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

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

<a href="https://www.smartkarma.com/entities/15841" target="_blank" data-smartkarma-citation="entities:15841:1">Koito Manufacturing (7276 JP)</a> released its 3QFY03/19 earnings that saw revenue outpace consensus estimates by +2%, while <a href="https://www.smartkarma.com/entities/1330" target="_blank" data-smartkarma-citation="entities:1330:1">Stanley Electric (6923 JP)</a> ’s revenue fell below consensus estimates by -1%. While Koito witnessed revenue growth of 10% YoY, Stanley posted a decline in revenue for the quarter by -4% YoY. On profitability as well, Koito witnessed growth of +6% YoY, achieving an OPM of 12%. Stanley, on the other hand, experienced a decline in OP for the quarter by -7% YoY, although still managing to achieve a relatively higher OPM of 13%. Here again, Koito managed to beat consensus estimates by +1% while Stanley fell below consensus estimates by -3%. Our conservative estimates for 3Q looked a bit light for Koito while they were slightly high for Stanley.  Koito has been the company which usually disappoints the market with its earnings results, although it has proved otherwise this quarter.
That being said, it should be noted that, although Stanley’s three months ended results did not look particularly robust, its nine months ended results were quite favourable. The company witnessed the revenue grow 0.5% YoY (for the nine months ended 30th Dec 2018) while OP grew by 5.9% YoY, supported by the steady growth in the high-margin LED headlamps. For Koito, on the other hand, the three months ended results seemed quite favourable, although the nine months ended results displayed a revenue decline of -5.1% YoY and OP decline of -2.4% YoY, citing the deconsolidation of its Chinese subsidiary and the decrease in the volume of automobile production in some of its business regions as the key reasons. Thus, the overall YTD financial performance of Stanley looks still attractive compared to that of Koito. Following the earnings release, Stanley opened -3.7% down on Thursday from Tuesday’s close, while Koito closed +4.8% up on Wednesday since Friday’s close.

Koito Manufacturing (7276 JP) released its 3QFY03/19 earnings that saw revenue outpace consensus estimates by +2%, while Stanley Electric (6923 JP) ’s revenue fell below consensus estimates by -1%. While Koito witnessed revenue growth of 10% YoY, Stanley posted a decline in revenue for the quarter by -4% YoY. On profitability as well, Koito witnessed growth of +6% YoY, achieving an OPM of 12%. Stanley, on the other hand, experienced a decline in OP for the quarter by -7% YoY, although still managing to achieve a relatively higher OPM of 13%. Here again, Koito managed to beat consensus estimates by +1% while Stanley fell below consensus estimates by -3%. Our conservative estimates for 3Q looked a bit light for Koito while they were slightly high for Stanley.  Koito has been the company which usually disappoints the market with its earnings results, although it has proved otherwise this quarter.
That being said, it should be noted that, although Stanley’s three months ended results did not look particularly robust, its nine months ended results were quite favourable. The company witnessed the revenue grow 0.5% YoY (for the nine months ended 30th Dec 2018) while OP grew by 5.9% YoY, supported by the steady growth in the high-margin LED headlamps. For Koito, on the other hand, the three months ended results seemed quite favourable, although the nine months ended results displayed a revenue decline of -5.1% YoY and OP decline of -2.4% YoY, citing the deconsolidation of its Chinese subsidiary and the decrease in the volume of automobile production in some of its business regions as the key reasons. Thus, the overall YTD financial performance of Stanley looks still attractive compared to that of Koito. Following the earnings release, Stanley opened -3.7% down on Thursday from Tuesday’s close, while Koito closed +4.8% up on Wednesday since Friday’s close.

Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target

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 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

Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target

Koito Manufacturing (7276 JP) released its 3QFY03/19 earnings that saw revenue outpace consensus estimates by +2%, while Stanley Electric (6923 JP)...

Aqila Ali

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