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

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals to elderly customers. The company also provides prepared ingredients to nursing facilities and supplies frozen bentos as an OEM. At its IPO in late 2017 which we covered <a href="https://www.smartkarma.com/insights/silver-life-ipo-aging-society-pure-play-to-usher-in-the-age-of-demographics" target="_blank" rel="noopener">here</a> the stock jumped 74% and continued rising thereafter to peak 490% above the IPO price in Sep 2018. Since then, however, it has fallen 40% and is just recovering from the COVID selloff and trading at 35.5x consensus PE. Now the company is an attractive bet on Japan’s ageing population and priced as such, but what makes the company truly interesting is its CEO. We explain why below.

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals to elderly customers. The company also provides prepared ingredients to nursing facilities and supplies frozen bentos as an OEM. At its IPO in late 2017 which we covered here the stock jumped 74% and continued rising thereafter to peak 490% above the IPO price in Sep 2018. Since then, however, it has fallen 40% and is just recovering from the COVID selloff and trading at 35.5x consensus PE. Now the company is an attractive bet on Japan’s ageing population and priced as such, but what makes the company truly interesting is its CEO. We explain why below.

Silver Life – This Guy Is in Danger of Becoming Our Favourite CEO

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

While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act well and that are offering fantastic entry points at current levels. Health Care and Technology remain our two favorite global Sectors, and they are outperforming across all major markets including the US, Europe, Japan, and China. Remain overweight/add exposure. Consumer Staples is another leadership Sector, particularly in the Asia/Pacific region. Lastly, we are also continuing to expand our recommendations to include bottom-up ideas within several other Sectors as the market goes through a bottoming process.

While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act well and that are offering fantastic entry points at current levels. Health Care and Technology remain our two favorite global Sectors, and they are outperforming across all major markets including the US, Europe, Japan, and China. Remain overweight/add exposure. Consumer Staples is another leadership Sector, particularly in the Asia/Pacific region. Lastly, we are also continuing to expand our recommendations to include bottom-up ideas within several other Sectors as the market goes through a bottoming process.

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

The market reacted positively to <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>’ 4Q FY03/20 results. Z’s share price has increased by c.5% since the results were released last Friday (30th April 2020). This coupled with some renewed enthusiasm over e-commerce stocks as COVID-19 beneficiaries have allowed Z’s share price to recover to its highs of late February.

The market reacted positively to Z Holdings (4689 JP)’ 4Q FY03/20 results. Z’s share price has increased by c.5% since the results were released last Friday (30th April 2020). This coupled with some renewed enthusiasm over e-commerce stocks as COVID-19 beneficiaries have allowed Z’s share price to recover to its highs of late February.

Z Holdings: 4Q Results Fail to Impress Despite a Favourable E-Commerce Landscape

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/679/original/2020-05-01_05-31-11.png?1588278692" class="editor-image img-responsive" data-smartkarma-image-id="130679"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div>COMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the reality of what The Economist describes as the '90% Economy' unfolds in the daily earnings and forecasts revisions announced by Japanese companies. In some cases, such as <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a>, the picture is distorted by the strength in overseas demand in February as Chinese competition was put on hold and the rest of North Asia took up the resulting 'slack'. As we have noted before, the first and second-order impacts of COVID-19 will not be revealed until the August and November results, when we expect both of our Scores to be closer to their 2009 troughs. Meanwhile, the US Federal Reserves trillion-dollar rescue package will keep upward pressure on the yen as the Bank of Japan struggles to keep up.  COUNTERMEASURES - Japan's revised supplementary budget was approved yesterday, allowing for interest-free loans to businesses, tax deferrals and cash handouts to all households. The COVID crisis has also prompted Japan to engage in a bout of 'magical thinking' allowing for the rolling back or revision of many long-cherished traditions:-<ul>
<li>The start of the academic year will now probably be pushed back to September this year - discussions have started to make this shift permanent, finally bringing Japan into line with the rest of the world.</li>
<li>Hanko personal and corporate seals that are required to certify documents may now also be going the way of the dodo as the Keidanren business organisation has acknowledged that they 'do not meet the digital age'.</li>
</ul><hr><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/680/original/File%202020-05-01%203%2039%2027.jpeg?1588280828" class="editor-image img-responsive" data-smartkarma-image-id="130680"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/681/original/File%202020-05-01%203%2027%2003.jpeg?1588280873" class="editor-image img-responsive" data-smartkarma-image-id="130681"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/683/original/File%202020-05-01%203%2040%2007.jpeg?1588281553" class="editor-image img-responsive" data-smartkarma-image-id="130683"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/682/original/File%202020-05-01%203%2031%2028.jpeg?1588280903" class="editor-image img-responsive" data-smartkarma-image-id="130682"></figure><div class="content-caption">Source • ourworldindata.org</div>MAYDAY - Although Japan's daily case count has fallen to around 200, the medical experts advising the Japanese government are suggesting that this level will require an extension to the states of emergency (SOEs) currently operating in all prefectures beyond May 6th. Hospitals are still working at above-normal capacity, and patients are still being turned away from many hospitals. Alarmingly Japan's current eight death-doubling-days count is amongst the worst in the world. Also, excess mortality data for Tokyo suggests that, in March, there were over 60 excess deaths a week not attributed to COVID-19. The expectation is that the SOEs will be extended to Sunday, May 31st and that schools will not reopen until September. In most European countries extensive testing is one of the requisites for easing lockdown restrictions, and the UK is now ramping up testing capacity in anticipation. Japan's woeful record on testing will become a factor by the end of May. Japan's case fatality rate of 3% suggests that the number of cases could be ten times the official number.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/684/original/2020-05-01_06-41-23.png?1588282906" class="editor-image img-responsive" data-smartkarma-image-id="130684"></figure><div class="content-caption">Source • Japan Analytics</div>30TH APRIL - In the DETAIL below, we shall review Thursday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 132 results was 51:10:71; and for the 83 revisions or initial forecasts, the split was 30:7:43. Of the 98 companies announcing annual results, only 43 made forecasts for the current year. The ratio of dividend cuts to increases was 5:10 with <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a> being the most prominent in the former camp.

Source • Japan AnalyticsCOMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the reality of what The Economist describes as the '90% Economy' unfolds in the daily earnings and forecasts revisions announced by Japanese companies. In some cases, such as Nidec (6594 JP), the picture is distorted by the strength in overseas demand in February as Chinese competition was put on hold and the rest of North Asia took up the resulting 'slack'. As we have noted before, the first and second-order impacts of COVID-19 will not be revealed until the August and November results, when we expect both of our Scores to be closer to their 2009 troughs. Meanwhile, the US Federal Reserves trillion-dollar rescue package will keep upward pressure on the yen as the Bank of Japan struggles to keep up.  COUNTERMEASURES - Japan's revised supplementary budget was approved yesterday, allowing for interest-free loans to businesses, tax deferrals and cash handouts to all households. The COVID crisis has also prompted Japan to engage in a bout of 'magical thinking' allowing for the rolling back or revision of many long-cherished traditions:-
The start of the academic year will now probably be pushed back to September this year - discussions have started to make this shift permanent, finally bringing Japan into line with the rest of the world.
Hanko personal and corporate seals that are required to certify documents may now also be going the way of the dodo as the Keidanren business organisation has acknowledged that they 'do not meet the digital age'.
Source • ourworldindata.orgMAYDAY - Although Japan's daily case count has fallen to around 200, the medical experts advising the Japanese government are suggesting that this level will require an extension to the states of emergency (SOEs) currently operating in all prefectures beyond May 6th. Hospitals are still working at above-normal capacity, and patients are still being turned away from many hospitals. Alarmingly Japan's current eight death-doubling-days count is amongst the worst in the world. Also, excess mortality data for Tokyo suggests that, in March, there were over 60 excess deaths a week not attributed to COVID-19. The expectation is that the SOEs will be extended to Sunday, May 31st and that schools will not reopen until September. In most European countries extensive testing is one of the requisites for easing lockdown restrictions, and the UK is now ramping up testing capacity in anticipation. Japan's woeful record on testing will become a factor by the end of May. Japan's case fatality rate of 3% suggests that the number of cases could be ten times the official number.Source • Japan Analytics30TH APRIL - In the DETAIL below, we shall review Thursday's large-cap results, revisions and initial forecast announcements.  The positive/neutral/negative balance for the 132 results was 51:10:71; and for the 83 revisions or initial forecasts, the split was 30:7:43. Of the 98 companies announcing annual results, only 43 made forecasts for the current year. The ratio of dividend cuts to increases was 5:10 with Japan Exchange Group (8697 JP) being the most prominent in the former camp.

🇯🇵 JAPAN • Results & Revisions Update 30th April - D1Life, Toto, JR-W, CTC, Murata, Nidec, Mercari

Mercari released solid 3Q numbers today with revenue up 50% YoY to ¥20.4bn (consensus ¥19.4bn) and an operating loss of ¥6.39bn (consensus ¥6.37bn). More pertinently, the company announced forecasts for FY06/20 with sales forecast at ¥73-75bn (consensus ¥70.4bn) and operating loss forecast at ¥23-25bn (consensus ¥24.7bn). The company also established a nomination and remuneration committee with majority outside directors which is encouraging for a company of its size. The internals were even more encouraging, and we examine these below.

Mercari released solid 3Q numbers today with revenue up 50% YoY to ¥20.4bn (consensus ¥19.4bn) and an operating loss of ¥6.39bn (consensus ¥6.37bn). More pertinently, the company announced forecasts for FY06/20 with sales forecast at ¥73-75bn (consensus ¥70.4bn) and operating loss forecast at ¥23-25bn (consensus ¥24.7bn). The company also established a nomination and remuneration committee with majority outside directors which is encouraging for a company of its size. The internals were even more encouraging, and we examine these below. 

Mercari – Prospects for Achieving Profitability Next Year Have Increased Significantly

Japan

Mercari, Inc. operates as an electronic commercial company. The Company offers electronic commercial software, operation management, marketing planning, and other marketplace services. Mercari serves customers worldwide.

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Mercari (4385 JP)

Silver Life – This Guy Is in Danger of Becoming Our Favourite CEO

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals...

Mio Kato

Global Equities: Lower Highs Forming

While the major averages are stalling below major resistance and their direction is unclear, there are many individual stocks that continue to act...

Vermilion Research

Z Holdings: 4Q Results Fail to Impress Despite a Favourable E-Commerce Landscape

The market reacted positively to Z Holdings (4689 JP)’ 4Q FY03/20 results. Z’s share price has increased by c.5% since the results were released...

Supun Walpola

🇯🇵 JAPAN • Results & Revisions Update 30th April - D1Life, Toto, JR-W, CTC, Murata, Nidec, Mercari

COMFORT BLANKET - As the politically-motivated Central Banks smother equity markets with the comfort blanket of the 'mother of all QEs', the...

Campbell Gunn

Mercari – Prospects for Achieving Profitability Next Year Have Increased Significantly

Mercari released solid 3Q numbers today with revenue up 50% YoY to ¥20.4bn (consensus ¥19.4bn) and an operating loss of ¥6.39bn (consensus...

Mio Kato

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