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

<p>Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.</p>

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>• THE POST-COVID ROTATION •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/288/original/2021-02-28_08-38-14.png?1614469105" class="editor-image img-responsive" data-smartkarma-image-id="191288"></figure><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/290/original/2021-02-28_08-57-32.png?1614470265" class="editor-image img-responsive" data-smartkarma-image-id="191290"></figure></section></section><section class="figure"><div style="text-align: center;" class="content-caption"> Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>THE 2021 ROTATION ACCELERATES</strong> - As we noted in <a href="https://www.smartkarma.com/insights/japan-the-post-covid-rotation-from-growth-to-value-begins-02-05-results-revisions-update" target="_blank" data-smartkarma-citation="insights:47877" rel="noopener">The Post-COVID Rotation from Growth to Value Begins</a>, the Japanese equity market has been led by overvalued and overvalued for most of the last year overbought high-quality growth companies in the <strong>Technology Hardware</strong>, <strong>Electrical Equipment</strong>, <strong>Internet</strong>, and <strong>Healthcare</strong> Sectors. These companies were deemed to be 'COVID-resistant' and were consistently well-bid regardless of price. The stocks leading this 'charge' were <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP),</a><a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a>, <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/chugai-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:4489:1" rel="noopener">Chugai Pharmaceutical (4519 JP)</a>, and <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a>, while the only cyclical Sector that has seen a major recovery was Energy. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows. </p><p><strong>PEAKED?</strong> - Over the last twenty trading days during which TOPIX reached 1,974.99. The <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> breached 30,000, many of these market leaders have seen a significant correction, while the market has rotated into domestic, cyclical, and financial Sectors - as illustrated by our Sector Relative Price Score timelines in the chart above. In the<strong> DETAIL</strong> Section below, we will review the current market technicals after Friday's 4% N225 decline and look at the leading stocks on both 'sides' of this rotation trade.</p>

• THE POST-COVID ROTATION • Source for all charts &amp; tables: Japan AnalyticsTHE 2021 ROTATION ACCELERATES - As we noted in The Post-COVID Rotation from Growth to Value Begins, the Japanese equity market has been led by overvalued and overvalued for most of the last year overbought high-quality growth companies in the Technology Hardware, Electrical Equipment, Internet, and Healthcare Sectors. These companies were deemed to be 'COVID-resistant' and were consistently well-bid regardless of price. The stocks leading this 'charge' were M3 (2413 JP),Lasertec (6920 JP), MonotaRO (3064 JP), Chugai Pharmaceutical (4519 JP), and Nidec (6594 JP), while the only cyclical Sector that has seen a major recovery was Energy. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows. PEAKED? - Over the last twenty trading days during which TOPIX reached 1,974.99. The Nikkei 225 (NKY INDEX) breached 30,000, many of these market leaders have seen a significant correction, while the market has rotated into domestic, cyclical, and financial Sectors - as illustrated by our Sector Relative Price Score timelines in the chart above. In the DETAIL Section below, we will review the current market technicals after Friday's 4% N225 decline and look at the leading stocks on both 'sides' of this rotation trade.

🇯🇵 JAPAN • The Post-COVID Rotation Accelerates

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

<p>Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.</p>

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.

Japan Breaking Out; EM Remains Leadership

<p style="text-align: center;"><strong>• THE POST-COVID ROTATION •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/193/original/2021-02-06_10-51-22.png?1612670102" class="editor-image img-responsive" data-smartkarma-image-id="187193"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/194/original/2021-02-06_10-51-43.png?1612670115" class="editor-image img-responsive" data-smartkarma-image-id="187194"></figure><div class="content-caption"> Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>THE 2021 ROTATION BEGINS</strong> -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the <strong>Technology Hardware</strong>, <strong>Electrical Equipment</strong>, <strong>Internet</strong>, and <strong>Healthcare</strong> Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 Inc (2413 JP)</a> +163%, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> +151%, <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO (3064 JP)</a> +108%, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a> +110%, and <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec (6594 JP)</a> +97%. The only deep cyclical Sector that saw a significant recovery was <strong>Energy</strong>. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.</p><p></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/199/original/2021-02-06_10-52-30.png?1612678419" class="editor-image img-responsive" data-smartkarma-image-id="187199"></figure></section><p><strong>THE VALUE RENAISSANCE</strong> - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been <strong>Media</strong>,<strong> Telecommunications</strong>, <strong>Restaurants</strong>, <strong>Building Material</strong>s, and <strong>Consumer Services</strong>. The best-performing larger caps have included <a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan Railway (9021 JP)</a> +26%, <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu (4324 JP)</a> +25%, <a href="https://www.smartkarma.com/entities/create-restaurants-holdings-inc" target="_blank" data-smartkarma-citation="entities:11513:1" rel="noopener">create restaurants (3387 JP)</a> +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/216/original/2021-02-07_17-08-33.png?1612685331" class="editor-image img-responsive" data-smartkarma-image-id="187216"></figure></section><p><strong>RESULTS &amp; REVISION-DRIVEN</strong> - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as <strong>Metals</strong>, <strong>Media</strong>, <strong>Consumer Services</strong>, <strong>Wholesale</strong>, <strong>Transport</strong>, and<strong> Real Estate</strong> are 'outperforming' the market's average earnings momentum, while the I<strong>nternet</strong>, <strong>Healthcare</strong>,<strong> Commerical Services</strong>, and <strong>Energy</strong> are lagging.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/306/original/2021-02-08_05-28-53.png?1612729747" class="editor-image img-responsive" data-smartkarma-image-id="187306"></figure><p><strong>TRAILING &amp; FORECAST EARNINGS BOTTOM</strong><strong>OUT</strong> -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.</p></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/227/original/2021-02-06_12-20-31.png?1612688721" class="editor-image img-responsive" data-smartkarma-image-id="187227"></figure></section><p></p><div>
<hr>
<p style="text-align: center;"><strong>• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •</strong></p>
</div><div><p>Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.</p></div><div>
<p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p>
<p style="text-align: left;">Friday's 'best' pair of larger-cap companies is <a href="https://www.smartkarma.com/entities/agc-inc" target="_blank" data-smartkarma-citation="entities:2167:1" rel="noopener">AGC (5201 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-fudosan-co-ltd" target="_blank" data-smartkarma-citation="entities:565:1" rel="noopener">Mitsui Fudosan (8801 JP)</a>, while the worst two announcements came from <a href="https://www.smartkarma.com/entities/fuji-heavy-industries-ltd" target="_blank" data-smartkarma-citation="entities:5439:1" rel="noopener">Subaru (7270 JP)</a> and the overvalued and overbought <a href="https://www.smartkarma.com/entities/daifuku-co-ltd" target="_blank" data-smartkarma-citation="entities:10408:1" rel="noopener">Daifuku (6383 JP)</a>.   For more, see the <strong>DETAIL</strong> section below.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/304/original/2021-02-08_05-26-25.png?1612729598" class="editor-image img-responsive" data-smartkarma-image-id="187304"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/305/original/2021-02-08_05-27-07.png?1612729640" class="editor-image img-responsive" data-smartkarma-image-id="187305"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/307/original/2021-02-08_05-31-32.png?1612729905" class="editor-image img-responsive" data-smartkarma-image-id="187307"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/187/308/original/2021-02-08_05-32-44.png?1612729980" class="editor-image img-responsive" data-smartkarma-image-id="187308"></figure></section><p></p>
</div>

• THE POST-COVID ROTATION • Source for all charts &amp; tables: Japan AnalyticsTHE 2021 ROTATION BEGINS -  For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth companies in the Technology Hardware, Electrical Equipment, Internet, and Healthcare Sectors. These companies were deemed to be COVID-resistant and were consistently well-bid regardless of price. The stock leading this ''charge' were M3 Inc (2413 JP) +163%, Lasertec (6920 JP) +151%, MonotaRO (3064 JP) +108%, GMO Payment Gateway (3769 JP) +110%, and Nidec (6594 JP) +97%. The only deep cyclical Sector that saw a significant recovery was Energy. Meanwhile, shares in domestically-orientated Sectors and companies heavily exposed to COVID-related delines in business activity languished despite valuations reaching ten or twenty-year lows.THE VALUE RENAISSANCE - Over the last four weeks, however, a major shift in market sentiment has occurred as profit-taking in the former 'Quality-At-Any-Price' group has coincided with a significant rally in the latter 'Deep-Value' group. In terms of our Relative Price Score, the best-performing Sectors over the last month have been Media, Telecommunications, Restaurants, Building Materials, and Consumer Services. The best-performing larger caps have included West Japan Railway (9021 JP) +26%, Dentsu (4324 JP) +25%, create restaurants (3387 JP) +61%. With the second State of Emergency having capped Japan's third COVID wave and a vaccination programme likely to start next month, the market is discounting a post-COVID economic normalisation. RESULTS &amp; REVISION-DRIVEN - This change in market direction is also reflected in our earnings momentum scoring methodology - the Results &amp; Revision Score. Although only one-third of listed companies have reported mostly third-quarter results, the trends are broadly supportive of the current rotation. Cyclical and domestic Sectors such as Metals, Media, Consumer Services, Wholesale, Transport, and Real Estate are 'outperforming' the market's average earnings momentum, while the Internet, Healthcare, Commerical Services, and Energy are lagging.TRAILING &amp; FORECAST EARNINGS BOTTOMOUT -  While our scoring methodology is more forward-looking, the results and forecasts announced to date confirm that the economy bottomed out in the fourth calendar quarter of last year. With aggregate market capitalisation (ex REITs) close to a new long-term high, at least one year of earnings recovery has already been discounted.

• RESULTS &amp; REVISIONS SUMMARY - 5th FEBRUARY •
Of Friday's 331 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 3.8% on average. Operating margins rose by 90 basis points. 11% of companies were in the red for the quarter.  66% of the 134 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.6 points.
• BEST &amp; WORST •
Friday's 'best' pair of larger-cap companies is AGC (5201 JP) and Mitsui Fudosan (8801 JP), while the worst two announcements came from Subaru (7270 JP) and the overvalued and overbought Daifuku (6383 JP).   For more, see the DETAIL section below.



🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, Japanese equities

<p>Nidec reported good 3Q results and raised FY Mar-21 guidance, as was widely expected. Key take-aways include:</p><ul>
<li>The new guidance implies a weak 4Q, with sales and operating profit both down about 15% from 3Q. This seems conservative, but reduced auto production due to the semiconductor shortage could explain it. </li>
<li>Sales of HDD motors were down, but sales of other small precision motors more than made up the decline and their combined operating profit was up 16.5% year-on-year. Nidec has gone beyond HDD motors. </li>
<li>Automotive sales were up 16% year-on-year and operating profit up 45%, lifting the division's operating margin to 7.2%. This is encouraging, but is still a long way to the quarterly peak of 16% reached in the three months to September 2018.</li>
<li>CEO Nagamori stated that the company's E-Axle traction motor systems for electric vehicles should turn profitable in FY Mar-24. Once an HDD high-tech start-up, Nidec is now an EV high-tech start-up.</li>
</ul><div>Valuations reflect this change. The shares have tripled from their 52-week low to an EV/Peak OP ratio of 54x and 71x management's new EPS guidance for FY Mar-21. Take profits.</div><div><p></p></div>

Nidec reported good 3Q results and raised FY Mar-21 guidance, as was widely expected. Key take-aways include:
The new guidance implies a weak 4Q, with sales and operating profit both down about 15% from 3Q. This seems conservative, but reduced auto production due to the semiconductor shortage could explain it. 
Sales of HDD motors were down, but sales of other small precision motors more than made up the decline and their combined operating profit was up 16.5% year-on-year. Nidec has gone beyond HDD motors. 
Automotive sales were up 16% year-on-year and operating profit up 45%, lifting the division's operating margin to 7.2%. This is encouraging, but is still a long way to the quarterly peak of 16% reached in the three months to September 2018.
CEO Nagamori stated that the company's E-Axle traction motor systems for electric vehicles should turn profitable in FY Mar-24. Once an HDD high-tech start-up, Nidec is now an EV high-tech start-up.
Valuations reflect this change. The shares have tripled from their 52-week low to an EV/Peak OP ratio of 54x and 71x management's new EPS guidance for FY Mar-21. Take profits.

Nidec (6594 JP): Takeaways from 3Q Results and New Guidance

Japan

NIDEC CORPORATION is the world's leading manufacturer of small precision motors mainly used in HDD and optical disk drives. The company has extended its focus to the home appliance and automotive markets. NIDEC is active in M&A and its subsidiaries include the world's leading manufacturers of LCD panel handling robots and camera shutters.

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Nidec Corp (6594 JP)

Toyota – Electrifying Lexus

Lexus has seen less EV related news flow than the main Toyota brand in terms of technological progress but this appears to now be changing and has...

Mio Kato

🇯🇵 JAPAN • The Post-COVID Rotation Accelerates

Over the last 20 trading days during which TOPIX reached 1,974.99, many market leaders have seen a significant correction, and there has been a...

Campbell Gunn

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

🇯🇵 JAPAN • The Post-COVID Rotation from Growth to Value Begins + 02/05 Results & Revisions Update

THE 2021 ROTATION BEGINS - For most of the last year, the Japanese equity market has been led by overvalued and overbought high-quality growth...

Campbell Gunn

Nidec (6594 JP): Takeaways from 3Q Results and New Guidance

Nidec reported strong 3Q results and raised FY guidance, but 4Q is likely to be weak. Meanwhile, the shares have tripled from their 52-week low to...

Scott Foster

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