Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

In the nine months to December, Misumi Group achieved 84% of full-year FY Mar-21 operating profit guidance and 82% of net profit guidance. Guidance was left unchanged, pointing to an upward revision later this quarter.Only 74% of sales guidance was achieved, underlining the effectiveness of management's efforts to cut costs. In 3Q, consolidated operating profit was up 31.9% year-on-year on a 1.3% increase in sales, after six straight quarters of declines. The operating margin was 10.5% in 3Q, the highest since 4Q of FY Mar-19.Misumi Group's share price has regained its January 2018 high and is now selling at 69x management's EPS guidance for FY Mar-21, 40x the peak EPS reported in FY Mar-18, and 33x what EPS would be if peak sales were regained with peak operating margins and a normal tax rate.The shares look overbought, but not to an outstanding degree. The anticipated upward revision to guidance may bring an opportunity to take profits.

In the nine months to December, Misumi Group achieved 84% of full-year FY Mar-21 operating profit guidance and 82% of net profit guidance. Guidance was left unchanged, pointing to an upward revision later this quarter.Only 74% of sales guidance was achieved, underlining the effectiveness of management's efforts to cut costs. In 3Q, consolidated operating profit was up 31.9% year-on-year on a 1.3% increase in sales, after six straight quarters of declines. The operating margin was 10.5% in 3Q, the highest since 4Q of FY Mar-19.Misumi Group's share price has regained its January 2018 high and is now selling at 69x management's EPS guidance for FY Mar-21, 40x the peak EPS reported in FY Mar-18, and 33x what EPS would be if peak sales were regained with peak operating margins and a normal tax rate.The shares look overbought, but not to an outstanding degree. The anticipated upward revision to guidance may bring an opportunity to take profits.

Misumi Group (9962 JP): Upward Revision Ahead After Strong 3Q Results

Sales data for the month of September shows what may be the beginning of a long-delayed cyclical upturn. In particular, Factory Automation sales were up 5.1% year-on-year vs. declines of 9.2% and 6.4% in July and August. It was the first increase in almost two years. But in the three months to September (2Q of FY Mar-21), sales were down 6.7% and operating profit down 18.3%. The company's three product divisions - Factory Automation, Die Components and the VONA e-commerce business - all reported declines in sales and profits. There was a meaningful sales increase in China, but nowhere else.Furthermore, the operating margin on the VONA e-commerce business was 2.9% in the three months to September compared with 12.8% for MonotaRO. VONA has not reported a double-digit operating margin in more than three years. Misumi's share price appears to have discounted a return to peak profits. Up 71% from its 52-week low in March and up 24% since July, it was 59x management's EPS estimate for FY Mar-21 as of Friday's close.As the Western world goes back into lockdown, this looks like an opportunity for profit taking.

Sales data for the month of September shows what may be the beginning of a long-delayed cyclical upturn. In particular, Factory Automation sales were up 5.1% year-on-year vs. declines of 9.2% and 6.4% in July and August. It was the first increase in almost two years. But in the three months to September (2Q of FY Mar-21), sales were down 6.7% and operating profit down 18.3%. The company's three product divisions - Factory Automation, Die Components and the VONA e-commerce business - all reported declines in sales and profits. There was a meaningful sales increase in China, but nowhere else.Furthermore, the operating margin on the VONA e-commerce business was 2.9% in the three months to September compared with 12.8% for MonotaRO. VONA has not reported a double-digit operating margin in more than three years. Misumi's share price appears to have discounted a return to peak profits. Up 71% from its 52-week low in March and up 24% since July, it was 59x management's EPS estimate for FY Mar-21 as of Friday's close.As the Western world goes back into lockdown, this looks like an opportunity for profit taking.

Misumi Group (9962 JP): Upturn in Sales Already Discounted

'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/000/131/966/original/2020-05-08_05-43-09.png?1588884207" class="editor-image img-responsive" data-smartkarma-image-id="131966"></figure><div class="content-caption">Source • Japan Analytics</div>7TH MAY - As we pick up again after the Golden Week holidays, the results and revisions 'reality' will increasingly take over the market narrative. Our cap-weighted aggregate Results &amp; Revision Score continues to decline, reaching a fresh three-year low.  A new ten-year low will follow next week, which we expect will curb any upside enthusiasm.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/970/original/File%202020-05-07%204%2029%2028.jpeg?1588886994" class="editor-image img-responsive" data-smartkarma-image-id="131970"></figure><div class="content-caption">Source • SUTD Data-Driven Innovation Lab</div>THE ROAD TO ZERO - Having extended the nationwide state of emergency, the Japanese government is already relaxing restrictions in less-affected prefectures and has hinted that the measures limited activity in the remainder could be lifted before the end of the month. A simulation by the Singapore University of Technology and Design's Data-Driven Innovation Lab suggests that the goal of zero daily new confirmed new cases could be reached as early as 8th June. Testing is now being ramped up as the bureaucratic 'hurdles' are being overcome, and overly-strict preconditions have been relaxed. Nevertheless, the economic consequences of the extension are such that a second supplementary budget and an easing of the requirements for business interruption subsidies will be necessary.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/971/original/2020-05-08_06-52-52.png?1588888396" class="editor-image img-responsive" data-smartkarma-image-id="131971"></figure><div class="content-caption">Source • Japan Analytics</div>THE OTHER SHOE? - The strength of the yen against the US Dollar and by extension against most emerging market currencies is a factor that has received less attention but has a bearing on the earnings of many Japanese exporters. We are preparing an Insight on the likely impact and those companies whose absolute and relative share prices are most and least correlated.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/131/972/original/2020-05-08_06-59-20.png?1588888777" class="editor-image img-responsive" data-smartkarma-image-id="131972"></figure><div class="content-caption">Source • Japan Analytics</div>In the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday.  On another relatively quiet day, the balance between positive/neutral/negative of the 51 results announcements was 15:6:30. The average change in Score was -83. For the 29 revisions/initial forecasts, the split was 11:1:17  and the average Score was -2. Of the 32 companies declaring full-year results, just nine made interim or annual forecasts for the current year. Two hundred twenty-three companies will announce today, the largest of which by market capitalisation will be <a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya (7741 JP)</a>, <a href="https://www.smartkarma.com/entities/mitsubishi-corp" target="_blank" data-smartkarma-citation="entities:20668:1" rel="noopener">Mitsubishi Corp (8058 JP)</a>, and <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu (8001 JP)</a>.

Source • Japan Analytics7TH MAY - As we pick up again after the Golden Week holidays, the results and revisions 'reality' will increasingly take over the market narrative. Our cap-weighted aggregate Results &amp; Revision Score continues to decline, reaching a fresh three-year low.  A new ten-year low will follow next week, which we expect will curb any upside enthusiasm.Source • SUTD Data-Driven Innovation LabTHE ROAD TO ZERO - Having extended the nationwide state of emergency, the Japanese government is already relaxing restrictions in less-affected prefectures and has hinted that the measures limited activity in the remainder could be lifted before the end of the month. A simulation by the Singapore University of Technology and Design's Data-Driven Innovation Lab suggests that the goal of zero daily new confirmed new cases could be reached as early as 8th June. Testing is now being ramped up as the bureaucratic 'hurdles' are being overcome, and overly-strict preconditions have been relaxed. Nevertheless, the economic consequences of the extension are such that a second supplementary budget and an easing of the requirements for business interruption subsidies will be necessary.Source • Japan AnalyticsTHE OTHER SHOE? - The strength of the yen against the US Dollar and by extension against most emerging market currencies is a factor that has received less attention but has a bearing on the earnings of many Japanese exporters. We are preparing an Insight on the likely impact and those companies whose absolute and relative share prices are most and least correlated.Source • Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap companies yesterday.  On another relatively quiet day, the balance between positive/neutral/negative of the 51 results announcements was 15:6:30. The average change in Score was -83. For the 29 revisions/initial forecasts, the split was 11:1:17  and the average Score was -2. Of the 32 companies declaring full-year results, just nine made interim or annual forecasts for the current year. Two hundred twenty-three companies will announce today, the largest of which by market capitalisation will be Hoya (7741 JP), Mitsubishi Corp (8058 JP), and Itochu (8001 JP). 

🇯🇵 JAPAN • Results & Revisions Update 7th May - Yamaha, Misumi, FANCL, Workman, Nintendo

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. 

Factory automation equipment supplier Misumi Group's 3Q results were an improvement over 2Q, but sales and profits were down year-on-year and 4Q is shaping up to be worse thanks to the Coronavirus.Misumi's sales comparison (-5.3%) was better than those of Keyence (-8.4%) and the total value of shipments reported by Nippon Electric Control Equipment Industries Association (NECA), which was down 11.3% year-on-year in the three months to December.Misumi's 3Q operating profit (-6.3%) also held up better than that of Keyence (-14.9%), but that was due to single-digit gains by its Die Components and VONA e-commerce businesses. Misumi's Factory Automation division underperformed Keyence with a 17.9% decline in operating profit on a 5.8% decline in sales. <div>
Misumi's share price has dropped back 11% from its January (and 52-week) high of ¥3,075, but at ¥2,739 (February 5 closing price) is still selling at 39x management's unchanged EPS guidance for FY Mar-20, which implies an unlikely profit rebound in 4Q. 
Misumi also selling at 30x the peak EPS recorded in FY Mar-18, suggesting that a large part of any anticipated recovery has already been discounted.
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Factory automation equipment supplier Misumi Group's 3Q results were an improvement over 2Q, but sales and profits were down year-on-year and 4Q is shaping up to be worse thanks to the Coronavirus.Misumi's sales comparison (-5.3%) was better than those of Keyence (-8.4%) and the total value of shipments reported by Nippon Electric Control Equipment Industries Association (NECA), which was down 11.3% year-on-year in the three months to December.Misumi's 3Q operating profit (-6.3%) also held up better than that of Keyence (-14.9%), but that was due to single-digit gains by its Die Components and VONA e-commerce businesses. Misumi's Factory Automation division underperformed Keyence with a 17.9% decline in operating profit on a 5.8% decline in sales. 
Misumi's share price has dropped back 11% from its January (and 52-week) high of ¥3,075, but at ¥2,739 (February 5 closing price) is still selling at 39x management's unchanged EPS guidance for FY Mar-20, which implies an unlikely profit rebound in 4Q. 
Misumi also selling at 30x the peak EPS recorded in FY Mar-18, suggesting that a large part of any anticipated recovery has already been discounted.


Misumi Group (9962 JP): Profit Recovery Delayed and Largely Discounted

Data for August shows greater year-on-year sales declines after a relatively stable July.  Total consolidated sales were down 6.6% vs. a 0.8% decline in July. Factory Automation (FA) equipment sales were down 9.5% vs. a 2.7% decline in July. Die Component sales were down 4.8% after a 0.7% decline in July. VONA e-commerce sales were down 5.3% after a 0.5% increase in July.In the five months from April to August, total sales were down 6.1% year-on-year, indicating that management's guidance for 0.6% growth in 1H of FY Mar-20 is unlikely to be achieved. FA sales were down 12.1%.At ¥2,562 (Friday, September 20 closing price) the shares have risen by 14% since mid-August, presumably as a result of optimism over the U.S.-China trade war and/or anticipation of a return to year-on-year growth. But that growth is not happening yet and the share price still looks extended.

Data for August shows greater year-on-year sales declines after a relatively stable July.  Total consolidated sales were down 6.6% vs. a 0.8% decline in July. Factory Automation (FA) equipment sales were down 9.5% vs. a 2.7% decline in July. Die Component sales were down 4.8% after a 0.7% decline in July. VONA e-commerce sales were down 5.3% after a 0.5% increase in July.In the five months from April to August, total sales were down 6.1% year-on-year, indicating that management's guidance for 0.6% growth in 1H of FY Mar-20 is unlikely to be achieved. FA sales were down 12.1%.At ¥2,562 (Friday, September 20 closing price) the shares have risen by 14% since mid-August, presumably as a result of optimism over the U.S.-China trade war and/or anticipation of a return to year-on-year growth. But that growth is not happening yet and the share price still looks extended.

Misumi Group (9962 JP): FA Sales Down 9.5% in August

Japan

MISUMI Group Inc. distributes precision machinery parts by mail order. The products include a variety of components such as press die, plastic mold, automated machinery, pc & network, and wiring.  The Company also sells supplies for factories, hospitals, and restaurants and semi-conductors by mail order.

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Misumi Group (9962 JP)