Equity Analyst, LightStream Research

Aqila Ali

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

<ul>
<li>On the 28th of October, <a href="https://www.smartkarma.com/entities/koito-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:15841:1" rel="noopener">Koito Manufacturing (7276 JP)</a> and <a href="https://www.smartkarma.com/entities/stanley-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:1330:1" rel="noopener">Stanley Electric (6923 JP)</a> posted their 2QFY03/20 results which were weak, falling below market and our expectations.</li>
<li>Koito reported flat growth in revenue (+0.6% YoY) while Stanley registered a decline in revenue by -3.4% YoY during 2Q</li>
<li>On profitability, Koito registered a lower decline in OP at -10.4% YoY, compared to Stanley’s -27.4% YoY, with an OPM of 10.9% higher than the 8.5% OPM generated by Stanley.</li>
<li>Based on the results during 2Q, as we expected Koito surpassed its 1H revenue target but fell below its OP target. Stanley, on the contrary, fell below the revenue target but surpassed its 1H OP target.</li>
<li>As of 1H, both companies generate OPM at similar levels, indicating that despite Stanley’s expected decline in OP during 2Q, the latter has still managed to keep profitability at a level similar to its peer.</li>
<li>Following the rather underwhelming 2Q, the lighting players have both revised their FY03/20E targets downwards and appear on track to achieve their revised guidance.</li>
<li>Stanley opened -3.7% down, while Koito opened +0.2% up on 29th October following their earning release the previous day.</li>
</ul>


On the 28th of October, Koito Manufacturing (7276 JP) and Stanley Electric (6923 JP) posted their 2QFY03/20 results which were weak, falling below market and our expectations.
Koito reported flat growth in revenue (+0.6% YoY) while Stanley registered a decline in revenue by -3.4% YoY during 2Q
On profitability, Koito registered a lower decline in OP at -10.4% YoY, compared to Stanley’s -27.4% YoY, with an OPM of 10.9% higher than the 8.5% OPM generated by Stanley.
Based on the results during 2Q, as we expected Koito surpassed its 1H revenue target but fell below its OP target. Stanley, on the contrary, fell below the revenue target but surpassed its 1H OP target.
As of 1H, both companies generate OPM at similar levels, indicating that despite Stanley’s expected decline in OP during 2Q, the latter has still managed to keep profitability at a level similar to its peer.
Following the rather underwhelming 2Q, the lighting players have both revised their FY03/20E targets downwards and appear on track to achieve their revised guidance.
Stanley opened -3.7% down, while Koito opened +0.2% up on 29th October following their earning release the previous day.


A Failing 1H From the Lighting Players; US-China Trade Tension Being the Key Reason

On the 25th of July, <a href="https://www.smartkarma.com/entities/koito-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:15841:1" rel="noopener">Koito Manufacturing (7276 JP)</a> posted FY03/19 results that did not look particularly attractive falling below market expectations. <a href="https://www.smartkarma.com/entities/stanley-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:1330:1" rel="noopener">Stanley Electric (6923 JP)</a>, on the other hand, posted results yesterday, that saw both revenue and OP decrease YoY, but managed to surpass consensus estimates on OP. On the whole, 1Q has been a weak quarter for both lighting companies. However, Koito looked quite steady in its revenue performance, while Stanley managed to maintain a relatively higher profit margin. Stanley registered a decline in revenue by -6.0% YoY, while Koito saw revenue increase by +2.7% YoY. On profitability, Stanley registered a lower decline in OP at -7.8% YoY, compared to Koito’s -9.9% YoY, reaching an OPM of 12.6% higher than the 9.9% OPM made by Koito. Our earnings estimates appeared quite optimistic for Koito, while they were almost in line for Stanley. The two companies are on track to achieve their 1H revenue target. Stanley’s 1H OP target looks conservative, based purely on 1Q results while Koito’s 1H OP target looks relatively challenging. However, the two lighting players kept their guidance unchanged. Following the 1Q FY03/20 earnings release Stanley opened +4.4% up, while Koito closed -9.4% down following its earnings on 25 July.

On the 25th of July, Koito Manufacturing (7276 JP) posted FY03/19 results that did not look particularly attractive falling below market expectations. Stanley Electric (6923 JP), on the other hand, posted results yesterday, that saw both revenue and OP decrease YoY, but managed to surpass consensus estimates on OP. On the whole, 1Q has been a weak quarter for both lighting companies. However, Koito looked quite steady in its revenue performance, while Stanley managed to maintain a relatively higher profit margin. Stanley registered a decline in revenue by -6.0% YoY, while Koito saw revenue increase by +2.7% YoY. On profitability, Stanley registered a lower decline in OP at -7.8% YoY, compared to Koito’s -9.9% YoY, reaching an OPM of 12.6% higher than the 9.9% OPM made by Koito. Our earnings estimates appeared quite optimistic for Koito, while they were almost in line for Stanley. The two companies are on track to achieve their 1H revenue target. Stanley’s 1H OP target looks conservative, based purely on 1Q results while Koito’s 1H OP target looks relatively challenging. However, the two lighting players kept their guidance unchanged. Following the 1Q FY03/20 earnings release Stanley opened +4.4% up, while Koito closed -9.4% down following its earnings on 25 July.

A Weak 1Q for the Lighting Players: Koito and Stanley Keep Earnings Guidance Unchanged Regardless

On the 24th of April,<a href="https://www.smartkarma.com/entities/1330" target="_blank" data-smartkarma-citation="entities:1330:1">Stanley Electric (6923 JP)</a> posted FY03/19 results that were quite weak falling below its own estimates as well as market expectations.<a href="https://www.smartkarma.com/entities/15841" target="_blank" data-smartkarma-citation="entities:15841:1">Koito Manufacturing (7276 JP)</a>, on the other hand, posted results the previous day that saw revenue and OP outpace their own estimates although they fell slightly below consensus estimates. Stanley registered a lower decline in revenue by -1.8% YoY, compared to Koito’s decline in revenue by -2.7% YoY. Having said that, it should be noted that Stanley failed to meet its own revenue target by -1.3% while Koito managed to surpass its revenue target by around 1%. On profitability, Stanley witnessed marginal growth (+1.4% YoY), achieving an OPM of 12.4%. Koito, on the other hand, experienced an OP decline of-2.2% YoY, but still managed to make an OPM of 12.3%. Here again, Koito surpassed its OP target for the FY, while Stanley fell behind its targeted level of OP for FY03/19. Both companies, however, failed to meet consensus estimates on the profitability front as well.  Our estimates appeared to be quite conservative for Koito, while they looked a bit high for Stanley. Although Stanley managed to make strong results during the first half of FY continuing to meet consensus estimates and nearing its target for the FY, Q4 turned out to be a weak quarter for the company.  Following the FY03/19 earnings release on Thursday, Stanley closed -9% down, while Koito closed only -0.6% down from Wednesday’s close.

On the 24th of April,Stanley Electric (6923 JP) posted FY03/19 results that were quite weak falling below its own estimates as well as market expectations.Koito Manufacturing (7276 JP), on the other hand, posted results the previous day that saw revenue and OP outpace their own estimates although they fell slightly below consensus estimates. Stanley registered a lower decline in revenue by -1.8% YoY, compared to Koito’s decline in revenue by -2.7% YoY. Having said that, it should be noted that Stanley failed to meet its own revenue target by -1.3% while Koito managed to surpass its revenue target by around 1%. On profitability, Stanley witnessed marginal growth (+1.4% YoY), achieving an OPM of 12.4%. Koito, on the other hand, experienced an OP decline of-2.2% YoY, but still managed to make an OPM of 12.3%. Here again, Koito surpassed its OP target for the FY, while Stanley fell behind its targeted level of OP for FY03/19. Both companies, however, failed to meet consensus estimates on the profitability front as well.  Our estimates appeared to be quite conservative for Koito, while they looked a bit high for Stanley. Although Stanley managed to make strong results during the first half of FY continuing to meet consensus estimates and nearing its target for the FY, Q4 turned out to be a weak quarter for the company.  Following the FY03/19 earnings release on Thursday, Stanley closed -9% down, while Koito closed only -0.6% down from Wednesday’s close.

Stanley’s Turn to Disappoint This Time; FY03/20E Guidance Remains Weak for Both Stanley And Koito

We mentioned in <a href="https://www.smartkarma.com/insights/koito-outperforms-in-3q-while-stanley-disappoints-latter-still-on-track-to-achieve-fy03-19e-target" target="_blank" data-smartkarma-citation="insights:27681">Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target</a>, that <a href="https://www.smartkarma.com/entities/15841" target="_blank" data-smartkarma-citation="entities:15841:1">Koito Manufacturing (7276 JP)</a> has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.

We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.

'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

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/163/original/2019-03-17_07-32-23.png?1552775594" class="editor-image img-responsive" data-smartkarma-image-id="82163"></figure>Source: Japan Analytics
</div>SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the fifty-day moving average, last breached to the downside six months ago, the market needs fresh catalysts. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/164/original/2019-03-17_07-54-56.png?1552777022" class="editor-image img-responsive" data-smartkarma-image-id="82164"></figure><div class="content-caption">Source: Japan Analytics</div>BOJ IS BACK - After almost a one-month hiatus, the Bank of Japan resumed purchases of exchange-traded funds, intervening four times in the last nine trading days. Further intervention is to be expected as the market adjusts to the continuing stream of weak macro data.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/165/original/2019-03-17_08-15-44.png?1552778203" class="editor-image img-responsive" data-smartkarma-image-id="82165"></figure><div class="content-caption">Source: Japan Analytics</div>THANK YOU, MIZUHO - <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho' s (8411 JP)</a> ¥680b retail branch, software and foreign bond write down, and net profit forecast of ¥80b for FY 2018 has resulted in the market composite forecast for net income falling to ¥43.6t, 5.6% below the November peak. Forecast net income is now 1.2% below the level of one year ago, and seven sectors' forecasts are more than 10% lower than a year ago.   MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Machinery, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on the Auto sector,  <a href="https://www.smartkarma.com/entities/1411" target="_blank" data-smartkarma-citation="entities:1411:1">Sumitomo Realty (8830 JP)</a>, <a href="https://www.smartkarma.com/entities/4508" target="_blank" data-smartkarma-citation="entities:4508:1">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/3294" target="_blank" data-smartkarma-citation="entities:3294:1">Pigeon (7956 JP)</a>, <a href="https://www.smartkarma.com/entities/8723" target="_blank" data-smartkarma-citation="entities:8723:1">Fuji Seal (7864 JP)</a>, and <a href="https://www.smartkarma.com/entities/3548" target="_blank" data-smartkarma-citation="entities:3548:1">Kawasaki Kisen (9107 JP)</a>


Source: Japan Analytics
SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the fifty-day moving average, last breached to the downside six months ago, the market needs fresh catalysts. Source: Japan AnalyticsBOJ IS BACK - After almost a one-month hiatus, the Bank of Japan resumed purchases of exchange-traded funds, intervening four times in the last nine trading days. Further intervention is to be expected as the market adjusts to the continuing stream of weak macro data.  Source: Japan AnalyticsTHANK YOU, MIZUHO - Mizuho' s (8411 JP) ¥680b retail branch, software and foreign bond write down, and net profit forecast of ¥80b for FY 2018 has resulted in the market composite forecast for net income falling to ¥43.6t, 5.6% below the November peak. Forecast net income is now 1.2% below the level of one year ago, and seven sectors' forecasts are more than 10% lower than a year ago.   MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Machinery, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on the Auto sector,  Sumitomo Realty (8830 JP), Sekisui House (1928 JP), Pigeon (7956 JP), Fuji Seal (7864 JP), and Kawasaki Kisen (9107 JP)

🇯🇵 Japan • Fortnightly Update - Reverse Gear

Japan

Stanley Electric Co., Ltd. manufactures lighting equipment including head lights, HID (High Intensity Discharge) assist lamps, and rear combination lamps for automobiles.  The Company also produces LCD (Liquid Cristal Display) and LED (Light Emitted Diode) lamps for communication equipment, office automation equipment, and information displays.

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Stanley Electric (6923 JP)

A Failing 1H From the Lighting Players; US-China Trade Tension Being the Key Reason

On the 28th of October, Koito Manufacturing (7276 JP) and Stanley Electric (6923 JP) posted their 2QFY03/20 results which were weak, falling below...

Aqila Ali

A Weak 1Q for the Lighting Players: Koito and Stanley Keep Earnings Guidance Unchanged Regardless

On the 25th of July, Koito Manufacturing (7276 JP) posted FY03/19 results that did not look particularly attractive falling below market...

Aqila Ali

Stanley’s Turn to Disappoint This Time; FY03/20E Guidance Remains Weak for Both Stanley And Koito

On the 24th of April,Stanley Electric (6923 JP) posted FY03/19 results that were quite weak falling below its own estimates as well as market...

Aqila Ali

Maybe Koito’s Premium Can Be Justified

We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276...

Aqila Ali

🇯🇵 Japan • Fortnightly Update - Reverse Gear

SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the...

Campbell Gunn

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