Japan/Asia Long-Short, LightStream Research

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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

Kawasaki Heavy Industries / Equity Bottom-Up

<p>KHI is down 5.5% today vs. peers down about 2-4% as all the talk is about Trump's escalating trade spat with China and investor concern builds over <a href="https://www.smartkarma.com/entities/11957" target="_blank" data-smartkarma-citation="entities:11957:1">Boeing Co (BA US)</a> which was down 5% overnight (vs. Airbus which closed down just 1% after rallying 2% into the close). However, we feel this may be a misjudgement by the market as KHI does not supply parts for Boeing's 737 which could be the most heavily impacted by this trade friction. In fact, we believe the company could actually benefit if China…</p>

KHI is down 5.5% today vs. peers down about 2-4% as all the talk is about Trump's escalating trade spat with China and investor concern builds over Boeing Co (BA US) which was down 5% overnight (vs. Airbus which closed down just 1% after rallying 2% into the close). However, we feel this may be a misjudgement by the market as KHI does not supply parts for Boeing's 737 which could be the most heavily impacted by this trade friction. In fact, we believe the company could actually benefit if China…

KHI: Not the Most Vulnerable to Chinese Retaliation Against Boeing, Russian MC-21 Is a Wildcard

<p>After dropping 15% from its January highs, KHI dropped a further 13% on the news that undercarriages it had supplied to JR Central and JR West around 2007 had parts which failed to meet minimum specifications due to workers incorrectly sanding parts to a point where they became too thin. The move has resulted in valuations dropping to particularly cheap levels with PB hitting 1.26x (despite RoE typically hovering around 10%) and PE hitting 11.9x on FY03/19 consensus.</p><h2><strong>Strong Seasonality of</strong></h2>…

After dropping 15% from its January highs, KHI dropped a further 13% on the news that undercarriages it had supplied to JR Central and JR West around 2007 had parts which failed to meet minimum specifications due to workers incorrectly sanding parts to a point where they became too thin. The move has resulted in valuations dropping to particularly cheap levels with PB hitting 1.26x (despite RoE typically hovering around 10%) and PE hitting 11.9x on FY03/19 consensus.Strong Seasonality of…

KHI: Share Price Cracks 13% on Shinkansen Issue but 20% OP Beat Could Be Coming

<p>KHI announced today that it had found parts in a total of 146 shinkansen carriages which failed to meet thickness requirements and would be replacing the parts and any others it deemed to be at risk. This follows a discovery of a large crack in a shinkansen train at Nagoya station in December last year that could have potentially caused a derailment if not repaired. The company announced that it would hold a conference in the evening before market close resulting in the stock falling about 2.1%…</p>

KHI announced today that it had found parts in a total of 146 shinkansen carriages which failed to meet thickness requirements and would be replacing the parts and any others it deemed to be at risk. This follows a discovery of a large crack in a shinkansen train at Nagoya station in December last year that could have potentially caused a derailment if not repaired. The company announced that it would hold a conference in the evening before market close resulting in the stock falling about 2.1%…

KHI: Shinkansen Crack Repair Costs Should Be Manageable

<p>KHI has positioned its aerospace and aero engine businesses as their biggest growth driver over the medium-term. Revenue and margins should be propelled by expanding production for the 787 and eventually the 777X on the civilian side while we also believe there is upside from overseas sales of the company P-1 maritime patrol aircraft and C-2 transport aircraft as well as a potential civilian cargo derivative of the C-2. Aero engines should be supported by expanding MRO business for the venerable…</p>

KHI has positioned its aerospace and aero engine businesses as their biggest growth driver over the medium-term. Revenue and margins should be propelled by expanding production for the 787 and eventually the 777X on the civilian side while we also believe there is upside from overseas sales of the company P-1 maritime patrol aircraft and C-2 transport aircraft as well as a potential civilian cargo derivative of the C-2. Aero engines should be supported by expanding MRO business for the venerable…

Geared High-Bypass Turbofans Key to Aero Engine Efficiency Improvements

<h2>KHI Announces Healthy 3Q Earnings but does not Revise Up</h2><p>KHI just announced 3Q numbers with 3Q revenue up 10.7% YoY and 2.2% QoQ. OP was up 98% YoY and 155% QoQ. Despite this, the company kept its full-year estimates the same at JPY62bn in OP. The achievement rate is 72% vs. full year guidance whereas last FY the achievement rate at this point was 50% vs. final results. While we do not believe that KHI will quite double 9 month OP for the FY, we now expect OP to clear JPY80bn (vs. our earlier…</p>

KHI Announces Healthy 3Q Earnings but does not Revise UpKHI just announced 3Q numbers with 3Q revenue up 10.7% YoY and 2.2% QoQ. OP was up 98% YoY and 155% QoQ. Despite this, the company kept its full-year estimates the same at JPY62bn in OP. The achievement rate is 72% vs. full year guidance whereas last FY the achievement rate at this point was 50% vs. final results. While we do not believe that KHI will quite double 9 month OP for the FY, we now expect OP to clear JPY80bn (vs. our earlier…

Maintained Guidance on Strong 3Q Conservative, 30+% Beat Vs. Consensus on the Cards

Japan

Kawasaki Heavy Industries, Ltd. designs, develops, and manufactures transport equipment and industrial heavy machinery for military and commercial use.  The Company produces ships, railroad cars, aircraft engines and parts, hydraulic and gas turbines, submarine engines, boilers, and industrial robots.  Kawasaki Heavy Industries offers engineering and construction services to industrial plants.

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Kawasaki Heavy Industries (7012 JP)

KHI: Not the Most Vulnerable to Chinese Retaliation Against Boeing, Russian MC-21 Is a Wildcard

KHI is down 5.5% today vs. peers down about 2-4% as all the talk is about Trump's escalating trade spat with China and investor concern builds over...

Mio Kato

KHI: Shinkansen Crack Repair Costs Should Be Manageable

KHI announced today that it had found parts in a total of 146 shinkansen carriages which failed to meet thickness requirements and would be...

Mio Kato

Geared High-Bypass Turbofans Key to Aero Engine Efficiency Improvements

KHI has positioned its aerospace and aero engine businesses as their biggest growth driver over the medium-term. Revenue and margins should be...

Mio Kato

Maintained Guidance on Strong 3Q Conservative, 30+% Beat Vs. Consensus on the Cards

KHI Announces Healthy 3Q Earnings but does not Revise UpKHI just announced 3Q numbers with 3Q revenue up 10.7% YoY and 2.2% QoQ. OP was up 98% YoY...

Mio Kato

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

KHI: Not the Most Vulnerable to Chinese Retaliation Against Boeing, Russian MC-21 Is a Wildcard

KHI is down 5.5% today vs. peers down about 2-4% as all the talk is about Trump's escalating trade spat with China and investor concern builds over...

Mio Kato

KHI: Share Price Cracks 13% on Shinkansen Issue but 20% OP Beat Could Be Coming

After dropping 15% from its January highs, KHI dropped a further 13% on the news that undercarriages it had supplied to JR Central and JR West...

Mio Kato

KHI: Shinkansen Crack Repair Costs Should Be Manageable

KHI announced today that it had found parts in a total of 146 shinkansen carriages which failed to meet thickness requirements and would be...

Mio Kato

Geared High-Bypass Turbofans Key to Aero Engine Efficiency Improvements

KHI has positioned its aerospace and aero engine businesses as their biggest growth driver over the medium-term. Revenue and margins should be...

Mio Kato

Maintained Guidance on Strong 3Q Conservative, 30+% Beat Vs. Consensus on the Cards

KHI Announces Healthy 3Q Earnings but does not Revise UpKHI just announced 3Q numbers with 3Q revenue up 10.7% YoY and 2.2% QoQ. OP was up 98% YoY...

Mio Kato