'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)

<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/629/original/2020-12-01_06-32-57.png?1606771992" class="editor-image img-responsive" data-smartkarma-image-id="175629"></figure></section><p><strong>FOUR QUADRANTS </strong>- By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-</p></section><div><ul style="list-style-type: disc;">
<li>
<strong>CONTRARIAN BUYS </strong>- Low Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>CONTRARIAN SELLS </strong>- High Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>TURNAROUND BUYS </strong>- High Results &amp; Revision Scores &amp; low Relative Price Scores</li>
<li>
<strong>EX-GROWTH</strong><strong>SELLS</strong> - Low Results &amp; Revision Scores &amp; high Relative Price Scores</li>
</ul></div><div>
<p>Turnaround Buys are quite rare but tend to offer reasonable upside for relatively low risk. Examples from 2020 include <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a> and <a href="https://www.smartkarma.com/entities/nec-corp" target="_blank" data-smartkarma-citation="entities:17084:1" rel="noopener">NEC (6701 JP)</a>.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/110/original/2020-11-30_09-39-21.png?1606696981" class="editor-image img-responsive" data-smartkarma-image-id="175110"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/111/original/2020-11-30_09-43-17.png?1606697029" class="editor-image img-responsive" data-smartkarma-image-id="175111"></figure></section><p><strong><a href="https://www.dropbox.com/s/7b61jl02dh0pzno/2020-11-25_12-43-55.png?dl=0" target="_blank" rel="noopener">TURNAROUND BUYS</a> -</strong> In the<strong> DETAIL </strong>section below, we shall review the current 'crop' of Turnaround Buys. The last Insight in this mini-series will look at Ex-Growth Sells before concluding with one '2021 High Conviction' recommendation. The first two Insights in the Series can be found at - <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-buys" target="_blank" data-smartkarma-citation="insights:45688" rel="noopener">Contrarian Buys </a>and <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-sells" target="_blank" data-smartkarma-citation="insights:45725" rel="noopener">Contrarian Sells</a>.  </p>
</div>

FOUR QUADRANTS - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-

CONTRARIAN BUYS - Low Results &amp; Revision and Relative Price Scores

CONTRARIAN SELLS - High Results &amp; Revision and Relative Price Scores

TURNAROUND BUYS - High Results &amp; Revision Scores &amp; low Relative Price Scores

EX-GROWTHSELLS - Low Results &amp; Revision Scores &amp; high Relative Price Scores

Turnaround Buys are quite rare but tend to offer reasonable upside for relatively low risk. Examples from 2020 include Lixil (5938 JP) and NEC (6701 JP).
TURNAROUND BUYS - In the DETAIL section below, we shall review the current 'crop' of Turnaround Buys. The last Insight in this mini-series will look at Ex-Growth Sells before concluding with one '2021 High Conviction' recommendation. The first two Insights in the Series can be found at - Contrarian Buys and Contrarian Sells.  


🇯🇵 JAPAN • Four Quadrants - Turnaround Buys

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

<p>NEC has announced the establishment of a Global Open RAN Center for Excellence in the UK to contribute to the build-out of 5G and promote its global telecom equipment and services businesses. The Center will work with an Open RAN Laboratory in India.</p><p>After banning equipment from Huawei, the British government has invited NEC to support the development of 5G in the UK. </p><p>Open RAN (O-RAN, or Open Radio Access Network) standards allow different companies to supply different parts of a telecommunications network, facilitating the development of multivendor alternatives to Huawei, Nokia and Ericsson.</p><p>NEC's sales and profits rebounded in the three months to September, recovering from the COVID downturn. FY Mar-21 guidance was left unchanged. We remain bullish on NEC on a long-term view.</p>

NEC has announced the establishment of a Global Open RAN Center for Excellence in the UK to contribute to the build-out of 5G and promote its global telecom equipment and services businesses. The Center will work with an Open RAN Laboratory in India.After banning equipment from Huawei, the British government has invited NEC to support the development of 5G in the UK. Open RAN (O-RAN, or Open Radio Access Network) standards allow different companies to supply different parts of a telecommunications network, facilitating the development of multivendor alternatives to Huawei, Nokia and Ericsson.NEC's sales and profits rebounded in the three months to September, recovering from the COVID downturn. FY Mar-21 guidance was left unchanged. We remain bullish on NEC on a long-term view.

NEC (6701 JP): Open RAN Center to Replace Huawei 5G in the UK

<ul>
<li>The acquisition of Swiss financial software company Avaloq should make a meaningful contribution to NEC's Public Solutions division as it expands its digital government services business in Europe, Asia-Pacific and elsewhere. </li>
<li>It follows the acquisition of KMD, a Danish software and IT company specializing in digital government, in 2019, and Northgate Public Services of the UK, which provides software and services to the public sector, in 2018.</li>
<li>The deal is valued at CHF2.05 billion (¥236 billion), or 3.4x Aviloq's 2019 sales and 21x EBITDA. Avaloq's EBITDA/Sales ratio was 16% in 2019, compared with 9.5% for NEC in FY Mar-20.</li>
<li>Aviloq's own growth potential and synergies with NEC's overall business justify the price, in our view. Last December, Aviloq renewed and expanded its 10-year relationship with DBS Bank.</li>
<li>We remain bullish on NEC, targeting more than 30% potential upside to ¥8,000 on the basis of historical valuation ranges.</li>
</ul>


The acquisition of Swiss financial software company Avaloq should make a meaningful contribution to NEC's Public Solutions division as it expands its digital government services business in Europe, Asia-Pacific and elsewhere. 
It follows the acquisition of KMD, a Danish software and IT company specializing in digital government, in 2019, and Northgate Public Services of the UK, which provides software and services to the public sector, in 2018.
The deal is valued at CHF2.05 billion (¥236 billion), or 3.4x Aviloq's 2019 sales and 21x EBITDA. Avaloq's EBITDA/Sales ratio was 16% in 2019, compared with 9.5% for NEC in FY Mar-20.
Aviloq's own growth potential and synergies with NEC's overall business justify the price, in our view. Last December, Aviloq renewed and expanded its 10-year relationship with DBS Bank.
We remain bullish on NEC, targeting more than 30% potential upside to ¥8,000 on the basis of historical valuation ranges.


NEC (6701 JP): Avaloq Acquisition Positive for Earnings and Long-Term Growth

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/994/original/Tokyo_Stock_Exchange_logo.png?1601590198" class="editor-image img-responsive" data-smartkarma-image-id="162994"></figure><p></p><p><strong>FAILOVER FAILURE</strong> - Thursday's unprecedented failure of the Tokyo Stock Exchange's arrowhead trading system developed in co-ordination with <a href="https://www.smartkarma.com/entities/fujitsu-ltd" target="_blank" data-smartkarma-citation="entities:16968:1" rel="noopener">Fujitsu (6702 JP)</a> is highly embarrassing for the newly-minted administration of Prime Minster Suga who has placed particular emphasis on improving Japan's digital capabilities. Trading will resume this morning as normal at 9 am Japan Time.</p><p><strong>PASSING THE BUCK</strong> - In the<strong> DETAIL</strong> section below, we shall provide a summary of the explanations that were offered by the senior management of <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> (JPX) at a 98 minute-long press conference that was held last night. JPX places the 'blame' for this incident squarely on Fujitsu. However, as JPX admitted, Fujitsu is 'just a vendor' and responsibility for the smooth function of the exchange's systems is the responsibility of JPX. We would also note that this is not the first time that the exchange's protocols have failed to failover and that the arrowhead system was upgraded as recently as November 5 2019. At that time the JPX press release stated:-</p><blockquote><p><span>The new version of “arrowhead” uses the existing system as a base for an upgraded technology that offers users the familiar, high speed, high-reliability experience, while delivering even greater convenience. The trading system and transaction services have been improved in order to respond to changes in the business environment and better meet the needs of users, providing stronger overall market functionality.</span></p></blockquote><p></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/995/original/File%202020-10-01%2016%2020%2047.jpeg?1601591437" class="editor-image img-responsive" data-smartkarma-image-id="162995"></figure><div class="content-caption">Source: Nikkei</div>

FAILOVER FAILURE - Thursday's unprecedented failure of the Tokyo Stock Exchange's arrowhead trading system developed in co-ordination with Fujitsu (6702 JP) is highly embarrassing for the newly-minted administration of Prime Minster Suga who has placed particular emphasis on improving Japan's digital capabilities. Trading will resume this morning as normal at 9 am Japan Time.PASSING THE BUCK - In the DETAIL section below, we shall provide a summary of the explanations that were offered by the senior management of Japan Exchange Group (8697 JP) (JPX) at a 98 minute-long press conference that was held last night. JPX places the 'blame' for this incident squarely on Fujitsu. However, as JPX admitted, Fujitsu is 'just a vendor' and responsibility for the smooth function of the exchange's systems is the responsibility of JPX. We would also note that this is not the first time that the exchange's protocols have failed to failover and that the arrowhead system was upgraded as recently as November 5 2019. At that time the JPX press release stated:-The new version of “arrowhead” uses the existing system as a base for an upgraded technology that offers users the familiar, high speed, high-reliability experience, while delivering even greater convenience. The trading system and transaction services have been improved in order to respond to changes in the business environment and better meet the needs of users, providing stronger overall market functionality.Source: Nikkei

🇯🇵 JAPAN • Fujitsu Fails to Failover > JPX Tries to Pass the Buck

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<p>The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts on this development. What we didn’t expect was a ¥3,900 tender price.</p>

The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts on this development. What we didn’t expect was a ¥3,900 tender price.

NTT – NTT Is Going Big and Our Suspicions Are Aroused Further

Japan

NEC Corporation manufactures and markets computers, telecommunication equipment, electronic devices, semiconductors, and software.  The Company's products include printers, modems, cellular phones, plasma display panels (PDP), network systems, memory, integrated circuits (IC), thin film transistor-liquid crystal display (TFT-LCD), and printed circuit boards (PCB). NEC operates worldwide.

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NEC Corp (6701 JP)

🇯🇵 JAPAN • Four Quadrants - Turnaround Buys

Turnaround Buys are quite rare but tend to offer reasonable upside for relatively low risk. Examples from 2020 include Lixil (5938 JP) and NEC...

Campbell Gunn

NEC (6701 JP): Open RAN Center to Replace Huawei 5G in the UK

With the establishment of its Open RAN Center of Excellence, NEC replaces Huawei as the chief provider of support for 5G in the UK. This should...

Scott Foster

NEC (6701 JP): Avaloq Acquisition Positive for Earnings and Long-Term Growth

xxx Avaloq Group AG (Avaloq), a leading Swiss financial software company

Scott Foster

🇯🇵 JAPAN • Fujitsu Fails to Failover > JPX Tries to Pass the Buck

FAILOVER FAILURE - Thu

Campbell Gunn

NTT – NTT Is Going Big and Our Suspicions Are Aroused Further

The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts...

Mio Kato

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52-week Range

Market Cap (USDm)

P/E

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