'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)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/378/original/2020-08-08_12-56-11.png?1596858996" class="editor-image img-responsive" data-smartkarma-image-id="151378"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>30x</strong> - Following Friday's 'peak' in this quarter's results announcements, our prediction that the market multiple would exceed 30 times by months end, occurred in one week, and aggregate forecast operating and net profits are now ¥4.3 trillion and ¥4.6 trillion lower than at the end of last month. A large number of companies that previously had avoided making full-year forecasts three months ago are now doing so, hastening the decline. The last time the market aggregate multiple was above 30 times was just before "3/11" when net income and total market value were both half the current values. Other than the 2008/9 financial crisis, the market multiple rarely exceeded 25 times in the prior decade.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/387/original/2020-08-08_15-39-59.png?1596868850" class="editor-image img-responsive" data-smartkarma-image-id="151387"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>-40%</strong> - Forecast full-year revenues are 10% lower than a year ago, and forecast operating profits are 40% below the level of August 2019. Forecast operating margins, at 4.8%, are 300 basis points below the peak of September 2018. Net margins are to decline by 318 bps to 2.7% as net income forecasts are half those of a year ago.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/388/original/2020-08-08_15-45-35.png?1596869157" class="editor-image img-responsive" data-smartkarma-image-id="151388"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>SECTOR FORECASTS</strong> - Four Sectors are forecasting full-year losses - <strong>Energy</strong>, <strong>Metals</strong>, <strong>Restaurants</strong> and <strong>Consumer Services</strong>, although<strong> Metals</strong> appears to be bottoming out. Only the Healthcare Sector has seen any operating margin improvement; however, that modest change is now well discounted. <strong>Autos</strong>,<strong> Utilities</strong>, and<strong> Transportation</strong> have seen 100 bps year-on-year forecast operating margin declines, but are still expecting to be in the black. The<strong> Information Technology</strong> and<strong> Non-Bank Finance</strong> (mostly Insurance) Sectors are forecasting 'flat'.</p><p style="text-align: center;"><strong>•BEST &amp; WORST 7th AUGUST •</strong></p><p style="text-align: left;">The 'best' of Friday's large-cap announcements came from <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/t-d-holdings-inc" target="_blank" data-smartkarma-citation="entities:3431:1" rel="noopener">T&amp;D Holdings (8795 JP)</a>; the worst from <a href="https://www.smartkarma.com/entities/daiichikosho-co-ltd" target="_blank" data-smartkarma-citation="entities:8629:1" rel="noopener">Daiichikosho (7458 JP)</a> and <a href="https://www.smartkarma.com/entities/kyoritsu-maintenance-co-ltd" target="_blank" data-smartkarma-citation="entities:19645:1" rel="noopener">Kyoritsu Maintenance (9616 JP)</a>.  More extensive coverage follows in the <strong>DETAIL</strong> section below.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/389/original/2020-08-08_16-30-24.png?1596871844" class="editor-image img-responsive" data-smartkarma-image-id="151389"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/390/original/2020-08-05_07-34-43.png?1596872118" class="editor-image img-responsive" data-smartkarma-image-id="151390"></figure><p></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/391/original/2020-08-08_16-37-27.png?1596872258" class="editor-image img-responsive" data-smartkarma-image-id="151391"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/392/original/2020-08-08_16-38-12.png?1596872310" class="editor-image img-responsive" data-smartkarma-image-id="151392"></figure><div class="content-caption">Source • Japan Analytics</div><div><hr></div><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p><strong>PERCENTAGES</strong> -<strong> 65%</strong> of quarterly results,<strong>  76</strong>% of annual forecasts/revisions and <strong>80</strong>% of interim forecasts have negative Scores and<strong> 28%</strong> of companies reporting lost money for the quarter.</p></div><hr><div><p style="text-align: center;"><strong>663 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 29% Positive / 6% Neutral / 65% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.4 points</li>
<li>
<strong>Average % Change in Revenue:</strong> -10.4% Quarter YoY / -2.2% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.3 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 28%</li>
</ul></div><hr><div><p style="text-align: center;"><strong>196 Annual • 123 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 19% Positive / 5% Neutral / 76% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change: </strong>19% Positive / 1% Neutral / 80% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -10.9 points</li>
</ul></div>

Source • Japan Analytics30x - Following Friday's 'peak' in this quarter's results announcements, our prediction that the market multiple would exceed 30 times by months end, occurred in one week, and aggregate forecast operating and net profits are now ¥4.3 trillion and ¥4.6 trillion lower than at the end of last month. A large number of companies that previously had avoided making full-year forecasts three months ago are now doing so, hastening the decline. The last time the market aggregate multiple was above 30 times was just before "3/11" when net income and total market value were both half the current values. Other than the 2008/9 financial crisis, the market multiple rarely exceeded 25 times in the prior decade.  Source • Japan Analytics-40% - Forecast full-year revenues are 10% lower than a year ago, and forecast operating profits are 40% below the level of August 2019. Forecast operating margins, at 4.8%, are 300 basis points below the peak of September 2018. Net margins are to decline by 318 bps to 2.7% as net income forecasts are half those of a year ago.Source • Japan AnalyticsSECTOR FORECASTS - Four Sectors are forecasting full-year losses - Energy, Metals, Restaurants and Consumer Services, although Metals appears to be bottoming out. Only the Healthcare Sector has seen any operating margin improvement; however, that modest change is now well discounted. Autos, Utilities, and Transportation have seen 100 bps year-on-year forecast operating margin declines, but are still expecting to be in the black. The Information Technology and Non-Bank Finance (mostly Insurance) Sectors are forecasting 'flat'.•BEST &amp; WORST 7th AUGUST •The 'best' of Friday's large-cap announcements came from mixi (2121 JP) and T&amp;D Holdings (8795 JP); the worst from Daiichikosho (7458 JP) and Kyoritsu Maintenance (9616 JP).  More extensive coverage follows in the DETAIL section below.Source • Japan AnalyticsDAILY STATSPERCENTAGES - 65% of quarterly results,  76% of annual forecasts/revisions and 80% of interim forecasts have negative Scores and 28% of companies reporting lost money for the quarter.663 Quarterly Results

Results Score: 29% Positive / 6% Neutral / 65% Negative

Average Results Score Change: -3.4 points

Average % Change in Revenue: -10.4% Quarter YoY / -2.2% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.3 ppt

Percentage Making Quarterly Losses: 28%
196 Annual • 123 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 19% Positive / 5% Neutral / 76% Negative

Interim Forecast/Revision Score Change: 19% Positive / 1% Neutral / 80% Negative

Average Forecast/Revision Score Change: -10.9 points


🇯🇵 JAPAN • Results & Revisions 7th August - MS&AD, Mixi, SMC, Otsuka, Kyoritsu M, Hoshizaki, HDS

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/sino-biopharmaceutical" target="_blank" data-smartkarma-citation="entities:230:1" rel="noopener">Sino Biopharmaceutical (1177 HK)</a>, <a href="https://www.smartkarma.com/entities/sunac-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:240:1" rel="noopener">Sunac China Holdings (1918 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/wharf-real-estate-investment" target="_blank" data-smartkarma-citation="entities:26031:1" rel="noopener">Wharf Real Estate Investment (1997 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing (981 HK)</a> and <a href="https://www.smartkarma.com/entities/wharf-holdings-ltd" target="_blank" data-smartkarma-citation="entities:51:1" rel="noopener">Wharf Holdings (4 HK)</a>. Shorts increased in Health Care and Consumer Discretionary, and were covered in Real Estate, Information Technology, Financials and Communication Services.</p></div><div><p>Japan saw an increase in shorts on <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>, <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec Corp (6920 JP)</a> and a reduction in shorts on <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a>, <a href="https://www.smartkarma.com/entities/kyushu-railway-company" target="_blank" data-smartkarma-citation="entities:23609:1" rel="noopener">Kyushu Railway Company (9142 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex Corp (1605 JP)</a> and <a href="https://www.smartkarma.com/entities/otsuka-corp" target="_blank" data-smartkarma-citation="entities:7327:1" rel="noopener">Otsuka Corp (4768 JP)</a>. Sectorally, shorts increased on Financials, Health Care and Industrials, and reduced on Energy and Information Technology.</p></div><div><p>Short Interest in Korea decreased in almost all industry groups led by Pharmaceuticals, Media &amp; Entertainment and Automobiles. Stocks that saw the most short covering were <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a>, <a href="https://www.smartkarma.com/entities/shinpoong-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:7296:1" rel="noopener">Shinpoong Pharmaceutical (019170 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/korean-air-lines-co-ltd" target="_blank" data-smartkarma-citation="entities:11048:1" rel="noopener">Korean Air Lines (003490 KS)</a> and <a href="https://www.smartkarma.com/entities/seegene-inc" target="_blank" data-smartkarma-citation="entities:11483:1" rel="noopener">Seegene Inc (096530 KS)</a>.</p></div><div><p>Short Interest in Taiwan decreased in Technology Hardware, Materials and Capital Goods, while shorts increased in Semiconductors. Stocks that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/macronix-international" target="_blank" data-smartkarma-citation="entities:3247:1" rel="noopener">Macronix International (2337 TT)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/elan-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:19789:1" rel="noopener">Elan Microelectronics (2458 TT)</a> and <a href="https://www.smartkarma.com/entities/quanta-computer-inc" target="_blank" data-smartkarma-citation="entities:2754:1" rel="noopener">Quanta Computer (2382 TT)</a> while shorts were covered in <a href="https://www.smartkarma.com/entities/hon-hai-precision-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:745:1" rel="noopener">Hon Hai Precision Industry (2317 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a>, <a href="https://www.smartkarma.com/entities/wiwynn-corp" target="_blank" data-smartkarma-citation="entities:27838:1" rel="noopener">Wiwynn Corp (6669 TT)</a> and <a href="https://www.smartkarma.com/entities/asia-cement-corp" target="_blank" data-smartkarma-citation="entities:15350:1" rel="noopener">Asia Cement (1102 TT)</a>. </p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Alibaba Group (9988 HK), Sino Biopharmaceutical (1177 HK), Sunac China Holdings (1918 HK) and JD.com (HK) (9618 HK) while there was short covering on Wharf Real Estate Investment (1997 HK), Ping An Insurance (H) (2318 HK), Semiconductor Manufacturing (981 HK) and Wharf Holdings (4 HK). Shorts increased in Health Care and Consumer Discretionary, and were covered in Real Estate, Information Technology, Financials and Communication Services.Japan saw an increase in shorts on Japan Exchange Group (8697 JP), Itochu Corp (8001 JP), Fast Retailing (9983 JP) and Lasertec Corp (6920 JP) and a reduction in shorts on Canon Inc (7751 JP), Kyushu Railway Company (9142 JP), Inpex Corp (1605 JP) and Otsuka Corp (4768 JP). Sectorally, shorts increased on Financials, Health Care and Industrials, and reduced on Energy and Information Technology.Short Interest in Korea decreased in almost all industry groups led by Pharmaceuticals, Media &amp; Entertainment and Automobiles. Stocks that saw the most short covering were NCSOFT Corp (036570 KS), Shinpoong Pharmaceutical (019170 KS), Samsung Electronics (005930 KS), Korean Air Lines (003490 KS) and Seegene Inc (096530 KS).Short Interest in Taiwan decreased in Technology Hardware, Materials and Capital Goods, while shorts increased in Semiconductors. Stocks that saw the highest increase in shorts were Macronix International (2337 TT), TSMC (2330 TT), Elan Microelectronics (2458 TT) and Quanta Computer (2382 TT) while shorts were covered in Hon Hai Precision Industry (2317 TT), Yageo Corporation (2327 TT), Wiwynn Corp (6669 TT) and Asia Cement (1102 TT). 

Asia Short Interest Weekly: Alibaba, JD, Wharf, SMIC, JPX, Itochu, Canon, Kyushu, Shinpoong, Seegene

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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/176/original/2020-02-04_04-48-54.png?1580759358" class="editor-image img-responsive" data-smartkarma-image-id="116176"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>3RD FEBRUARY ROUNDUP</strong> - The 107 Results and 44 Forecast/Revision announcements yesterday nudged both our Scores lower again as the Total Market Value reached a three-month low. We expect the Results Score to break below 0.58 and the Forecast/Revision Score to turn negative later in the week.</p><hr><p style="text-align: center;"><strong>• ALL-MARKET COMPOSITE •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/180/original/2020-02-04_05-29-59.png?1580761820" class="editor-image img-responsive" data-smartkarma-image-id="116180"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>ALL-MARKET COMPOSITE</strong> - As of Friday's close. the aggregate forecast for Operating Income is now ¥800 billion below the TTM results, while the Net Income forecast trails by ¥400 billion. The market's forward PE is still an elevated 16.9x based on a Total Market Value (TMV) of ¥666 trillion.  TTM Net income has declined by 18% in the last twelve months, while the TMV has risen by 19%.</p><hr><p style="text-align: center;"><strong>• SECTOR TIMELINE •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/177/original/2020-02-04_04-59-01.png?1580759983" class="editor-image img-responsive" data-smartkarma-image-id="116177"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>TIMELINE</strong> - The largest on-day move was from <strong>Non-Bank Finance</strong> following <a href="https://www.smartkarma.com/entities/orix-corp" target="_blank" data-smartkarma-citation="entities:9936:1" rel="noopener">Orix (8591 JP)</a>'s return to positive earnings momentum. <a href="https://www.smartkarma.com/entities/shionogi-co-ltd" target="_blank" data-smartkarma-citation="entities:19535:1" rel="noopener">Shionogi (4507 JP)</a>' s downward revision continued the downtrend in the <strong>Healthcare</strong> Sector, while <a href="https://www.smartkarma.com/entities/mitsubishi-electric-corp" target="_blank" data-smartkarma-citation="entities:11171:1" rel="noopener">Mitsubishi Electric (6503 JP)</a> put a 'dent' in the recovery of the <strong>Electrical Equipment</strong> Sector.  The Information Technology Sector is also losing momentum, as shown in <a href="https://www.smartkarma.com/entities/otsuka-corp" target="_blank" data-smartkarma-citation="entities:7327:1" rel="noopener">Otsuka (4768 JP)</a>' full-year results and FY2020 forecasts with revenue expected to decline by 3%.</p>

Source • Japan Analytics3RD FEBRUARY ROUNDUP - The 107 Results and 44 Forecast/Revision announcements yesterday nudged both our Scores lower again as the Total Market Value reached a three-month low. We expect the Results Score to break below 0.58 and the Forecast/Revision Score to turn negative later in the week.• ALL-MARKET COMPOSITE •Source • Japan AnalyticsALL-MARKET COMPOSITE - As of Friday's close. the aggregate forecast for Operating Income is now ¥800 billion below the TTM results, while the Net Income forecast trails by ¥400 billion. The market's forward PE is still an elevated 16.9x based on a Total Market Value (TMV) of ¥666 trillion.  TTM Net income has declined by 18% in the last twelve months, while the TMV has risen by 19%.• SECTOR TIMELINE •Source • Japan AnalyticsTIMELINE - The largest on-day move was from Non-Bank Finance following Orix (8591 JP)'s return to positive earnings momentum. Shionogi (4507 JP)' s downward revision continued the downtrend in the Healthcare Sector, while Mitsubishi Electric (6503 JP) put a 'dent' in the recovery of the Electrical Equipment Sector.  The Information Technology Sector is also losing momentum, as shown in Otsuka (4768 JP)' full-year results and FY2020 forecasts with revenue expected to decline by 3%.

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 3rd February ▲8591 6752 3064 ▼6503 4768 6920

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 style="text-align: justify;">Our weight of the evidence approach leads us to believe the market remains in the early stages of a broad-based advance, meaning a buy-the-dip mentality is warranted. While we want to acknowledge that the potential for a US-China tariff escalation remains a risk for the market, we believe this is likely to be the case for the foreseeable future. In our December International Strategy, we highlight various themes which lead to our positive outlook, including actionable trade ideas in technology, health care and manufacturing.</p>

Our weight of the evidence approach leads us to believe the market remains in the early stages of a broad-based advance, meaning a buy-the-dip mentality is warranted. While we want to acknowledge that the potential for a US-China tariff escalation remains a risk for the market, we believe this is likely to be the case for the foreseeable future. In our December International Strategy, we highlight various themes which lead to our positive outlook, including actionable trade ideas in technology, health care and manufacturing.

Global Equities Headed Up and to the Right: Technology, Health Care Leading

<p style="text-align: center;"><strong>• MARKET COMPOSITE - AGGREGATE RESULTS •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/865/original/2019-08-16_06-45-04.png?1565905530" class="editor-image img-responsive" data-smartkarma-image-id="95865"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>THIRD DOWN QUARTER</strong> - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. </p><p><strong>FORECASTS STILL OPTIMISTIC</strong> -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. </p><p><strong>UPSIDE LIMITED</strong> - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/770/original/2019-08-15_12-05-51.png?1565838392" class="editor-image img-responsive" data-smartkarma-image-id="95770"></figure><p>Source: Japan Analytics </p>
</div><p><strong>MARGIN ROLLOVER</strong> - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/772/original/2019-08-15_12-26-32.png?1565839621" class="editor-image img-responsive" data-smartkarma-image-id="95772"></figure><p>Source: Japan Analytics </p>
</div><p><strong>SECTOR MARGINS - TOP</strong> - <strong>Bank</strong> Sector margins continue to slide, but have yet to lose their leading position to <strong>Telecoms</strong> despite the latter's margins being unchanged over three months. <strong>Internet</strong> and b both saw large margins contractions as did <strong>Chemicals</strong> which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, <strong>Infomation Technology</strong>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/773/original/2019-08-15_12-44-16.png?1565840676" class="editor-image img-responsive" data-smartkarma-image-id="95773"></figure><div class="content-caption">Source: Japan Analytics </div><p><strong>SECTOR MARGINS - MID</strong> - The <strong>Market Composite</strong> OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only <strong>Multi-Industry</strong> and <strong>Consumer Services</strong> saw margin increases of more than ten basis points. The worst-performing in this group were <strong>Food, Beverage &amp; Tobacco</strong> and <strong>Technology Hardwar</strong>e. Over a longer-term period, there has been a notable decline in <strong>Construction</strong> and<strong> Non-Bank Finance</strong> Sector margins. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/774/original/2019-08-15_12-52-37.png?1565841201" class="editor-image img-responsive" data-smartkarma-image-id="95774"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>SECTOR MARGINS - BOTTOM </strong>- Only <strong>Utilities</strong> of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while<strong> Building Materials</strong>, <strong>Autos</strong>,<strong> Metals</strong>, <strong>Energy</strong>, and <strong>Other Materials</strong> all had double-digit declines. <strong>Retail</strong> margins are the most stable amongst this group,</p><p><strong>OUTLOOK</strong> - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  </p><hr><p style="text-align: center;"><strong>• RESULTS &amp; REVISION SCORE •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/869/original/2019-08-16_06-50-04.png?1565905842" class="editor-image img-responsive" data-smartkarma-image-id="95869"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RESULT &amp; REVISION SCORE </strong>- After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/838/original/2019-08-15_18-08-12.png?1565860115" class="editor-image img-responsive" data-smartkarma-image-id="95838"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>28-MONTH LOW</strong> - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/839/original/2019-08-15_18-23-10.png?1565861002" class="editor-image img-responsive" data-smartkarma-image-id="95839"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTERIM v FULL-YEAR FORECASTS</strong> - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. <strong>If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/870/original/2019-08-16_06-58-00.png?1565906307" class="editor-image img-responsive" data-smartkarma-image-id="95870"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>CURRENCY IN THE DRIVING SEAT</strong> - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.</p><p>In the <strong>DETAIL</strong> section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.</p>

• MARKET COMPOSITE - AGGREGATE RESULTS •Source: Japan AnalyticsTHIRD DOWN QUARTER - This Insight will review the aggregate results for the 3774 listed Japanese companies for the quarter just ended and updated our Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Operating Income has declined by 1.8% since the end of May and is now 5.1% below the peak of December 21st last year. The decline in Net Income has been more significant - 15.7% from the peak and 3.5% since May.  Japan's aggregate trailing-twelve-month (TTM) Net Income will end this year at a lower level than two years ago. FORECASTS STILL OPTIMISTIC -  The 'gap' between current and forecast results is now the widest in two years; however, the 'roles' are reversed. Aggregate forecasts have declined by 1.4% for Operating Income and 1.6% for Net Income and the forecast 'improvements' by year-end are 3% and 6%, respectively, which we consider optimistic. UPSIDE LIMITED - The decline in the market in recent weeks has taken the forward multiple to the second-lowest level this year at 13.7 times. Alternatively, the market is implying a further 17% decline in Net Income, assuming a 'normal' market multiple of 16.7 times. We are more inclined to the latter possibility.
Source: Japan Analytics 
MARGIN ROLLOVER - Revenues are still increasing by 3.8% a year; however, the rolling quarterly rate of increase is slowing to just 0.4% in the quarter just ended while the forecast-implied growth rate for the next nine months is 2%.  Operating margins peaked at 7.78% one year ago and have since declined by 61 basis points since then.  TTM Net Margins are now 4.83% and have declined by 102 basis points in the last three quarters.
Source: Japan Analytics 
SECTOR MARGINS - TOP - Bank Sector margins continue to slide, but have yet to lose their leading position to Telecoms despite the latter's margins being unchanged over three months. Internet and b both saw large margins contractions as did Chemicals which may slip out of this group next quarter. The most robust performance came from our long-time preferred Sector, Infomation Technology.Source: Japan Analytics SECTOR MARGINS - MID - The Market Composite OPM has declined by 27 basis points in the last three months to 7.2%, and only nine of 29 Sectors have higher margins. Of the mid-ranked Sectors by margins, only Multi-Industry and Consumer Services saw margin increases of more than ten basis points. The worst-performing in this group were Food, Beverage &amp; Tobacco and Technology Hardware. Over a longer-term period, there has been a notable decline in Construction and Non-Bank Finance Sector margins. Source: Japan AnalyticsSECTOR MARGINS - BOTTOM - Only Utilities of the bottom-nine OPM Sectors saw a margin improvement in the last three months, while Building Materials, Autos, Metals, Energy, and Other Materials all had double-digit declines. Retail margins are the most stable amongst this group,OUTLOOK - Aggregate results are a lagging indicator for the market, having peaked one year after the market peak of January 2018 - which is why we prefer to rely more on our scoring methodology (see below). Accordingly, we expect the trend in profits and margins to continue to be negative for the rest of the fiscal year and look for revenues to join the trend next quarter.  A breach of the December market low would be required to keep the market multiple below 'normal' levels, and we would advise patience for all but the most committed investors in Japanese equities.  • RESULTS &amp; REVISION SCORE •Source: Japan AnalyticsRESULT &amp; REVISION SCORE - After peaking in November 2017, our Results &amp; Revision Score has declined for six of the last seven quarters, the exception being the previous quarter which was 'supported' by the optimistic full-year forecasts made in May, As shown below, the Annual forecasts were at 'odds' with the more pessimistic forecasts for the half-year - half-way through the half-year, the latter are proving to be more reliable. Ove the last two years, the correlation between the Results &amp; Revision Score and Total Market Cap ex REITs has been 0.78.Source: Japan Analytics28-MONTH LOW - The Results &amp; Revision Score has three components, Results, Annual Forecasts &amp; Revisions and Interim Forecasts &amp; Revisions, and the last two can be combined to derive a Forecast &amp; Revision Score. The Forecast &amp; Revision Score is a good leading indicator for the Results Score with a lead-time of four to six months. Although still positive, the Results Score is at a new twenty-eight low of 1.25. The Score has only been negative for ten months since May 2010 reaching a nine-year low in December 2016. If current global macro indicators are correct, the Results Score should be heading into negative territory by the third-quarter results which will be released in February next year.Source: Japan AnalyticsINTERIM v FULL-YEAR FORECASTS - The Forecast &amp; Revision Score is a weighted combination of two forecast series based on the official company forecasts released and updated by most Japanese companies throughout the year. The Annual forecasts tend to receive more senior management attention than the Interim, which are often delegated to the CFO. As a result, the latter series is more volatile, leading on the downside from peaks and lagging on the upside from toughs. The current Interim Score is the second-lowest in nine years, after April 2016 and has offset the optimism implied in the uptick in the Annual Score this May. If the precedents of 2011 and 2016 are to be followed, the Results Score should bottom out eight months from now, in April 2020.Source: Japan AnalyticsCURRENCY IN THE DRIVING SEAT - The importance of the currency as a key driver in the earnings cycle in Japan is well illustrated above where the peaks and troughs of the year-on-year change in the US$/Yen exchange rate lagged by six months align well with the changes the Results &amp; Revision Score (RRS), where the correlation is 0.79 since the beginning of 2014. The recent strengthening of the Yen suggests a new low for the RRS in the first half of 2020.In the DETAIL section below, we shall examine the detailed trends in earnings results and forecasts for the 29 Sectors that make up our Market Composite as well as the Sector Results &amp; Revisions Scores.

🇯🇵 JAPAN • Summer Results & Revisions - Market Composite & Sectors - Third Down

Japan

OTSUKA Corporation designs, constructs, and develops computer information system and software.  The Company also sells computer peripherals, facsimiles, copy machines, and telecommunication equipment.  Otsuka offers computer training classes for its customers.

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Otsuka Corp (4768 JP)

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