Japanese news, equities, and trends, Teddy Letter

Teddy Okuyama

Japanese news, equities, and trends

Teddy Letter

We aim to fill the information gap on the Japan market, especially on small cap companies with little or no analyst coverage. While brokerages and sponsored research provide useful information, there is still an information divide between domestic and foreign investors. We aim to fill that gap by providing access to insights that are lost in translation.

Equity Bottom-Up

This is installment #7 of my 200-day challenge to do write-ups on 200 Japanese small caps, at the end of which I plan to publish a book (tentative title: Japan Small Caps Handbook). I’m writing these unedited versions in a stream of consciousness style, and they will be refined before being finalized later on.

This is installment #7 of my 200-day challenge to do write-ups on 200 Japanese small caps, at the end of which I plan to publish a book (tentative title: Japan Small Caps Handbook). I’m writing these unedited versions in a stream of consciousness style, and they will be refined before being finalized later on.

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Although Japan is not out of the woods in terms of COVID-19 and the vaccine is not yet found, let alone distributed, investors have rushed to own <a href="https://www.smartkarma.com/entities/tkp-corp" target="_blank" data-smartkarma-citation="entities:28305:1" rel="noopener"> TKP Corporation (3479 JP)</a> as it was seemingly cheap in terms of PBR. The reality was that COVID-19 economic impact caused a weak earning and a secondary offering that boosted the book value has made the company's PBR looks cheap. TKP is the only one with negative earnings compared to its peers, underlining the economic reality that the company is more exposed to.
TKP's share price has risen more than doubled to some of its peers amidst the tough business outlook. Its peers such as <a href="https://www.smartkarma.com/entities/kenedix-inc" target="_blank" data-smartkarma-citation="entities:11321:1" rel="noopener">Kenedix Inc (4321 JP)</a> and <a href="https://www.smartkarma.com/entities/katitas-co-ltd" target="_blank" data-smartkarma-citation="entities:26073:1" rel="noopener">Katitas Co Ltd (8919 JP)</a> share price rose almost double but their business remains profitable during COVID-19 while TKP's earnings have turned negative. Turned Bearish on TKP on slow business condition improvement and the meteoric share price increase.

Although Japan is not out of the woods in terms of COVID-19 and the vaccine is not yet found, let alone distributed, investors have rushed to own  TKP Corporation (3479 JP) as it was seemingly cheap in terms of PBR. The reality was that COVID-19 economic impact caused a weak earning and a secondary offering that boosted the book value has made the company's PBR looks cheap. TKP is the only one with negative earnings compared to its peers, underlining the economic reality that the company is more exposed to.
TKP's share price has risen more than doubled to some of its peers amidst the tough business outlook. Its peers such as Kenedix Inc (4321 JP) and Katitas Co Ltd (8919 JP) share price rose almost double but their business remains profitable during COVID-19 while TKP's earnings have turned negative. Turned Bearish on TKP on slow business condition improvement and the meteoric share price increase. 

TKP (3479): Slow Recovery yet Share Price Has More than Doubled?

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/359/original/2020-07-16_06-39-04.png?1594849241" class="editor-image img-responsive" data-smartkarma-image-id="146359"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/360/original/2020-07-16_06-42-12.png?1594849361" class="editor-image img-responsive" data-smartkarma-image-id="146360"></figure><div class="content-caption">Source • Japan Analytics</div>
<a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a>- Money Forward's impressive revenue growth continued unabated in the second quarter. However necessary the ¥611 million (22% of sales) quarterly advertising budget is to sustain such revenue momentum, the lack of 'margin' improvement has shaved two points from our Results Score. The shares are close to a new Relative Price Score high and to being Overbought. We would trim into any announcement bounce above ¥8,000.
DAILY STATS
</div><hr><div>66 Quarterly Results</div><div><ul>
<li>
Results Score: 10 Positive / 9 Neutral / 47 Negative</li>
<li>
Average Results Score Change: -5.4</li>
<li>
Average % Change in Revenue: -14.7% Quarter YoY / +1.3% Rolling TTM YoY</li>
<li>
Average Operating Profit Margin Change: -3.2ppt</li>
<li>
Percentage Making Quarterly Losses: 42%</li>
</ul></div><hr><div> 24 Annual • 9 Interim Forecasts/Revisions</div><div><ul>
<li>
Annual Forecast/Revision Score: 7 Positive / 4 Neutral / 13 Negative</li>
<li>
Interim Forecast/Revision Score Change: 1 Positive / 0 Neutral / 8 Negative</li>
<li>
Average Forecast/Revision Score Change: -9.3</li>
</ul></div>


Source • Japan Analytics
Money Forward (3994 JP)- Money Forward's impressive revenue growth continued unabated in the second quarter. However necessary the ¥611 million (22% of sales) quarterly advertising budget is to sustain such revenue momentum, the lack of 'margin' improvement has shaved two points from our Results Score. The shares are close to a new Relative Price Score high and to being Overbought. We would trim into any announcement bounce above ¥8,000.
DAILY STATS
66 Quarterly Results

Results Score: 10 Positive / 9 Neutral / 47 Negative

Average Results Score Change: -5.4

Average % Change in Revenue: -14.7% Quarter YoY / +1.3% Rolling TTM YoY

Average Operating Profit Margin Change: -3.2ppt

Percentage Making Quarterly Losses: 42%
 24 Annual • 9 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 7 Positive / 4 Neutral / 13 Negative

Interim Forecast/Revision Score Change: 1 Positive / 0 Neutral / 8 Negative

Average Forecast/Revision Score Change: -9.3


🇯🇵 JAPAN • Results & Revisions 15th July - Money Forward, TKP, Nachi-Fujikoshi, Tokyo Steel

Since my last insight on <a href="https://www.smartkarma.com/insights/tkp-3479-a-working-wework" target="_blank" data-smartkarma-citation="insights:35447" rel="noopener">TKP (3479) - A Working Wework?</a> published on the 27th of December 2019, the company's share price has fallen by 78% with the last 24% took place yesterday. TKP's business has been badly hit by the spread of COVID-19 that made its market value halved. But the real juice came when <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> threatened to not inject more money into WeWork.
<div class="content-highlight">
It is already trading below book value and potentially there will be some buying from BOJ thus it is recommended to cover the short at the current level. 
For short term traders, there is a high chance that the share price could pop from here albeit only for a while as the business fundamental remains weak. 
</div>

Since my last insight on TKP (3479) - A Working Wework? published on the 27th of December 2019, the company's share price has fallen by 78% with the last 24% took place yesterday. TKP's business has been badly hit by the spread of COVID-19 that made its market value halved. But the real juice came when Softbank Group (9984 JP) threatened to not inject more money into WeWork.

It is already trading below book value and potentially there will be some buying from BOJ thus it is recommended to cover the short at the current level. 
For short term traders, there is a high chance that the share price could pop from here albeit only for a while as the business fundamental remains weak. 


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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/342/original/2020-03-11_11-02-32.png?1583892183" class="editor-image img-responsive" data-smartkarma-image-id="122342"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/122/590/original/2020-03-12_07-42-03.png?1583966536" class="editor-image img-responsive" data-smartkarma-image-id="122590"></figure><div class="content-caption">Source • Japan Analytics</div>CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-<ul>
<li>
Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.</li>
<li>
Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.</li>
<li>
Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. </li>
<li>
Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.</li>
<li>
Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.</li>
<li>Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. </li>
</ul>EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a> which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP).</a><a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.<div class="content-highlight">In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. </div>

Source • Japan AnalyticsCUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds,  we shall look at Cumulative Cash Flows. Our cash flow model is derived from the disclosed Balance Sheets and Statements of Comprehensive Income and balances to zero for every company for every comparable period. Variations in disclosure between the audited annual yuho and unaudited quarterly kessan tanshin reports, notably when the company is reporting under the weaker IFRS standard can result in unavoidable quarter-to-quarter variations. Consequently, our analysis will focus on year-on-year changes as of the most recent quarterly disclosure irrespective of fiscal year-end.  Our review will cover six principal cash flow metrics:-

Operating Cash Flow - Operating Cash Flow comprises all cash flow items relating to transactions with customers and suppliers except inventory cash flows.

Investing Cash Flow - Investing Cash Flow comprises cash flow to or from Fixed Assets and Inventories. Unlike GAAP Cash Flows Statements, It does not include investments in financial assets.

Inventory Cash Flow - A sub-set of Investing Cash Flow, inventory Cash Flow is the change in Inventory on the Balance Sheet. 

Free Cash Flow - Free Cash Flow the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow.

Financing Cash Flow - Financing Cash Flow comprises Debt &amp; Lease Liabilities, Investments and the taxation that is allocated to Financing Cash Flow. Debt &amp; Lease Liabilities includes changes in Short and Long-Term Debt and Lease Liabilities and Interest and Bond Issuance Expenses.' Investments' includes Interest &amp; Dividend Income, Purchases and Sales of Securities, Loans, Gains and Losses on Marketable Securities and Equity Earnings.
Change in Cash - Change in Cash is the sum of Free Cash Flow, Financing Cash Flow and Shareholder Cash Flow after including Minorities &amp; Adjustments. 
EXCLUDED - Four companies have been excluded from our review as they have substantial financial subsidiaries - Z Holdings (4689 JP), Rakuten (4755 JP), Sony (6758 JP), Japan Post (6178 JP) which distort their balance sheets. We have also excluded companies with a current market cap below ¥50b, although some exceptions have been made for abnormally large movements, such as those in Japan Display (6740 JP).Toshiba (6502 JP)-  As an example of our analysis, Toshiba has seen the largest reduction in Cash as a percentage of market value over the last twelve months of any large-cap Japanese company. Toshiba's cash balance has declined by ¥1.4 trillion since peaking in 2019-Q2 - 114% of the current market cap. 70% of the cash generated between 2018-Q4 and 2019-Q2 has been allocated to share repurchases, dividends and cash reduction. The company's net cash remains at a healthy 51% of market value and 43% of Shareholders' Equity; however, Cumulative Operating Cash Flow will fall below zero in the current quarter. There are few additional reductions in Fixed Assets and Inventories that can be sustained without irreparable damage. The logic of buying back shares in an entity that has negative residual returns is not clear to us. Despite the potential for a TOPIX re-inclusion 'bounce', fundamentally the stock should be avoided.In the DETAIL Section below, we shall look at the top (or bottom) thirty large-cap companies on each of the metric above scaled by market capitalisation. 

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

Japan

TKP Corporation provides convention and event management services. The Company offers hotel banquet arrangement, business conference management, restaurant operation, and other services. TKP also operates equipment rental, travel arrangement, and other businesses.

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TKP Corporation (3479 JP)

Day 7: TKP Corporation (3479)

This is installment #7 of my 200-day challenge to do write-ups on 200 Japanese small caps, at the end of which I plan to publish a book (tentative...

Teddy Okuyama

🇯🇵 JAPAN • Results & Revisions 15th July - Money Forward, TKP, Nachi-Fujikoshi, Tokyo Steel

Money Forward (3994 JP)- Money Forward's impressive revenue growth continued unabated in the second quarter. However necessary the ¥611 million...

Campbell Gunn

TKP (3479): After 78% Down - What to Do?

Since my last insight on TKP (3479) - A Working Wework? published on the 27th of December 2019, the company's share price has fallen by 78% with...

Henry Soediarko

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds, ...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Day 7: TKP Corporation (3479)

This is installment #7 of my 200-day challenge to do write-ups on 200 Japanese small caps, at the end of which I plan to publish a book (tentative...

Teddy Okuyama

TKP (3479): Slow Recovery yet Share Price Has More than Doubled?

TKP's share price has risen doubled compared to some of its peers amidst the tough business outlook. Turned Bearish on TKP on slow business...

Henry Soediarko

🇯🇵 JAPAN • Results & Revisions 15th July - Money Forward, TKP, Nachi-Fujikoshi, Tokyo Steel

Money Forward (3994 JP)- Money Forward's impressive revenue growth continued unabated in the second quarter. However necessary the ¥611 million...

Campbell Gunn

TKP (3479): After 78% Down - What to Do?

Since my last insight on TKP (3479) - A Working Wework? published on the 27th of December 2019, the company's share price has fallen by 78% with...

Henry Soediarko

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 3: Cumulative Cash Flow

CUMULATIVE CASH FLOWS - In this third and final of our series on Japanese companies that might be compromised as the Covid-19 recession unfolds, ...

Campbell Gunn