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

Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%. On a QoQ basis, profitability decreased 4% but we feel conditions have now bottomed. Despite this, valuations look stretched and we remain most negative on Fanuc out of the FA names including Keyence, Yaskawa and Harmonic Drive.

Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%. On a QoQ basis, profitability decreased 4% but we feel conditions have now bottomed. Despite this, valuations look stretched and we remain most negative on Fanuc out of the FA names including Keyence, Yaskawa and Harmonic Drive.

Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance vs. TOPIX ended in late October. We continue to believe that the market is pricing in too strong of a recovery too early and so far, financial results have been poor. The market has looked past this deterioration in anticipation of the next recovery, but we remain unconvinced about the strength of a potential recovery. As such we remain highly cautious on the sector and heavily favour the more robust earnings structure and greater potential for overseas growth of Keyence within the FA space.

Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance vs. TOPIX ended in late October. We continue to believe that the market is pricing in too strong of a recovery too early and so far, financial results have been poor. The market has looked past this deterioration in anticipation of the next recovery, but we remain unconvinced about the strength of a potential recovery. As such we remain highly cautious on the sector and heavily favour the more robust earnings structure and greater potential for overseas growth of Keyence within the FA space.

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Last month KKR<a href="https://www.dealstreetasia.com/stories/kkr-asia-fund-2-162853/" target="_blank" rel="noopener"> raised a record 12.5B USD</a> for a new Asian buyout fund. Slightly lower amounts, but still jointly totaling billions, were raised by TPG, Bain, Hillhouse, and others. PE funds make money when they can put those dollars to work hence the question is: where will they look?Singapore would be a natural location to start hunting given its index has been the second-worst performer in ASEAN (Malaysia was the worst) over the past decade. In general, we think Singapore offers good value on any number of metrics we look at.Large funds need to hunt for "elephants" to move the needle. Looking at the Straits Times Index we note that most companies are no-go zones as they are 1) banks, 2) semi-government controlled entities, 3) REITs or 4) large holding companies with clear family control.One stock is notably different: <a href="https://www.smartkarma.com/entities/venture-corp-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9251:1">Venture Corp (VMS SP)</a>. <a href="https://www.smartkarma.com/entities/venture-corp-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9251:1">Venture Corp (VMS SP)</a> has many attributes that make it suitable to be privatized by a PE fund:<ul>
<li>The founder, Ngit Liong Wong, is 78 years old and has no family succession</li>
<li>3.3 billion USD market cap and 93% free float</li>
<li>2018 short-seller episode tanked stock and deeply frustrated founder</li>
<li>18% of market cap is cash, the balance sheet can be leveraged at record low-interest rates</li>
<li>The decades-long history of strong CF generation, important to PE funds who use leverage</li>
<li>Long-standing relationships with multiple Top Tier customers</li>
<li>Strong footprint in SE Asia makes it attractive go-to-player in Trade War world</li>
<li>Public markets fail to award best-in-class ROE, ROA with adequate multiple</li>
<li>Venture is trading 1 sd below its 10-year average EV/EBITDA</li>
</ul>Should no M&amp;A materialize investors are paid to wait with a near 4.4% annual dividend yield. The dividend of Venture is important. Since its listing in 1992, it has paid over 2 billion SGD in cumulative dividends to its shareholders.The sell-side is worried about weak 4Q19 and 70% of recommendations are either HOLD or SELL. For contrarian investors, this might be the time to look at Venture once again.

Last month KKR raised a record 12.5B USD for a new Asian buyout fund. Slightly lower amounts, but still jointly totaling billions, were raised by TPG, Bain, Hillhouse, and others. PE funds make money when they can put those dollars to work hence the question is: where will they look?Singapore would be a natural location to start hunting given its index has been the second-worst performer in ASEAN (Malaysia was the worst) over the past decade. In general, we think Singapore offers good value on any number of metrics we look at.Large funds need to hunt for "elephants" to move the needle. Looking at the Straits Times Index we note that most companies are no-go zones as they are 1) banks, 2) semi-government controlled entities, 3) REITs or 4) large holding companies with clear family control.One stock is notably different: Venture Corp (VMS SP). Venture Corp (VMS SP) has many attributes that make it suitable to be privatized by a PE fund:
The founder, Ngit Liong Wong, is 78 years old and has no family succession
3.3 billion USD market cap and 93% free float
2018 short-seller episode tanked stock and deeply frustrated founder
18% of market cap is cash, the balance sheet can be leveraged at record low-interest rates
The decades-long history of strong CF generation, important to PE funds who use leverage
Long-standing relationships with multiple Top Tier customers
Strong footprint in SE Asia makes it attractive go-to-player in Trade War world
Public markets fail to award best-in-class ROE, ROA with adequate multiple
Venture is trading 1 sd below its 10-year average EV/EBITDA
Should no M&amp;A materialize investors are paid to wait with a near 4.4% annual dividend yield. The dividend of Venture is important. Since its listing in 1992, it has paid over 2 billion SGD in cumulative dividends to its shareholders.The sell-side is worried about weak 4Q19 and 70% of recommendations are either HOLD or SELL. For contrarian investors, this might be the time to look at Venture once again.

Venture Corp (VMS SP): Next M&A Target in 2020?

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

Technology remains one of our favorite Sector overweights, both globally and within Japan. Additionally, Japan remains among the most attractive countries globally, with major indexes (TOPIX and Nikkei 225) continuing to develop positively in terms of price and RS ever since bullish reversals in mid-September. We believe Keyence offers a timely opportunity to take advantage of what we expect are higher prices ahead for both the stock and the Japanese Technology Sector.

Technology remains one of our favorite Sector overweights, both globally and within Japan. Additionally, Japan remains among the most attractive countries globally, with major indexes (TOPIX and Nikkei 225) continuing to develop positively in terms of price and RS ever since bullish reversals in mid-September. We believe Keyence offers a timely opportunity to take advantage of what we expect are higher prices ahead for both the stock and the Japanese Technology Sector.

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/452/original/2019-11-17_11-54-09.png?1573959284" class="editor-image img-responsive" data-smartkarma-image-id="106452"></figure><div class="content-caption">Source: Japan Analytics</div>4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/458/original/2019-11-17_12-49-55.png?1573962614" class="editor-image img-responsive" data-smartkarma-image-id="106458"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/459/original/2019-11-17_13-10-47.png?1573963867" class="editor-image img-responsive" data-smartkarma-image-id="106459"></figure><div class="content-caption">Source: Japan Analytics</div>THE EARNINGS CYCLE HAS YET TO BOTTOM -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.<div class="content-highlight">WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.</div>In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.

Source: Japan Analytics4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.Source: Japan AnalyticsTHE EARNINGS CYCLE HAS YET TO BOTTOM -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

Japan

KEYENCE CORPORATION develops, manufactures, and sells sensors and measuring instruments used for factory automation (FA) and high technology hobby products. The Company's products include fiber optic sensors, photoelectric sensors, programmable logic controllers (PLC), laser scan micrometers, bar code readers, and radio-controlled model cars.

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Keyence Corp (6861 JP)

Fanuc – Still the Ugly Duckling

Fanuc’s 3Q results beat consensus as revenue of ¥125.5bn was 1.4% above consensus at ¥123.8bn and OP of ¥19.6bn beat consensus’ ¥16.8bn by 16.7%....

Mio Kato

Yaskawa – No Signs of Recovery

Stock performance and financial performance for Yaskawa continue to diverge. The stock continues to rise in absolute terms though outperformance...

Mio Kato

Venture Corp (VMS SP): Next M&A Target in 2020?

Last month KKR raised a record 12.5B USD for a new Asian buyout fund. Slightly lower amounts, but still jointly totaling billions, were raised by...

Nicolas Van Broekhoven

Keyence Corp.: Buy

Technology remains one of our favorite Sector overweights, both globally and within Japan. Additionally, Japan remains among the most attractive...

Vermilion Research

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the...

Campbell Gunn

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