'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

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

<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

On Friday, <a href="https://www.smartkarma.com/entities/15841" target="_blank" data-smartkarma-citation="entities:15841:1">Koito Manufacturing (7276 JP)</a> released its 1HFY03/19 earnings which did not look particularly robust with the company posting sales down 11.9% and OP down 6.4% YoY. On Monday, its peer <a href="https://www.smartkarma.com/entities/1330" target="_blank" data-smartkarma-citation="entities:1330:1">Stanley Electric (6923 JP)</a>, on the other hand, posted revenue up 2.9% and OP up 15% YoY. Stanley reported an OPM of 12.1%, while Koito managed to achieve an OPM of 11.8%. Consensus estimates for revenue were higher for Stanley while they were relatively low for Koito indicating that the market did not have high expectations for Koito because of a history of missing expectations. Following the earnings release, Stanley closed 4.1% down on Monday, while Koito closed down since Friday’s close.

On Friday, Koito Manufacturing (7276 JP) released its 1HFY03/19 earnings which did not look particularly robust with the company posting sales down 11.9% and OP down 6.4% YoY. On Monday, its peer Stanley Electric (6923 JP), on the other hand, posted revenue up 2.9% and OP up 15% YoY. Stanley reported an OPM of 12.1%, while Koito managed to achieve an OPM of 11.8%. Consensus estimates for revenue were higher for Stanley while they were relatively low for Koito indicating that the market did not have high expectations for Koito because of a history of missing expectations. Following the earnings release, Stanley closed 4.1% down on Monday, while Koito closed down since Friday’s close.

Koito Downgrades Its OP Guidance While Stanley’s Guidance Remains Unchanged

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

We visited <a href="https://www.smartkarma.com/entities/8280" target="_blank" data-smartkarma-citation="entities:8280:1">Japan Display (6740 JP)</a> recently to find that the ramp towards the all important third quarter is proceeding smoothly. Demand is close to locked in till then, so the key point will be the reception of the 6.1" LCD iPhone which could mean continuing strength thereafter - the company's guidance implies perhaps JPY250bn in 4Q revenue (down about 17% QoQ) but consensus is at JPY230bn. Caution on the part of analysts is understandable but we feel this presents an attractive opportunity for the following reasons:<ul>
<li>Consumer preference for smartphones appears to be shifting to affordability as the market matures and JDI's LCD panels address this trend highly effectively. The new lineup of iPhones are essentially a referendum on what consumers want and if the affordable LCD iPhone sells extremely well, we believe flexible OLED will really start to struggle.</li>
<li>Auto-related sales are growing and as European manufacturers emphasise design elegance, JDI's first-mover adoption of LTPS should allow it to provide designers with more flexibility and differentiate themselves with curved screens, as opposed to the somewhat clumsy and blocky designs that <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> adopts.</li>
<li>With the announcement of an array of new products featuring its transparent and reflective displays, JDI is signalling a more aggressive and flexible company culture. Neither in-helmet HUDs nor "active' mirrors are likely to be enormous sales drivers (at least at first) but the moves signal a willingness to try new things and a desire to expand the scope of use of the company's technology which we find encouraging.</li>
</ul>If the LCD iPhone is a success as we expect, given the moves JDI is currently making, we believe that smartphone LCD demand is likely to strengthen rather than weaken going forward at the expense of flexible OLED. In such a scenario, far from being hurt by the exit of its largest customer, in two to three years JDI could become notably capacity constrained as we believe demand from the auto sector is likely to hit an inflection point within that time period.

We visited Japan Display (6740 JP) recently to find that the ramp towards the all important third quarter is proceeding smoothly. Demand is close to locked in till then, so the key point will be the reception of the 6.1" LCD iPhone which could mean continuing strength thereafter - the company's guidance implies perhaps JPY250bn in 4Q revenue (down about 17% QoQ) but consensus is at JPY230bn. Caution on the part of analysts is understandable but we feel this presents an attractive opportunity for the following reasons:
Consumer preference for smartphones appears to be shifting to affordability as the market matures and JDI's LCD panels address this trend highly effectively. The new lineup of iPhones are essentially a referendum on what consumers want and if the affordable LCD iPhone sells extremely well, we believe flexible OLED will really start to struggle.
Auto-related sales are growing and as European manufacturers emphasise design elegance, JDI's first-mover adoption of LTPS should allow it to provide designers with more flexibility and differentiate themselves with curved screens, as opposed to the somewhat clumsy and blocky designs that Tesla Motors (TSLA US) adopts.
With the announcement of an array of new products featuring its transparent and reflective displays, JDI is signalling a more aggressive and flexible company culture. Neither in-helmet HUDs nor "active' mirrors are likely to be enormous sales drivers (at least at first) but the moves signal a willingness to try new things and a desire to expand the scope of use of the company's technology which we find encouraging.
If the LCD iPhone is a success as we expect, given the moves JDI is currently making, we believe that smartphone LCD demand is likely to strengthen rather than weaken going forward at the expense of flexible OLED. In such a scenario, far from being hurt by the exit of its largest customer, in two to three years JDI could become notably capacity constrained as we believe demand from the auto sector is likely to hit an inflection point within that time period.

JDI: 50%/100% QoQ Revenue Growth in 2Q/3Q to Power Stock Near Term but What Happens After?

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Thematic (Sector/Industry)

Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the Japan side, which I strongly feel you should check out if you already haven't read yet. But my headline insight of the week from Japan side is <a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a>'s another thought-provoking piece on his Japan Passive theme: <a href="https://www.smartkarma.com/insights/japan-passive-dovish-meeting-boj-to-buy-less-nikkei-225" target="_blank">JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225</a>. As for our Korean insights, we didn't have as many earnings insights as Japan…

Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the Japan side, which I strongly feel you should check out if you already haven't read yet. But my headline insight of the week from Japan side is Travis Lundy's another thought-provoking piece on his Japan Passive theme: JAPAN PASSIVE - Dovish Meeting; BOJ to Buy Less Nikkei 225. As for our Korean insights, we didn't have as many earnings insights as Japan…

Smartkarma's Week That Was in JP/KR: BOJ Again, JP/KR Earnings! & SK Telecom

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)

🇯🇵 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

Koito Downgrades Its OP Guidance While Stanley’s Guidance Remains Unchanged

On Friday, Koito Manufacturing (7276 JP) released its 1HFY03/19 earnings which did not look particularly robust with the company posting sales down...

Aqila Ali

JDI: 50%/100% QoQ Revenue Growth in 2Q/3Q to Power Stock Near Term but What Happens After?

We visited Japan Display (6740 JP) recently to find that the ramp towards the all important third quarter is proceeding smoothly. Demand is close...

Mio Kato

Smartkarma's Week That Was in JP/KR: BOJ Again, JP/KR Earnings! & SK Telecom

Last week was a week of earnings releases for Japan analysts in this Smartkarma community. I have picked up several earnings insights from the...

Sanghyun Park

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