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

The <a href="https://asia.nikkei.com/Business/Nissan-s-Ghosn-crisis/Nissan-to-slash-global-production-by-15" target="_blank">Nikkei reported</a> this morning that <a href="https://www.smartkarma.com/entities/72" target="_blank" data-smartkarma-citation="entities:72:1">Nissan Motor (7201 JP)</a> will cut global production by 15% for the coming FY03/20. Domestic production will remain at about 900k units but overseas production will drop 20% to 3.7m units.This appears to be the next step in a comprehensive overhaul of the company that the post-Ghosn management is pushing through. The article notes that sales incentives in the US will be cut while in China, the currently struggling market for smaller sedans will be deemphasised.The concern is the dividend, however, as the last time Nissan cut production so drastically, it was the financial crisis and the dividend was cut entirely. We do not expect such a serious result this time around but with Nissan looking like it has fully shifted towards a stance of strengthening its core operations we believe funds will be rerouted from shareholder returns to investment in the short-term.

The Nikkei reported this morning that Nissan Motor (7201 JP) will cut global production by 15% for the coming FY03/20. Domestic production will remain at about 900k units but overseas production will drop 20% to 3.7m units.This appears to be the next step in a comprehensive overhaul of the company that the post-Ghosn management is pushing through. The article notes that sales incentives in the US will be cut while in China, the currently struggling market for smaller sedans will be deemphasised.The concern is the dividend, however, as the last time Nissan cut production so drastically, it was the financial crisis and the dividend was cut entirely. We do not expect such a serious result this time around but with Nissan looking like it has fully shifted towards a stance of strengthening its core operations we believe funds will be rerouted from shareholder returns to investment in the short-term.

Nissan: Production Cut May Presage Dividend Cut Opening Up Downside

<a href="https://asia.nikkei.com/Business/Companies/Toyota-seeks-to-keep-hybrids-relevant-by-releasing-trove-of-patents" target="_blank">The Nikkei announced this morning</a> that <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> was considering opening up its portfolio of hybrid patents for outside use, possibly for free.We recently visited Toyota at its Toyota city headquarters and spent some time discussing this very topic. We believe this move is being made with an eye towards China in particular and to an extent the US. We would also highlight <a href="https://asia.nikkei.com/Business/Toyota-tech-to-power-Suzuki-hybrids-worldwide" target="_blank">the continuing development of Toyota's relationship with Suzuki</a>. As the automakers move slowly towards what is likely to be an eventual union, the sharing of hybrid technology with Suzuki could have a significant impact on the medium-term prospects of both automakers.

The Nikkei announced this morning that Toyota Motor (7203 JP) was considering opening up its portfolio of hybrid patents for outside use, possibly for free.We recently visited Toyota at its Toyota city headquarters and spent some time discussing this very topic. We believe this move is being made with an eye towards China in particular and to an extent the US. We would also highlight the continuing development of Toyota's relationship with Suzuki. As the automakers move slowly towards what is likely to be an eventual union, the sharing of hybrid technology with Suzuki could have a significant impact on the medium-term prospects of both automakers.

Toyota: Hitting the Hybrid Accelerator and Towing Suzuki and Mazda in Its Wake

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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. 

Thematic (Sector/Industry)

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/132/original/2019-03-25_18-58-11.png?1553507902" class="editor-image img-responsive" data-smartkarma-image-id="83132"></figure>Source: Japan Analytics
</div>There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">S</a><a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">oftbank Group (9984 JP)</a>) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/206/original/2019-03-25_17-46-58.png?1553565764" class="editor-image img-responsive" data-smartkarma-image-id="83206"></figure><div class="content-caption">Source: Japan Analytics</div>OVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'.


Source: Japan Analytics
There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including Softbank Group (9984 JP)) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •Source: Japan AnalyticsOVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - Softbank Group (9984 JP)'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'. 

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Six weeks ago I wrote that Nissan's governance outlook was "<a href="https://www.smartkarma.com/insights/nissan-governance-outlook-foggy-now-sunny-later" target="_blank">Foggy Now, Sunny Later.</a>" I said "Governance changes are afoot, with a steady flow of developments likely coming in March, April, May, and June."The last couple of months have seen numerous media articles about the process of <a href="https://www.smartkarma.com/entities/72" target="_blank" data-smartkarma-citation="entities:72:1">Nissan Motor (7201 JP)</a> and <a href="https://www.smartkarma.com/entities/21536" target="_blank" data-smartkarma-citation="entities:21536:1">Renault SA (RNO FP)</a> rebuilding their relationship. There have been visits to Tokyo by Renault's new chairman of the board of directors Jean-Dominique Senard, and visits to Paris and Amsterdam by the CEOs of Nissan and <a href="https://www.smartkarma.com/entities/794" target="_blank" data-smartkarma-citation="entities:794:1">Mitsubishi Motors (7211 JP)</a>. There have been many suggestions in French and European newspapers in the interim that Jean-Dominique Senard would be the obvious choice as a representative director of Nissan. There have been other articles out there in the Japanese press suggesting what conclusions the committee might come to as to what outcomes should result. The difference is notable. The French side still wants control. The Japanese/Nissan/committee side sees the need to fix governance.Today there was a <a href="https://www.ft.com/content/0a1e6430-4fd1-11e9-9c76-bf4a0ce37d49" target="_blank">report</a> in the FT suggesting that Renault "wants" to restart merger talks with Nissan and "aims to restart merger talks with Nissan within 12 months." It should be noted that these two sentences are not exactly the same. It may still be that France wants Renault to do so, and therefore Renault aims to do so. The same article revealed past talks on Renault merging with FCA but France putting a stop to it and a current desire to acquire another automaker - perhaps FCA - after dealing with Nissan. Also today, the long-awaited Nissan Special Committee for Improving Governance (SCIG) <a href="https://www.nissan-global.com/PDF/190327-01_179.pdf" target="_blank">report</a> was released. It outlines some of the issues of governance which existed under Ghosn- both the ones which got him the boot, and the structural governance issues which were "discovered" after he got the boot. There are clear patches in the fog. Two things shine through immediately. <ol>
<li>Governance weaknesses under Ghosn were inexcusably bad. Worse than previously reported.</li>
<li>The recommendations to the board now are, on the whole, pretty decent. Some are sine qua non changes - formation of nomination and compensation committees, whistleblower reporting to the audit committee and not the CEO, and greater checks and balances. Some are stronger in terms of the independence of Nissan from Renault: the committee recommends a majority of independent board members, an independent chairman, and no representative directors from Renault, Mitsubishi, or principal shareholders.</li>
</ol>There are, however, other issues which were not addressed, which for Nissan's sake probably should be addressed. Yesterday was a first step on what will be a 3-month procession of news about the way Nissan will address the SCIG report's recommendations, the process by which it will choose new directors when it does not have an official nomination committee, and the AGM in June to propose and confirm new directors. Then they will start their jobs in July. The fog looks to lift slowly. And one may anticipate some better weather beyond. But business concerns remain a threat, and while relations appear to be getting better after the departure of Carlos Ghosn and the arrival of Jean-Dominique Senard, it is not clear that a Franco-Japanese storm is not brewing in the distance.More below.

Six weeks ago I wrote that Nissan's governance outlook was "Foggy Now, Sunny Later." I said "Governance changes are afoot, with a steady flow of developments likely coming in March, April, May, and June."The last couple of months have seen numerous media articles about the process of Nissan Motor (7201 JP) and Renault SA (RNO FP) rebuilding their relationship. There have been visits to Tokyo by Renault's new chairman of the board of directors Jean-Dominique Senard, and visits to Paris and Amsterdam by the CEOs of Nissan and Mitsubishi Motors (7211 JP). There have been many suggestions in French and European newspapers in the interim that Jean-Dominique Senard would be the obvious choice as a representative director of Nissan. There have been other articles out there in the Japanese press suggesting what conclusions the committee might come to as to what outcomes should result. The difference is notable. The French side still wants control. The Japanese/Nissan/committee side sees the need to fix governance.Today there was a report in the FT suggesting that Renault "wants" to restart merger talks with Nissan and "aims to restart merger talks with Nissan within 12 months." It should be noted that these two sentences are not exactly the same. It may still be that France wants Renault to do so, and therefore Renault aims to do so. The same article revealed past talks on Renault merging with FCA but France putting a stop to it and a current desire to acquire another automaker - perhaps FCA - after dealing with Nissan. Also today, the long-awaited Nissan Special Committee for Improving Governance (SCIG) report was released. It outlines some of the issues of governance which existed under Ghosn- both the ones which got him the boot, and the structural governance issues which were "discovered" after he got the boot. There are clear patches in the fog. Two things shine through immediately. 
Governance weaknesses under Ghosn were inexcusably bad. Worse than previously reported.
The recommendations to the board now are, on the whole, pretty decent. Some are sine qua non changes - formation of nomination and compensation committees, whistleblower reporting to the audit committee and not the CEO, and greater checks and balances. Some are stronger in terms of the independence of Nissan from Renault: the committee recommends a majority of independent board members, an independent chairman, and no representative directors from Renault, Mitsubishi, or principal shareholders.
There are, however, other issues which were not addressed, which for Nissan's sake probably should be addressed. Yesterday was a first step on what will be a 3-month procession of news about the way Nissan will address the SCIG report's recommendations, the process by which it will choose new directors when it does not have an official nomination committee, and the AGM in June to propose and confirm new directors. Then they will start their jobs in July. The fog looks to lift slowly. And one may anticipate some better weather beyond. But business concerns remain a threat, and while relations appear to be getting better after the departure of Carlos Ghosn and the arrival of Jean-Dominique Senard, it is not clear that a Franco-Japanese storm is not brewing in the distance.More below.

Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?

Today <a href="https://www.smartkarma.com/entities/72" target="_blank" data-smartkarma-citation="entities:72:1">Nissan Motor (7201 JP)</a> released its report from the Special Committee for Improving Governance. The FT also <a href="https://www.ft.com/content/0a1e6430-4fd1-11e9-9c76-bf4a0ce37d49" target="_blank">reported</a> that <a href="https://www.smartkarma.com/entities/21536" target="_blank" data-smartkarma-citation="entities:21536:1">Renault SA (RNO FP)</a> (i.e. the French government) was keen to restart merger talks within twelve months with an eye towards then acquiring <a href="https://www.smartkarma.com/entities/798" target="_blank" data-smartkarma-citation="entities:798:1">Fiat Chrysler Automobiles Nv (FCAU US)</a>.The details of the former are unsurprising but disappointing, while Renault's M&amp;A ambitions just seem delusional at this point.

Today Nissan Motor (7201 JP) released its report from the Special Committee for Improving Governance. The FT also reported that Renault SA (RNO FP) (i.e. the French government) was keen to restart merger talks within twelve months with an eye towards then acquiring Fiat Chrysler Automobiles Nv (FCAU US).The details of the former are unsurprising but disappointing, while Renault's M&amp;A ambitions just seem delusional at this point.

Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger

Japan

NISSAN MOTOR CO., LTD. manufactures and distributes automobiles and related parts. It also provides financing services. Nissan delivers a comprehensive range of products under various brands. The Company manufactures in Japan, the United States, Mexico, the United Kingdom and many other countries.

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Nissan Motor (7201 JP)

Nissan: Production Cut May Presage Dividend Cut Opening Up Downside

The Nikkei reported this morning that Nissan Motor (7201 JP) will cut global production by 15% for the coming FY03/20. Domestic production will...

Mio Kato

Toyota: Hitting the Hybrid Accelerator and Towing Suzuki and Mazda in Its Wake

The Nikkei announced this morning that Toyota Motor (7203 JP) was considering opening up its portfolio of hybrid patents for outside use, possibly...

Mio Kato

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33...

Campbell Gunn

Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?

Six weeks ago I wrote that Nissan's governance outlook was "Foggy Now, Sunny Later." I said "Governance changes are afoot, with a steady flow of...

Travis Lundy

Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger

Today Nissan Motor (7201 JP) released its report from the Special Committee for Improving Governance. The FT also reported that Renault SA (RNO FP)...

Mio Kato

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