'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

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Most major indexes are currently trading at the lower end of their May trading ranges. Barring improving headlines regarding tariffs &amp; trade or comments from the Fed suggesting a potential rate cut on the horizon we believe global markets are vulnerable to further weakness. We review all major markets and highlight attractive opportunities within Japan, and global real estate developers, and consumer staples stocks.

Most major indexes are currently trading at the lower end of their May trading ranges. Barring improving headlines regarding tariffs &amp; trade or comments from the Fed suggesting a potential rate cut on the horizon we believe global markets are vulnerable to further weakness. We review all major markets and highlight attractive opportunities within Japan, and global real estate developers, and consumer staples stocks.

Major Indexes Testing Support & Vulnerable to Further Weakness

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

JDI  is up 4% today as the company announced yesterday that it had successfully developed a high resolution 3.6 inch LCD panel for VR applications. The company has consistently noted the need for higher pixel densities, emphasising that LCD applications are better suited for higher resolutions on small screens than OLED. It had previously been marketing a 651 PPI product, which had a higher pixel density than the 400 PPI of some OLED VR displays. The newest announcement is for an 803 PPI display…

JDI  is up 4% today as the company announced yesterday that it had successfully developed a high resolution 3.6 inch LCD panel for VR applications. The company has consistently noted the need for higher pixel densities, emphasising that LCD applications are better suited for higher resolutions on small screens than OLED. It had previously been marketing a 651 PPI product, which had a higher pixel density than the 400 PPI of some OLED VR displays. The newest announcement is for an 803 PPI display…

JDI: Starting to Make Progress in VR Applications - Potential as Long-Term Growth Driver

APAC IPOs & Placements

Zhen Zhou, Toh

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> is looking to sell 6.2m shares of <a href="https://www.smartkarma.com/entities/2484" target="_blank" data-smartkarma-citation="entities:2484:1">Maxell Ltd (6810 JP)</a> for approximately US$128m. This is a pseudo cleanup trade by Hitachi because it will be left with just 3% in Maxell post-sale.The deal scores very positively on our framework owing to its strong earnings momentum and much healthier balance sheet compared to peers. The deal should not come as a surprise to shareholders since Hitachi has been winding down their non-core assets. It has previously massive sold down Maxell…

Hitachi Ltd (6501 JP) is looking to sell 6.2m shares of Maxell Ltd (6810 JP) for approximately US$128m. This is a pseudo cleanup trade by Hitachi because it will be left with just 3% in Maxell post-sale.The deal scores very positively on our framework owing to its strong earnings momentum and much healthier balance sheet compared to peers. The deal should not come as a surprise to shareholders since Hitachi has been winding down their non-core assets. It has previously massive sold down Maxell…

(Hitachi) Maxell Placement - Extended Trading, Cleanup, and Buyback Should Support Price

We visited <a href="https://www.smartkarma.com/entities/8280" target="_blank" data-smartkarma-citation="entities:8280:1">Japan Display Inc (6740 JP)</a> to get an update on business conditions and progress with restructuring. The stock had surged in October on the back of likely short covering but has given up its gains following disappointment over 2Q results. From our perspective, this FY was always going to be tough and while the company remains more pessimistic than we are, a real improvement on the earnings front is only likely to come through from late 4QFY03/18 or 1QFY03/19. We had assumed that…

We visited Japan Display Inc (6740 JP) to get an update on business conditions and progress with restructuring. The stock had surged in October on the back of likely short covering but has given up its gains following disappointment over 2Q results. From our perspective, this FY was always going to be tough and while the company remains more pessimistic than we are, a real improvement on the earnings front is only likely to come through from late 4QFY03/18 or 1QFY03/19. We had assumed that…

JDI Visit: This FY Trending Poorly, Further Details on OLED Transition and JOLED

Japan

Maxell Ltd develops a diverse portfolio of media devices. The Company's products include batteries, DVD's, memory storage, optical lenses, headphones and other accessories.

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Maxell Ltd (6810 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

Major Indexes Testing Support & Vulnerable to Further Weakness

Most major indexes are currently trading at the lower end of their May trading ranges. Barring improving headlines regarding tariffs & trade or...

Vermilion Research

JDI: Starting to Make Progress in VR Applications - Potential as Long-Term Growth Driver

JDI is up 4% today as the company announced yesterday that it had successfully developed a high resolution 3.6 inch LCD panel for VR applications....

Mio Kato

(Hitachi) Maxell Placement - Extended Trading, Cleanup, and Buyback Should Support Price

Hitachi Ltd (6501 JP) is looking to sell 6.2m shares of Maxell Ltd (6810 JP) for approximately US$128m. This is a pseudo cleanup trade by Hitachi...

Zhen Zhou, Toh

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🇯🇵 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

Major Indexes Testing Support & Vulnerable to Further Weakness

Most major indexes are currently trading at the lower end of their May trading ranges. Barring improving headlines regarding tariffs & trade or...

Vermilion Research

JDI: Starting to Make Progress in VR Applications - Potential as Long-Term Growth Driver

JDI is up 4% today as the company announced yesterday that it had successfully developed a high resolution 3.6 inch LCD panel for VR applications....

Mio Kato

(Hitachi) Maxell Placement - Extended Trading, Cleanup, and Buyback Should Support Price

Hitachi Ltd (6501 JP) is looking to sell 6.2m shares of Maxell Ltd (6810 JP) for approximately US$128m. This is a pseudo cleanup trade by Hitachi...

Zhen Zhou, Toh

JDI Visit: This FY Trending Poorly, Further Details on OLED Transition and JOLED

We visited Japan Display Inc (6740 JP) to get an update on business conditions and progress with restructuring. The stock had surged in October on...

Mio Kato