'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. 

Quantitative Analysis

<p><strong>SHORT-LIVED</strong> - Over the last two weeks, Japanese equities marched back up and then promptly fell back down, losing 1.5% over the period. We remain under the spell of the 'Death Cross' (50-day moving average &lt; 200-day), although, partly thanks to the Bank of Japan, we have danced along the fine line between these two ratios since August.  A decisive breach to the downside is now the most likely outcome and would help bring foreign investors back to a market they have become increasingly less interested in as the year has progressed.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/118/original/2018-11-17_10-47-31.png?1542419262" class="editor-image img-responsive" data-smartkarma-image-id="70118"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/119/original/2018-11-17_10-47-53.png?1542419283" class="editor-image img-responsive" data-smartkarma-image-id="70119"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>VOLUME VOLATILITY</strong> - After spiking into the most recent low, volumes have returned to trend levels and will decline further into year-end as is usual.  A <a href="https://www.jpx.co.jp/english/corporate/news/news-releases/0060/b5b4pj000002jlgo-att/01.pdf" target="_blank">malfunction </a>in the TSE trading systems occurred on October 9th and the apportioning of the 'blame' is now the subject of some heated <a href="http://www.asahi.com/ajw/articles/AJ201810190030.html" target="_blank">debate</a> amongst the market participants involved. It is not clear to what extent this event has had any subsequent impact on the activities of the firms involved, and the only remedial action that has been announced to date has been a salary cut and censure for the <a href="https://www.smartkarma.com/entities/11266" target="_blank" data-smartkarma-citation="entities:11266:1">Japan Exchange (8697 JP)</a> officials deemed responsible. We would note that, since October 9th, volumes have been more volatile than any other period this year.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/120/original/2018-11-17_11-00-22.png?1542420041" class="editor-image img-responsive" data-smartkarma-image-id="70120"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>FINAL TALLY</strong> - With the exception of <a href="https://www.smartkarma.com/entities/7591" target="_blank" data-smartkarma-citation="entities:7591:1">Tokio Marine (8766 JP)</a>, <a href="https://www.smartkarma.com/entities/631" target="_blank" data-smartkarma-citation="entities:631:1">MS&amp;AD (8725 JP)</a> and <a href="https://www.smartkarma.com/entities/632" target="_blank" data-smartkarma-citation="entities:632:1">Sompo (8630 JP)</a>, all of whom report tomorrow, the quarterly results and revisions 'season' is now complete. As noted <a href="https://www.smartkarma.com/insights/japan-autumn-results-revisions-flash-flatlining-weakest-quarter-in-two-years" target="_blank" data-smartkarma-citation="insights:25804">earlier</a>, the most recent quarter was the weakest in two years. TTM Operating Income and Forecast Operating Income are both unchanged from the summer, and Forecast Operating Income is only 0.8% higher than TTM Operating Income -implying a flat second quarter for earnings. The 'gap' between TTM and Forecast Net Income is now -4.8%, implying that there are over ¥2 trillion of extraordinary losses to be booked in the next six months. A 'foretaste' of such write-offs was recently provided by <a href="https://www.smartkarma.com/entities/16705" target="_blank" data-smartkarma-citation="entities:16705:1">Tsukuba Bank (8338 JP)</a>.</p><p><strong>MARKET-IMPLIED 20% FALL IN EARNINGS</strong> - Based on TTM Net Income the market PER is a record-low 13.2x, and the discounting of the coming weaker earnings growth is reasonably well-advanced. A 'normal' earnings multiple is often thought to be 16.7x (being the 'inverse' of a 6% yield). The market-implied decline in future Net Income, using this benchmark,  is 20%, which is equivalent to an aggregate Net Income of ¥38.6t - the level achieved in Summer 2017, or five quarters ago.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/124/original/2018-11-17_11-48-39.png?1542422946" class="editor-image img-responsive" data-smartkarma-image-id="70124"></figure><div class="content-caption">Source: Japan Analytics</div><div class="content-highlight"><p><strong>OUTLOOK</strong> - Although 58% of companies still have positive Results Scores, only 40% of companies saw a quarter-on-quarter improvement and 40% of revisions scored negatively.  As covered in <a href="https://www.smartkarma.com/insights/japan-autumn-results-revisions-scores-market-composite-sector-review-slomo-slowdown" target="_blank" data-smartkarma-citation="insights:25923">SloMo Slowdown</a>, we are in a slow-motion bear market that will accelerate in the event of any further Yen strength or erosion of global growth. The downside may be limited by current valuations. However, we have yet to see how far Japanese corporate profits can fall this time. As we noted <a href="https://www.smartkarma.com/insights/japan-market-update-oversold-however" target="_blank" data-smartkarma-citation="insights:25370">here</a>, a decisive low has yet to be reached.</p></div>

SHORT-LIVED - Over the last two weeks, Japanese equities marched back up and then promptly fell back down, losing 1.5% over the period. We remain under the spell of the 'Death Cross' (50-day moving average &lt; 200-day), although, partly thanks to the Bank of Japan, we have danced along the fine line between these two ratios since August.  A decisive breach to the downside is now the most likely outcome and would help bring foreign investors back to a market they have become increasingly less interested in as the year has progressed.Source: Japan AnalyticsVOLUME VOLATILITY - After spiking into the most recent low, volumes have returned to trend levels and will decline further into year-end as is usual.  A malfunction in the TSE trading systems occurred on October 9th and the apportioning of the 'blame' is now the subject of some heated debate amongst the market participants involved. It is not clear to what extent this event has had any subsequent impact on the activities of the firms involved, and the only remedial action that has been announced to date has been a salary cut and censure for the Japan Exchange (8697 JP) officials deemed responsible. We would note that, since October 9th, volumes have been more volatile than any other period this year.   Source: Japan AnalyticsFINAL TALLY - With the exception of Tokio Marine (8766 JP), MS&amp;AD (8725 JP) and Sompo (8630 JP), all of whom report tomorrow, the quarterly results and revisions 'season' is now complete. As noted earlier, the most recent quarter was the weakest in two years. TTM Operating Income and Forecast Operating Income are both unchanged from the summer, and Forecast Operating Income is only 0.8% higher than TTM Operating Income -implying a flat second quarter for earnings. The 'gap' between TTM and Forecast Net Income is now -4.8%, implying that there are over ¥2 trillion of extraordinary losses to be booked in the next six months. A 'foretaste' of such write-offs was recently provided by Tsukuba Bank (8338 JP).MARKET-IMPLIED 20% FALL IN EARNINGS - Based on TTM Net Income the market PER is a record-low 13.2x, and the discounting of the coming weaker earnings growth is reasonably well-advanced. A 'normal' earnings multiple is often thought to be 16.7x (being the 'inverse' of a 6% yield). The market-implied decline in future Net Income, using this benchmark,  is 20%, which is equivalent to an aggregate Net Income of ¥38.6t - the level achieved in Summer 2017, or five quarters ago.  Source: Japan AnalyticsOUTLOOK - Although 58% of companies still have positive Results Scores, only 40% of companies saw a quarter-on-quarter improvement and 40% of revisions scored negatively.  As covered in SloMo Slowdown, we are in a slow-motion bear market that will accelerate in the event of any further Yen strength or erosion of global growth. The downside may be limited by current valuations. However, we have yet to see how far Japanese corporate profits can fall this time. As we noted here, a decisive low has yet to be reached.

Japan Fortnightly Update: Watch Out Below

Japan

MARCHE CORPORATION operates a Japanese-style pub restaurant chain known as Suikoden and Hakkenden in Kansai, Tokai, and Hokuriku regions.  The Company manages mainly its own stores but also franchise stores.  The Company also operates seafood pub restaurant, food restaurant and Karaoke rooms.

Y.S. FOOD CO., LTD. operates Japanese noodle restaurants based in Kyushu under name of Yamagoya and Basaraka.  The Company operates its own restaurants as well as franchise restaurants nationwide and overseas.

Totenko Co., Ltd. operates Chinese restaurant chain nationwide.  The Company also operates European food restaurant named Rozerian and Japanese restaurant named Umitsubame.

HORIIFOODSERVICE CO. LTD. operates its own restaurants as well as franchise restaurants in the northern Kanto area. The Company mainly focuses on Japanese style dining and fast food restaurants.

JSS Corporation operates membership sports and recreation clubs, including swimming, tennis, and fitness clubs. The Company also sells sports related equipments such as swimsuits.

Arigatou Services Co Ltd operates multiple business management including used good  recycle stores (BOOK OFF, HARD OFF, OFF HOUSE and Hobby OFF), chain-restaurants  (Mos Burger, Tomato & Onion, Ichibantei, and Ootoya), DVD/CD rental shops (TSUT AYA) and real estate rentals.

Karula Co., LTD. operates a chain of restaurants specializing in Japanese cuisine in the Sendai area.  The Company's operation consists of different store names for offering seafood, pork cutlets, soba noodles, and sushi.

FLYING GARDEN CO., LTD. operates family restaurant chain in suburb including Gunma, Tochigi, Ibaragi, and Saitama.  The Company operates its restaurants under the name of Flying Garden.

KANMONKAI Co., Ltd. operates specialty restaurant chains including blow fish restaurants, deep-fried shrimp restaurants, and curry restaurants.

Seiyoken KK, founded in 1873, is a operator of French restaurants.  The restaurants are located mainly in the Tokyo metropolitan area. The Company also offers wedding service, banquet service, catering service, and memorial service.

Crypto Flow Technology Limited offers data center services. The Company provides data analysis, data storage, data processor rental, and other services. Crypto Flow Technology also offers lottery related services.

Transmetro Corporation Limited operates hotels, inns, motor inns, theme pubs and apartment complexes throughout Australia under the name "Metro Inns", "Metro Suites" and "Metro Motor Inns."

Olympia Industries Berhad is an investment holding company. Through its subsidiaries, the Company develops, invests and manages property, organizes and manages public lotteries, and provides stock broking services. Olympia also has operations in construction of storage tanks, money lending services, recreation club, and land reclamation.

Red Planet Indonesia Tbk PT is an investment platform within the value hotel hospitality sector. The Company focuses on developing, owning, and operating hotels. Red Planet Indonesia also specializes in asset and brand owning.

Reliance Pacific Berhad is an investment holding company.  The Company's subsidiaries operate travel and tour services with operational companies throughout Malaysia.  Reliance Pacific also develops and manages hotels and resorts.

HL Global Enterprises Ltd is an investment holding company whose subsidiaries invest in properties for rental purposes.  The Company provides building and civil engineering construction services, develops and manages properties, and operates hotels and restaurants.  HLG Enterprise also operates multimedia transactional payphone kiosk and sells computer hardware and software.

Mexan Limited, through its subsidiaries, develops and invests in properties. The Company also owns hotel.

Grand Central Enterprises Berhad manages hotel operation and limousine services. The Company has hotels in Kuala Lumpur, Penang, Kuching, Kuantan, Perak, Langkawi, and Kedah under the name of Hotel Grand Continental.

Soup Holdings Limited operates a chain of restaurants in Singapore.

xReality Group Limited operates as a software company. The Company specializes in building and operating virtual reality (VR), augment reality (AR), and physical and digital simulation for the enterprise, defense, and consumer leisure markets. xReality Group serves customers worldwide.

SD Entertainment, Inc. operates a variety of entertainment facilities such as bo wling alleys, game arcades, movie theaters, and karaoke rooms. The Company is based in Hokkaido.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Sd Entertainment (4650 JP)

Japan Fortnightly Update: Watch Out Below

SHORT-LIVED - Over the last two weeks, Japanese equities marched back up and then promptly fell back down, losing 1.5% over the period. We remain...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)