Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

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>The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.</li>
<li>While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.</li>
<li>Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.</li>
<li>Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.</li>
</ul>


The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.
While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.
Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.
Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.


Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up

'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

- MARKET COMPOSITE -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/436/original/2019-03-10_11-07-01.png?1552183736" class="editor-image img-responsive" data-smartkarma-image-id="81436"></figure><div style="text-align: center;" class="content-caption">Source: Japan Analytics</div><div>
SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro data intervened and sent the market 3% lower over the last two trading days suggesting the bear market rally is now over. After peaking at 48%, the market-value-based percentage above the weighted sum of moving averages has now retreated to 33%. </div><hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/437/original/2019-03-10_11-38-43.png?1552185548" class="editor-image img-responsive" data-smartkarma-image-id="81437"></figure><div style="text-align: left;" class="content-caption">
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>SECTOR BREAKDOWN - The top six sectors remain domestic and defensive and are unchanged from two weeks ago with REITs, the clear leader. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Retail, Autos, and Metals remain from two weeks ago, with Machinery replacing Construction. Banks stay at the bottom, and the sector had its largest volume 'day' as measured by our Volume Score since September 21st, 2018 on Friday although many other sectors were 'active.' <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/440/original/2019-03-10_11-54-26.png?1552186476" class="editor-image img-responsive" data-smartkarma-image-id="81440"></figure><div class="content-caption">Source: Japan Analytics</div><hr>- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. <div class="content-highlight">
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, <a href="https://www.smartkarma.com/entities/26181" target="_blank" data-smartkarma-citation="entities:26181:1">Pksha Technology (3993 JP)</a> declined by 8% and 'tops' our most negative two-week change list, while the most negative outlier <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> rose by 3%. <a href="https://www.smartkarma.com/entities/8244" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a> which was also featured recovered by 9%.
<a href="https://www.smartkarma.com/entities/2709" target="_blank" data-smartkarma-citation="entities:2709:1">AnGes (4563 JP)</a> is currently the most extreme large cap positive outlier having peaked at '492' on 26th February up from a 'trough' of -132 in December. Biotechnology peer <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> is, for the third time this year, the most extreme negative outlier, having topped the 13th January and 24th February positive outlier lists and is another 'round-tripper'. 
</div><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/441/original/2019-03-10_12-13-00.png?1552187591" class="editor-image img-responsive" data-smartkarma-image-id="81441"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/442/original/2019-03-10_12-17-48.png?1552187878" class="editor-image img-responsive" data-smartkarma-image-id="81442"></figure>Source: Japan Analytics
</div>

- MARKET COMPOSITE -Source: Japan Analytics
SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro data intervened and sent the market 3% lower over the last two trading days suggesting the bear market rally is now over. After peaking at 48%, the market-value-based percentage above the weighted sum of moving averages has now retreated to 33%. - SECTORS - 
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.SECTOR BREAKDOWN - The top six sectors remain domestic and defensive and are unchanged from two weeks ago with REITs, the clear leader. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Retail, Autos, and Metals remain from two weeks ago, with Machinery replacing Construction. Banks stay at the bottom, and the sector had its largest volume 'day' as measured by our Volume Score since September 21st, 2018 on Friday although many other sectors were 'active.' Source: Japan Analytics- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
Our most extreme positive outlier two weeks ago, Pksha Technology (3993 JP) declined by 8% and 'tops' our most negative two-week change list, while the most negative outlier SanBio (4592 JP) rose by 3%. Leopalace21 (8848 JP) which was also featured recovered by 9%.
AnGes (4563 JP) is currently the most extreme large cap positive outlier having peaked at '492' on 26th February up from a 'trough' of -132 in December. Biotechnology peer SanBio (4592 JP) is, for the third time this year, the most extreme negative outlier, having topped the 13th January and 24th February positive outlier lists and is another 'round-tripper'. 

Source: Japan Analytics


🇯🇵 Japan: Moving Average Outliers - AnGes, SanBio, Adastria, AIN, Sumco & Benefit One

- PEER GROUP SCORE MATRIX -
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/840/original/2019-02-22_18-26-15.png?1550827634" class="editor-image img-responsive" data-smartkarma-image-id="79840"></figure>
<div class="content-caption">Source: Japan Analytics</div>
INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the cap-weighted Results &amp; Revision Scores for the 328 Peer Groups that comprise our 30 Sectors providing greater depth to our analysis of current business trends.  Peer Group definitions reflect both standard SIC/GICS classifications as well as local market conventions. The number of constituents and market capitalisation for each Peer Group varies widely. 
RRS/RPS SCORE MATRIX - Combining our Results &amp; Revision Scores (RRS) with each Peer Group's Relative Price Score (RPS) allows a classification of our Peer Group universe into four quadrants -
<ul>
<li>'Contrarian Buy'  &gt; Low RRS &amp; Low RPS </li>
<li>'Contrarian Sell' &gt; High RRS &amp; High RPS</li>
<li>
Peak Growth' &gt; High RRS &amp; Low RPS</li>
<li>'Ex-Growth/Turnaround' &gt; Low RRS &amp; High RPS</li>
</ul>
THE 'QUADRANTS' - In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the Peer Groups suggesting opportunities exist only for those willing or brave enough to take a contrarian view.  For 'Peak Growth' Peer Groups, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies. The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.    
<div class="content-highlight">
In the DETAIL section below, we list the top and bottom twenty Peer Groups ranked by Results &amp; Revision Score and the top and bottom twenty most-changed over the last three months as well the most optimistic and most pessimistic.  In our ranked tables we have listed only those Peer Groups with an aggregate capitalisation of over ¥50b. 
</div>

- PEER GROUP SCORE MATRIX -

Source: Japan Analytics
INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the cap-weighted Results &amp; Revision Scores for the 328 Peer Groups that comprise our 30 Sectors providing greater depth to our analysis of current business trends.  Peer Group definitions reflect both standard SIC/GICS classifications as well as local market conventions. The number of constituents and market capitalisation for each Peer Group varies widely. 
RRS/RPS SCORE MATRIX - Combining our Results &amp; Revision Scores (RRS) with each Peer Group's Relative Price Score (RPS) allows a classification of our Peer Group universe into four quadrants -

'Contrarian Buy'  &gt; Low RRS &amp; Low RPS 
'Contrarian Sell' &gt; High RRS &amp; High RPS

Peak Growth' &gt; High RRS &amp; Low RPS
'Ex-Growth/Turnaround' &gt; Low RRS &amp; High RPS

THE 'QUADRANTS' - In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the Peer Groups suggesting opportunities exist only for those willing or brave enough to take a contrarian view.  For 'Peak Growth' Peer Groups, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies. The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.    

In the DETAIL section below, we list the top and bottom twenty Peer Groups ranked by Results &amp; Revision Score and the top and bottom twenty most-changed over the last three months as well the most optimistic and most pessimistic.  In our ranked tables we have listed only those Peer Groups with an aggregate capitalisation of over ¥50b. 


🇯🇵 Japan: Winter Peer Group Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth

Sumco (3436 JP) reported its 4QFY12/18 and Full-year FY12/18 results yesterday (5th February). The company reported double-digit growth in revenue and operating profit for 4QFY12/18 driven by strong demand for semiconductor silicon wafers across all sizes alongside a favourable trend in wafer prices. Revenue grew 17.7% YoY in the 4th quarter, in spite of missing its own top-line estimate by 1.7% and falling a touch below consensus and our estimates. Operating profit increased 57.1% YoY to JPY20.9bn, yet again falling below guidance, consensus and our estimates. The strong growth in operating profit resulted in a 640-bps expansion in the operating profit margin to 25.3% compared to the 18.9% reported in 4QFY12/17.
<div class="content-remarks">
Sumco Reports Double-Digit Growth in Revenue and Operating Profit While Falling Below Targets
</div>
<table class="table table-striped">
<tbody>
<tr>
<td>
4QFY12/18 (JPYbn)
</td>
<td style="text-align: center;">
4QFY12/17
</td>
<td style="text-align: center;">
4QFY12/18
</td>
<td style="text-align: center;">
YoY
</td>
<td style="text-align: center;">
Actual Vs. Company
</td>
<td style="text-align: center;">
Actual Vs. Consensus
</td>
<td style="text-align: center;">
Actual Vs. LSR
</td>
</tr>
<tr>
<td>
Revenue
</td>
<td style="text-align: center;">
70.2
</td>
<td style="text-align: center;">
82.6
</td>
<td style="text-align: center;">
17.7%
</td>
<td style="text-align: center;">
-1.7%
</td>
<td style="text-align: center;">
-1.7%
</td>
<td style="text-align: center;">
-1.7%
</td>
</tr>
<tr>
<td>
Operating Profit
</td>
<td style="text-align: center;">
13.3
</td>
<td style="text-align: center;">
20.9
</td>
<td style="text-align: center;">
57.1%
</td>
<td style="text-align: center;">
-0.5%
</td>
<td style="text-align: center;">
-1.6%
</td>
<td style="text-align: center;">
-1.6%
</td>
</tr>
<tr>
<td>
Operating Profit Margin
</td>
<td style="text-align: center;">
18.9%
</td>
<td style="text-align: center;">
25.3%
</td>
<td style="text-align: center;">
 
</td>
<td style="text-align: center;">
 
</td>
<td style="text-align: center;">
 
</td>
<td style="text-align: center;">
 
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: Company Disclosures, Capital IQ, LSR Estimates</div>

Sumco (3436 JP) reported its 4QFY12/18 and Full-year FY12/18 results yesterday (5th February). The company reported double-digit growth in revenue and operating profit for 4QFY12/18 driven by strong demand for semiconductor silicon wafers across all sizes alongside a favourable trend in wafer prices. Revenue grew 17.7% YoY in the 4th quarter, in spite of missing its own top-line estimate by 1.7% and falling a touch below consensus and our estimates. Operating profit increased 57.1% YoY to JPY20.9bn, yet again falling below guidance, consensus and our estimates. The strong growth in operating profit resulted in a 640-bps expansion in the operating profit margin to 25.3% compared to the 18.9% reported in 4QFY12/17.

Sumco Reports Double-Digit Growth in Revenue and Operating Profit While Falling Below Targets





4QFY12/18 (JPYbn)


4QFY12/17


4QFY12/18


YoY


Actual Vs. Company


Actual Vs. Consensus


Actual Vs. LSR




Revenue


70.2


82.6


17.7%


-1.7%


-1.7%


-1.7%




Operating Profit


13.3


20.9


57.1%


-0.5%


-1.6%


-1.6%




Operating Profit Margin


18.9%


25.3%


 


 


 


 




Source: Company Disclosures, Capital IQ, LSR Estimates

Sumco Reports Solid Growth in Revenue and Operating Profit; Stock Is Still Trading at a Discount

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

Thematic (Sector/Industry)

We looked back and identified which factors drove the Japanese market in 2018. We found that Value, which is historically strong in Japan, did poorly and really the only investment styles/factors that did well were large-cap and names with a high percent of retail investors.

We looked back and identified which factors drove the Japanese market in 2018. We found that Value, which is historically strong in Japan, did poorly and really the only investment styles/factors that did well were large-cap and names with a high percent of retail investors.  

2018 Was Not the Year for Value or Beta Names in Japan....

Japan

SUMCO Corporation manufactures silicon wafers for the semiconductor industry. The Company produces silicon wafers used to produce solar batteries as well as ultra-high purity quartz used to produce vessels for silicon manufacturing process. SUMCO markets its products worldwide.

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SUMCO Corp (3436 JP)

Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up

The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers,...

Shifara Samsudeen, ACMA, CGMA

🇯🇵 Japan: Moving Average Outliers - AnGes, SanBio, Adastria, AIN, Sumco & Benefit One

- MARKET COMPOSITE - SOUTHBOUND - The upside we anticipated two weeks ago turned out to be only ¥6t before the harsh realities of some weak macro...

Campbell Gunn

🇯🇵 Japan: Winter Peer Group Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth

- PEER GROUP SCORE MATRIX - INTRODUCTION - Following on from our review of the Market Composite and Sectors, this Insight will cover the...

Campbell Gunn

Sumco Reports Solid Growth in Revenue and Operating Profit; Stock Is Still Trading at a Discount

Sumco (3436 JP) reported its 4QFY12/18 and Full-year FY12/18 results yesterday (5th February). The company reported double-digit growth in revenue...

Shifara Samsudeen, ACMA, CGMA

2018 Was Not the Year for Value or Beta Names in Japan....

We looked back and identified which factors drove the Japanese market in 2018. We found that Value, which is historically strong in Japan, did...

Custom Products Group

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