'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<div style="text-align: center;"><strong>• NET GAIN • </strong></div><div><div class="content-caption">
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/590/original/2021-02-19_07-20-52.png?1613686864" class="editor-image img-responsive" data-smartkarma-image-id="189590"></figure><p></p></section> Source for all charts &amp; tables: Japan Analytics</div></div><div>
<p><strong>NET GAIN</strong> - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/591/original/2021-02-19_07-29-59.png?1613687413" class="editor-image img-responsive" data-smartkarma-image-id="189591"></figure></section><p><strong>TRAILING TWELVE MONTHS (TTM)</strong> - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/595/original/2021-02-19_07-38-34.png?1613687927" class="editor-image img-responsive" data-smartkarma-image-id="189595"></figure></section><p><strong>FORECASTS</strong> - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. </p>
</div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/596/original/2021-02-19_07-40-09.png?1613688021" class="editor-image img-responsive" data-smartkarma-image-id="189596"></figure><hr></section><p><strong>POSITIVE MOMENTUM</strong> - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   </p></section><div></div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/597/original/2021-02-19_08-02-24.png?1613689355" class="editor-image img-responsive" data-smartkarma-image-id="189597"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/694/original/2021-02-19_16-02-06.png?1613718138" class="editor-image img-responsive" data-smartkarma-image-id="189694"></figure><hr></section><p><strong>SECTOR BREAKDOWN</strong> - The leading sectors in terms of one-month change in Results &amp; Revision Score are <strong>Other Commercial Products</strong>, <strong>Autos</strong>,<strong> Other Consumer Products</strong>, <strong>Metals</strong>, and <strong>Building Materials.</strong> The RRS 'losers' are <strong>Utilities</strong>, <strong>Internet Content &amp; Services</strong>, <strong>Food, Beverages &amp; Tobacco,</strong><strong>Retail</strong>, and <strong>Healthcare</strong>.  </p>
</div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/700/original/2021-02-19_16-05-32.png?1613718344" class="editor-image img-responsive" data-smartkarma-image-id="189700"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/701/original/2021-02-19_16-06-12.png?1613718383" class="editor-image img-responsive" data-smartkarma-image-id="189701"></figure></section><hr>
</div><section></section><div><div>
<p>In the <strong>DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.</p>
<hr>
<p></p>
</div></div>

• NET GAIN • 
 Source for all charts &amp; tables: Japan Analytics
NET GAIN - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.
TRAILING TWELVE MONTHS (TTM) - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.
FORECASTS - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. 
POSITIVE MOMENTUM - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   
SECTOR BREAKDOWN - The leading sectors in terms of one-month change in Results &amp; Revision Score are Other Commercial Products, Autos, Other Consumer Products, Metals, and Building Materials. The RRS 'losers' are Utilities, Internet Content &amp; Services, Food, Beverages &amp; Tobacco,Retail, and Healthcare.  



In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.




🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 11 November 2020, when <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-chemicals-inc" target="_blank" data-smartkarma-citation="entities:1703:1" rel="noopener">Mitsui Chemicals (4183 JP)</a> jointly announced they would launch a Tender Offer for the shares of <a href="https://www.smartkarma.com/entities/honshu-chemical-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:9094:1" rel="noopener">Honshu Chemical Industry (4115 JP)</a> that they did not own, I wrote about it in <a href="https://www.smartkarma.com/insights/honshu-chemical-4115-an-embarrassment-of-riches" target="_blank" data-smartkarma-citation="insights:45197" rel="noopener">Honshu Chemical (4115) - An Embarrassment of Riches</a>.</p>
<p>The deal was announced then, because the decision to launch the Tender Offer in future had been made and the negotiations with the Target Company had been completed, and the Special Committee of Honshu Chemical had decided that it was OK to support the Tender Offer and recommend it to its shareholders to tender. </p>
<p>However, it was long-dated. The Tender Offer was not expected to start for another 6 months, and the valuation was truly embarrassing. It was a 43% premium, and a 20+ year high price. </p>
<p>But it was still <em><strong>completely</strong></em> the wrong price. </p>
<p>It is still worth a look. </p>

On 11 November 2020, when Mitsui &amp; Co Ltd (8031 JP) and Mitsui Chemicals (4183 JP) jointly announced they would launch a Tender Offer for the shares of Honshu Chemical Industry (4115 JP) that they did not own, I wrote about it in Honshu Chemical (4115) - An Embarrassment of Riches.
The deal was announced then, because the decision to launch the Tender Offer in future had been made and the negotiations with the Target Company had been completed, and the Special Committee of Honshu Chemical had decided that it was OK to support the Tender Offer and recommend it to its shareholders to tender. 
However, it was long-dated. The Tender Offer was not expected to start for another 6 months, and the valuation was truly embarrassing. It was a 43% premium, and a 20+ year high price. 
But it was still completely the wrong price. 
It is still worth a look. 

Honshu Chemical - What WAS the Wrong Price Gets Wronger

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

<p>One good news since we last wrote about Parkway Pantai ( <a href="https://www.smartkarma.com/entities/parkway-pantai-ltd" target="_blank" data-smartkarma-citation="entities:29218:1" rel="noopener">Parkway Pantai Ltd (0794727D SP)</a>) this July ( <a href="https://www.smartkarma.com/insights/parkway-pantai-good-brand-with-limited-upside" target="_blank" data-smartkarma-citation="insights:41759" rel="noopener">Parkway Pantai: Good Brand with Limited Upside</a> ) is that the first COVID19 vaccine by <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer Inc (PFE US)</a>  has been rolled out at the time of this writing and several potential candidates in the final phases of testing are also waiting to be approved for mass production. Although we have seen spikes of new mutated COVID19 cases in the UK and South Africa, Pfizer  believes the efficacy of its vaccine should still be more than 90% effective against the more contagious variation. The company’s claim that it could come up with a new effective vaccine for this variation in 6 weeks lends comfort to investors that there is light at the end of the tunnel.</p>
<p>Parkway Pantai’s hospital operations have in fact been less affected than what we had originally expected. Its key Singapore and Malaysian markets have seen occupancy rebounding to above 50% in 3Q20. However, Indonesia, its biggest market for its Singapore operation, is still closed due to COVID19 as the country is still struggling to control the outbreak there. Malaysia has also seen a resurgent of COVID19 cases after 3Q but management is confident that the impact will not be as bad as in 2Q.</p>
<p>PARKPT 4.25% 7/22c traded at an attractive YTM of 5.58% at the time of writing compared to other local Healthcare bonds. We believe the perpetual will likely be called on 27 July 2022 as global interest rates will stay low at least in the short and medium tenor, in our opinion, as mass vaccination to countries worldwide is a “Herculean” task that requires massive logistical co-ordination for the worldwide vaccine distribution and production. Normalcy may not return to the world till the end of 2022, in our view, when everyone gets vaccinated. As for Parkway Pantai, based on its clientele profile which is mainly the higher income group, getting themselves first to be vaccinated should not be a problem as long as they are willing to pay, in our opinion.</p>
<p>As a “BB” credit, in our view, PARKPT 4.25% Perp (7/22c)’s fair YTC should be c.4.0% versus its current YTC of 5.58%, showing a near-term upside of 158bp, at time of writing. With vaccination on the horizon, we see normalcy returning towards the end of 2021 and see asymmetric upside for the bonds on improving operational performance and value proposition versus peers. As such, we revise our recommendation on the bonds from NEUTRAL to OVERWEIGHT.</p>

One good news since we last wrote about Parkway Pantai ( Parkway Pantai Ltd (0794727D SP)) this July ( Parkway Pantai: Good Brand with Limited Upside ) is that the first COVID19 vaccine by Pfizer Inc (PFE US)  has been rolled out at the time of this writing and several potential candidates in the final phases of testing are also waiting to be approved for mass production. Although we have seen spikes of new mutated COVID19 cases in the UK and South Africa, Pfizer  believes the efficacy of its vaccine should still be more than 90% effective against the more contagious variation. The company’s claim that it could come up with a new effective vaccine for this variation in 6 weeks lends comfort to investors that there is light at the end of the tunnel.
Parkway Pantai’s hospital operations have in fact been less affected than what we had originally expected. Its key Singapore and Malaysian markets have seen occupancy rebounding to above 50% in 3Q20. However, Indonesia, its biggest market for its Singapore operation, is still closed due to COVID19 as the country is still struggling to control the outbreak there. Malaysia has also seen a resurgent of COVID19 cases after 3Q but management is confident that the impact will not be as bad as in 2Q.
PARKPT 4.25% 7/22c traded at an attractive YTM of 5.58% at the time of writing compared to other local Healthcare bonds. We believe the perpetual will likely be called on 27 July 2022 as global interest rates will stay low at least in the short and medium tenor, in our opinion, as mass vaccination to countries worldwide is a “Herculean” task that requires massive logistical co-ordination for the worldwide vaccine distribution and production. Normalcy may not return to the world till the end of 2022, in our view, when everyone gets vaccinated. As for Parkway Pantai, based on its clientele profile which is mainly the higher income group, getting themselves first to be vaccinated should not be a problem as long as they are willing to pay, in our opinion.
As a “BB” credit, in our view, PARKPT 4.25% Perp (7/22c)’s fair YTC should be c.4.0% versus its current YTC of 5.58%, showing a near-term upside of 158bp, at time of writing. With vaccination on the horizon, we see normalcy returning towards the end of 2021 and see asymmetric upside for the bonds on improving operational performance and value proposition versus peers. As such, we revise our recommendation on the bonds from NEUTRAL to OVERWEIGHT.

Parkway Pantai: Attraction from Vaccination

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p><a href="https://asia.nikkei.com/Business/Energy/Japan-taps-Australia-and-Brunei-for-hydrogen-import-goal" target="_blank" rel="noopener">Momentum is building within East Asia to propel the Hydrogen economy forward</a> as Japan, Korea and China have demonstrated interest in investing heavily in the technology, a call that is being answered by a variety of players through the supply chain. We examine below the key investment opportunities and timelines for these players.</p>

Momentum is building within East Asia to propel the Hydrogen economy forward as Japan, Korea and China have demonstrated interest in investing heavily in the technology, a call that is being answered by a variety of players through the supply chain. We examine below the key investment opportunities and timelines for these players.

<p>On 11 November 2020, <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-chemicals-inc" target="_blank" data-smartkarma-citation="entities:1703:1" rel="noopener">Mitsui Chemicals (4183 JP)</a> announced a transaction to take out minorities in jointly-held subsidiary <a href="https://www.smartkarma.com/entities/honshu-chemical-industry-co" target="_blank" data-smartkarma-citation="entities:9094:1" rel="noopener">Honshu Chemical Industry Co (4115 JP)</a>.</p><p>The result is a governance embarrassment for the two major acquirers, and the target company itself. </p><p>And the Tender Offer is long-dated. It is announced today, but it is expected to start in May 2021 after receiving anti-trust approvals both in and outside Japan.</p><p>But a situation with such an embarrassing valuation contains possibilities.  More below the fold. </p>

On 11 November 2020, Mitsui &amp; Co Ltd (8031 JP) and Mitsui Chemicals (4183 JP) announced a transaction to take out minorities in jointly-held subsidiary Honshu Chemical Industry Co (4115 JP).The result is a governance embarrassment for the two major acquirers, and the target company itself. And the Tender Offer is long-dated. It is announced today, but it is expected to start in May 2021 after receiving anti-trust approvals both in and outside Japan.But a situation with such an embarrassing valuation contains possibilities.  More below the fold. 

Honshu Chemical (4115) - An Embarrassment of Riches

Japan

MITSUI & CO., LTD. is a general trading company.  The Company has operating groups including Iron and Steel, Non-Ferrous Metals, Machinery, Chemicals, Foods, Energy, Textiles, and General Merchandise.  Mitsui also operates real estate and overseas development projects.

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Mitsui & Co Ltd (8031 JP)

🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

NET GAIN - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter 23.8% higher than three months ago - an...

Campbell Gunn

Honshu Chemical - What WAS the Wrong Price Gets Wronger

The takeout of Honshu Chem minorities by majority co-owners was announced at the wrong price, did not tick the METI Fair M&A Guidelines, and the...

Travis Lundy

Parkway Pantai: Attraction from Vaccination

Attractive valuation in expectation of a call in July 2022 and vaccination effects on the hospital visits across the border from Indonesia

Bondcritic

Asia’s Hydrogen Economy

China's increasing favour towards hydrogen is starting to generate investor interest in potential hydrogen economy and FCV plays. We examine...

Mio Kato

Honshu Chemical (4115) - An Embarrassment of Riches

Mitsui&Co (8031) and Mitsui Chemical (4183) are joining up to take out their jointly-owned subsidiary Honshu Chemical. The valuation is an utter...

Travis Lundy

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