear weapons inspection or dismantling of its nuclear weapons and ICBM missiles. In April 2009, North Korea reactivated its nuclear facilities, after more than two years of North Korea promising to not to restart its nuclear programs. They lied and got away with it. And it seems like they are replaying this story-line once again.

Smartkarma’s Week That Was in JP/​​​​​​KR:  Amorepacific, Hitachi, and Trump's 2nd Meeting With KJU

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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

Hitachi Ltd (6501 JP)

Hitachi High Tech's Ace in the Hole

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has...

David Rubenstein

Yungtay Noises Haven't Produced a Result Yet

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay...

Travis Lundy

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

Faurecia Launches Tender Offer for Clarion

On 26 October Hitachi Ltd (6501 JP) and Faurecia (EO FP)announced that Faurecia would take over Hitachi car audio and infotainment equipment...

Travis Lundy

Smartkarma’s Week That Was in JP/KR: Amorepacific, Hitachi, and Trump's 2nd Meeting With KJU

The start of the year has been bullish on the Korean and Japanese stock markets. KOSPI is up 4% and Nikkei is up 3% YTD. Some of the most beaten...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Hitachi High Tech's Ace in the Hole

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has...

David Rubenstein

Yungtay Noises Haven't Produced a Result Yet

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay...

Travis Lundy

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

Faurecia Launches Tender Offer for Clarion

On 26 October Hitachi Ltd (6501 JP) and Faurecia (EO FP)announced that Faurecia would take over Hitachi car audio and infotainment equipment...

Travis Lundy

Smartkarma’s Week That Was in JP/​​​​​​KR: Amorepacific, Hitachi, and Trump's 2nd Meeting With KJU

The start of the year has been bullish on the Korean and Japanese stock markets. KOSPI is up 4% and Nikkei is up 3% YTD. Some of the most beaten...

Douglas Kim

Smartkarma’s Week That Was in JP/KR: Amorepacific, Hitachi, and Trump's 2nd Meeting With KJU