'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)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/740/original/2020-02-07_03-39-22.png?1581019080" class="editor-image img-responsive" data-smartkarma-image-id="116740"></figure><div class="content-caption">Source • Japan Analytics</div>INTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65 large-cap results, only ten companies had positive qoq changes in Results Score, while seventeen saw double-digit declines. <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> did well to limit its quarterly year-on-year changes in Revenue and OP to -3%, and they are forecasting similar declines against TTM numbers for the full year. The Forecast/Revision Score added six basis points driven primarily by <a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido (4911 JP)</a> overly optimistic initial forecast for FY2020. 'Mr Market' meanwhile is content to bid up share prices to close to the recent highs, and 8% below the January 2018 peak, when the Results Score was 7.54. <hr>• SECTOR TIMELINE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/741/original/2020-02-07_03-45-05.png?1581019946" class="editor-image img-responsive" data-smartkarma-image-id="116741"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - The majority of Sectors saw lower Results &amp; Revision Scores yesterday, with Food, Beverages &amp; Tobacco being the exception due to <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>'s stable topline performance and better-than-expected 2020 forecast. <a href="https://www.smartkarma.com/entities/mitsubishi-heavy-industries" target="_blank" data-smartkarma-citation="entities:13613:1" rel="noopener">Mitsubishi Heavy Industries (7011 JP)</a> decline into the red at the OP level and full-year downward revision took the Machinery Sector lower, while <a href="https://www.smartkarma.com/entities/seibu-holdings-inc" target="_blank" data-smartkarma-citation="entities:458:1" rel="noopener">Seibu (9024 JP)</a> was the negative driver for Multi-Industry. <a href="https://www.smartkarma.com/entities/terumo-corp" target="_blank" data-smartkarma-citation="entities:6708:1" rel="noopener">Terumo (4543 JP)</a> and <a href="https://www.smartkarma.com/entities/olympus-corp" target="_blank" data-smartkarma-citation="entities:356:1" rel="noopener">Olympus (7733 JP)</a> fuelled the decline in Healthcare and <a href="https://www.smartkarma.com/entities/fujifilm-holdings-corp" target="_blank" data-smartkarma-citation="entities:16353:1" rel="noopener">Fujifilm (4901 JP)</a> did the same for Technology Hardware.

Source • Japan AnalyticsINTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65 large-cap results, only ten companies had positive qoq changes in Results Score, while seventeen saw double-digit declines. Toyota Motor (7203 JP) did well to limit its quarterly year-on-year changes in Revenue and OP to -3%, and they are forecasting similar declines against TTM numbers for the full year. The Forecast/Revision Score added six basis points driven primarily by Shiseido (4911 JP) overly optimistic initial forecast for FY2020. 'Mr Market' meanwhile is content to bid up share prices to close to the recent highs, and 8% below the January 2018 peak, when the Results Score was 7.54. • SECTOR TIMELINE •Source • Japan AnalyticsSECTOR TIMELINE - The majority of Sectors saw lower Results &amp; Revision Scores yesterday, with Food, Beverages &amp; Tobacco being the exception due to Japan Tobacco (2914 JP)'s stable topline performance and better-than-expected 2020 forecast. Mitsubishi Heavy Industries (7011 JP) decline into the red at the OP level and full-year downward revision took the Machinery Sector lower, while Seibu (9024 JP) was the negative driver for Multi-Industry. Terumo (4543 JP) and Olympus (7733 JP) fuelled the decline in Healthcare and Fujifilm (4901 JP) did the same for Technology Hardware. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 6th February ▲ 2914 4911 6406 ▼ 9024 4901 7951

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

If effectively implemented, the Japan Corporate Governance Code, the Japan Stewardship Code, the Engagement Guidelines and the CGS Guidelines would also represent a sea change in the role of Japanese boards in terms of management selection, management compensation, and capital deployment. If. This is largely a 'soft" law rather than a hard regulatory change, limiting the regulator's power to address minority rights.
There is a need to see improvement in governance, independence, board structure, and capital stewardship by a very large number of companies in Japan. Enhancement of diversity on the board will enable increased effectiveness and also strengthen companies' governance structure.
Investors are calling on companies to hire outside board members and tackle cross-holdings. The TSE-mandated Corporate Governance Code seeks at least two independent outside board members for listed companies and preferably a third, a majority, and provides an example of "at least one-third independent directors". But these examples, and other much-needed changes, remain inadequate.
One of the fundamental problems with the combination of the Japanese Corporate Governance Code and the Companies Act, and the lack of liability of directors for their own decisions, is that they can hang their hat on irrational economic arguments and there are no repercussions. 
Investors want better "governance", however, international investors seek more than improving the box-ticking form prized by many Japanese companies. Analysing non-box-ticking ESG/governance is difficult. It is difficult to track and analyse. And even if box-ticking is evident, it is not necessarily true that doing so will raise long-term equity returns. It is possible it will raise costs, which would lower profit growth - this may be good for society, it may not be good for valuations.
International investors are more concerned with improving information access, management responsiveness to investors, and management efforts to make companies become better economic engines. International investors would like to see companies concentrate on their business rather than see them run long-short funds (i.e. hold cross-holdings) with investor capital, hold excess cash, or invest in real estate as an alternative source of income.
A Consultation Paper reviewing the TSE cash equity market - first mentioned in December 2018, followed by a Market Consultation, culminating in four documents posted on the FSA's <a href="https://www.fsa.go.jp/singi/singi_kinyu/market-str/doc/1120/20191120.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.fsa.go.jp/singi/singi_kinyu/market-str/doc/1120/20191120.html&amp;source=gmail&amp;ust=1578636374440000&amp;usg=AFQjCNF9oBdPpl8bkcuUAZcU46ntY4YcHw" rel="noopener">website</a> last November - make it clear to the TSE, governmental, and regulatory authorities that existing governance and stewardship levels don't cut it.
For now, there's a lot of technocratic navel-gazing.

If effectively implemented, the Japan Corporate Governance Code, the Japan Stewardship Code, the Engagement Guidelines and the CGS Guidelines would also represent a sea change in the role of Japanese boards in terms of management selection, management compensation, and capital deployment. If. This is largely a 'soft" law rather than a hard regulatory change, limiting the regulator's power to address minority rights.
There is a need to see improvement in governance, independence, board structure, and capital stewardship by a very large number of companies in Japan. Enhancement of diversity on the board will enable increased effectiveness and also strengthen companies' governance structure.
Investors are calling on companies to hire outside board members and tackle cross-holdings. The TSE-mandated Corporate Governance Code seeks at least two independent outside board members for listed companies and preferably a third, a majority, and provides an example of "at least one-third independent directors". But these examples, and other much-needed changes, remain inadequate.
One of the fundamental problems with the combination of the Japanese Corporate Governance Code and the Companies Act, and the lack of liability of directors for their own decisions, is that they can hang their hat on irrational economic arguments and there are no repercussions. 
Investors want better "governance", however, international investors seek more than improving the box-ticking form prized by many Japanese companies. Analysing non-box-ticking ESG/governance is difficult. It is difficult to track and analyse. And even if box-ticking is evident, it is not necessarily true that doing so will raise long-term equity returns. It is possible it will raise costs, which would lower profit growth - this may be good for society, it may not be good for valuations.
International investors are more concerned with improving information access, management responsiveness to investors, and management efforts to make companies become better economic engines. International investors would like to see companies concentrate on their business rather than see them run long-short funds (i.e. hold cross-holdings) with investor capital, hold excess cash, or invest in real estate as an alternative source of income.
A Consultation Paper reviewing the TSE cash equity market - first mentioned in December 2018, followed by a Market Consultation, culminating in four documents posted on the FSA's website last November - make it clear to the TSE, governmental, and regulatory authorities that existing governance and stewardship levels don't cut it.
For now, there's a lot of technocratic navel-gazing.

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

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

We have been covering Hoya for close to a year and the company’s share price has rallied 71% over the last 12-months to JPY10,450 a share from JPY6,101 a share. While Hoya operates a solid business with good long-term growth potential, we believe, the company is presented with a strong opportunity to grow its earnings over the next 2-3 years driven by its Electronics business, EUV blanks and glass substrates in particular.Hoya is the largest supplier of mask blanks for EUV lithography which has just entered into mainstream production. In addition, we expect the process node migration to continue to drive demand for EUV mask blanks as further miniaturisation of semiconductor chips is not possible without EUV.Hoya has been the only supplier of glass substrates for HDDs and with growing data center capex and increased demand for large data storage, the HDD makers will switch to glass from aluminium and other materials which are currently being used. We expect this to offer growth in earnings for the segment. On the other hand, we expect Hoya’s Life Care business to remain solid and contribute to earnings.

We have been covering Hoya for close to a year and the company’s share price has rallied 71% over the last 12-months to JPY10,450 a share from JPY6,101 a share. While Hoya operates a solid business with good long-term growth potential, we believe, the company is presented with a strong opportunity to grow its earnings over the next 2-3 years driven by its Electronics business, EUV blanks and glass substrates in particular.Hoya is the largest supplier of mask blanks for EUV lithography which has just entered into mainstream production. In addition, we expect the process node migration to continue to drive demand for EUV mask blanks as further miniaturisation of semiconductor chips is not possible without EUV.Hoya has been the only supplier of glass substrates for HDDs and with growing data center capex and increased demand for large data storage, the HDD makers will switch to glass from aluminium and other materials which are currently being used. We expect this to offer growth in earnings for the segment. On the other hand, we expect Hoya’s Life Care business to remain solid and contribute to earnings.

2020 High Conviction: EUV Mask Blanks, Glass Substrates for HDDs Drive Next Phase of Growth for Hoya

Last Week in Event SPACE: Naspers, Toyota, Askul, Aveo, Maanshan, Autech, Olympus, Abbvie/Allergan

Travis Lundy

Yesterday after the close, <a href="https://www.smartkarma.com/entities/olympus-corp" target="_blank" data-smartkarma-citation="entities:356:1" rel="noopener">Olympus Corp (7733 JP)</a> announced that <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony Corp (6758 JP)</a> had approached Olympus saying it wished to sell its 68,975,800 shares (5.05% of shares out) in Olympus. One can argue about timing, but this is an...<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/484/original/Screenshot%202019-08-30%20at%201.56.35%20AM.png?1567101427" class="editor-image img-responsive" data-smartkarma-image-id="97484"></figure>Olympus responded by saying that it would by buy back up to 85,000,000 shares in a ToSTNeT-3 buyback this morning between 8:00-8:45am local time (7:00:7:45pm US E.S.T., 7:00-7:45am Hong Kong Time) at yesterday's close of ¥1,165/share. This is a pretty good response by Olympus.Discussion of process, liquidity provision, possible reaction, and implications below.

Yesterday after the close, Olympus Corp (7733 JP) announced that Sony Corp (6758 JP) had approached Olympus saying it wished to sell its 68,975,800 shares (5.05% of shares out) in Olympus. One can argue about timing, but this is an...Olympus responded by saying that it would by buy back up to 85,000,000 shares in a ToSTNeT-3 buyback this morning between 8:00-8:45am local time (7:00:7:45pm US E.S.T., 7:00-7:45am Hong Kong Time) at yesterday's close of ¥1,165/share. This is a pretty good response by Olympus.Discussion of process, liquidity provision, possible reaction, and implications below.

SONY's Good Governance Sale: The OLYMPUS (7733) ToSTNeT-3 Buyback

Japan

OLYMPUS CORPORATION manufactures optoelectronic products.  The Company's products include cameras, video sets, endoscopes for medicine and industrial use, microscopes, analytical equipment, office communication systems, laseroptical scanners, and ionic printers.

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Olympus Corp (7733 JP)

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 6th February ▲ 2914 4911 6406 ▼ 9024 4901 7951

INTO THE 'RED' - As predicted, our Results Score dipped into negative territory yesterday, declining by 56 basis points to -0.21. Of the 65...

Campbell Gunn

Corporate Governance In Japan

If effectively implemented, the Japan Corporate Governance Code, the Japan Stewardship Code, the Engagement Guidelines and the CGS Guidelines would...

David Blennerhassett

2020 High Conviction: EUV Mask Blanks, Glass Substrates for HDDs Drive Next Phase of Growth for Hoya

We have been covering Hoya for close to a year and the company’s share price has rallied 71% over the last 12-months to JPY10,450 a share from...

Shifara Samsudeen, ACMA, CGMA

Last Week in Event SPACE: Naspers, Toyota, Askul, Aveo, Maanshan, Autech, Olympus, Abbvie/Allergan

Last Week in Event SPACE ... Prosus (PRX NA) should trade at a premium to Naspers (NPN SJ) (ignoring the tiny economic shrapnel of the S.A....

David Blennerhassett

SONY's Good Governance Sale: The OLYMPUS (7733) ToSTNeT-3 Buyback

Yesterday after the close, Olympus Corp (7733 JP) announced that Sony Corp (6758 JP) had approached Olympus saying it wished to sell its 68,975,800...

Travis Lundy

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