Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.</p>

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.

Global Equity Strategy: Bullish Outlook Intact

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

<p>Disco's share price has nearly doubled from its COVID low of last March and has risen by more than 40% since September, reaching a new all-time high of ¥33,700 on November 30. This reflects very strong results in the three months to September (2Q of FY Mar-21).</p><p>But as Campbell Gunn pointed out in <a href="https://www.smartkarma.com/insights/japan-results-revisions-10-22-chugai-disco-benefit-one-pasona-oisix" target="_blank" data-smartkarma-citation="insights:44452" rel="noopener">🇯🇵 JAPAN • Results &amp; Revisions 10/​​​​​​​​​​​​​​​22 </a> , the shares are now <em>Overbought and at a new post-listing Relative Price Score high</em> ... <em>the upside will be constrained as the market-implied growth rate of four times GDP is unrealistic</em>... <em>We expect the current cycle to peak ... and the shares to mean-revert out of Overbought territory.</em></p><p>New orders and the order backlog peaked in 4Q of FY Mar-20, shipments peaked in 1Q of this fiscal year, and sales and profits peaked in 2Q. Management is guiding for substantially lower sales and profits in 3Q. Operating and net profit were up nearly 40% year-on-year in 2Q; management is guiding for low single-digit growth in 3Q. </p><p>So far, there is no guidance for FY Mar-21 as a whole, but extrapolating from 3Q guidance and industry trends points to a 12% increase in net profit, which would put the shares on a P/E of 38.5. Japanese SPE industry leader Tokyo Electron, by comparison, is selling at 27.5x management's EPS guidance for FY Mar-21.</p>

Disco's share price has nearly doubled from its COVID low of last March and has risen by more than 40% since September, reaching a new all-time high of ¥33,700 on November 30. This reflects very strong results in the three months to September (2Q of FY Mar-21).But as Campbell Gunn pointed out in 🇯🇵 JAPAN • Results &amp; Revisions 10/​​​​​​​​​​​​​​​22  , the shares are now Overbought and at a new post-listing Relative Price Score high ... the upside will be constrained as the market-implied growth rate of four times GDP is unrealistic... We expect the current cycle to peak ... and the shares to mean-revert out of Overbought territory.New orders and the order backlog peaked in 4Q of FY Mar-20, shipments peaked in 1Q of this fiscal year, and sales and profits peaked in 2Q. Management is guiding for substantially lower sales and profits in 3Q. Operating and net profit were up nearly 40% year-on-year in 2Q; management is guiding for low single-digit growth in 3Q. So far, there is no guidance for FY Mar-21 as a whole, but extrapolating from 3Q guidance and industry trends points to a 12% increase in net profit, which would put the shares on a P/E of 38.5. Japanese SPE industry leader Tokyo Electron, by comparison, is selling at 27.5x management's EPS guidance for FY Mar-21.

Disco (6146 JP): 2Q Growth Unsustainable, Shares Overbought

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> and <a href="https://www.smartkarma.com/entities/china-petroleum-chemical-h" target="_blank" data-smartkarma-citation="entities:369:1" rel="noopener">China Petroleum &amp; Chemical (386 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a>, <a href="https://www.smartkarma.com/entities/kingdee-international-sftwr" target="_blank" data-smartkarma-citation="entities:37:1" rel="noopener">Kingdee International Software (268 HK)</a> and <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>. Shorts increased in Financials, Communication Services, Health Care and Energy, and decreased on Information Technology names.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a>, <a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a>, <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a> and <a href="https://www.smartkarma.com/entities/capcom-co-ltd" target="_blank" data-smartkarma-citation="entities:1459:1" rel="noopener">Capcom Co Ltd (9697 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/kawasaki-heavy-industries" target="_blank" data-smartkarma-citation="entities:8790:1" rel="noopener">Kawasaki Heavy Industries (7012 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> and <a href="https://www.smartkarma.com/entities/cyberagent-inc" target="_blank" data-smartkarma-citation="entities:8197:1" rel="noopener">CyberAgent Inc (4751 JP)</a>. Sectorally, shorts increased on Information Technology names and decreased in the Consumer Discretionary, Materials, Health Care and Financials sectors.</p></div><div><p>In Korea, there was large short covering on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-sdi-co-ltd" target="_blank" data-smartkarma-citation="entities:503:1" rel="noopener">Samsung SDI (006400 KS)</a> and <a href="https://www.smartkarma.com/entities/samsung-electro-mechanics-co" target="_blank" data-smartkarma-citation="entities:539:1" rel="noopener">Samsung Electro Mechanics Co, Ltd. (009150 KS)</a>. </p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">Au Optronics (2409 TT)</a>, <a href="https://www.smartkarma.com/entities/delta-electronics-inc" target="_blank" data-smartkarma-citation="entities:12688:1" rel="noopener">Delta Electronics (2308 TT)</a>, <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a> and <a href="https://www.smartkarma.com/entities/nanya-technology-corp" target="_blank" data-smartkarma-citation="entities:3269:1" rel="noopener">Nanya Technology (2408 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/taiwan-cement" target="_blank" data-smartkarma-citation="entities:19736:1" rel="noopener">Taiwan Cement (1101 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a> and <a href="https://www.smartkarma.com/entities/macronix-international" target="_blank" data-smartkarma-citation="entities:3247:1" rel="noopener">Macronix International (2337 TT)</a>. </p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and China Petroleum &amp; Chemical (386 HK) while there was short covering on Meituan (3690 HK), Great Wall Motor (2333 HK), Kingdee International Software (268 HK) and Anta Sports Products (2020 HK). Shorts increased in Financials, Communication Services, Health Care and Energy, and decreased on Information Technology names.In Japan, stocks that saw the most shorts were Recruit Holdings (6098 JP), Tokyo Electron (8035 JP), Sharp Corp (6753 JP) and Capcom Co Ltd (9697 JP) while shorts decreased on Fast Retailing (9983 JP), Kawasaki Heavy Industries (7012 JP), Canon Inc (7751 JP) and CyberAgent Inc (4751 JP). Sectorally, shorts increased on Information Technology names and decreased in the Consumer Discretionary, Materials, Health Care and Financials sectors.In Korea, there was large short covering on Celltrion Inc (068270 KS), Samsung Electronics (005930 KS), Samsung SDI (006400 KS) and Samsung Electro Mechanics Co, Ltd. (009150 KS). Stocks in Taiwan that saw the highest increase in shorts were Au Optronics (2409 TT), Delta Electronics (2308 TT), Largan Precision (3008 TT) and Nanya Technology (2408 TT) while shorts were covered on TSMC (2330 TT), Taiwan Cement (1101 TT), Mediatek Inc (2454 TT) and Macronix International (2337 TT). 

Asia Short Interest: Sinopec, Kingdee, Anta, Recruit, Capcom, Sharp, Celltrion, Samsung, Delta, TSMC

<p>Tokyo Electron (8035 JP), Japan's top maker of semiconductor and flat panel display production equipment, is 8% off its all-time high, which was reached in July of this year. In our estimation, it is Overbought.</p><p>Screen Holdings, a major competitor in both markets, is 52% below its all-time high, which was reached in November 2017. It is midway between Overbought and Oversold.</p><div>
<p>Screen's sales and operating profit were up sequentially in the three months to September as business activity in China and elsewhere picked up after COVID-19 lockdowns.</p>
<p>We expect remote work and cell phone upgrades to drive demand for Screen's semiconductor, display and printed circuit board production equipment over the next 2-3 years. Gearing to sales and capacity utilization is high.</p>
</div><div><p>Our forecast brings the forward P/E down to 13x our EPS estimate for next fiscal year and 11x our estimate for FY Mar-23. This suggests 44% potential upside to ¥8,000.</p></div><p>Risks include American interference in China's semiconductor investment plans and economic recession triggered by the new wave of COVID-19 infections in America and Western Europe.</p>

Tokyo Electron (8035 JP), Japan's top maker of semiconductor and flat panel display production equipment, is 8% off its all-time high, which was reached in July of this year. In our estimation, it is Overbought.Screen Holdings, a major competitor in both markets, is 52% below its all-time high, which was reached in November 2017. It is midway between Overbought and Oversold.
Screen's sales and operating profit were up sequentially in the three months to September as business activity in China and elsewhere picked up after COVID-19 lockdowns.
We expect remote work and cell phone upgrades to drive demand for Screen's semiconductor, display and printed circuit board production equipment over the next 2-3 years. Gearing to sales and capacity utilization is high.
Our forecast brings the forward P/E down to 13x our EPS estimate for next fiscal year and 11x our estimate for FY Mar-23. This suggests 44% potential upside to ¥8,000.Risks include American interference in China's semiconductor investment plans and economic recession triggered by the new wave of COVID-19 infections in America and Western Europe.

Screen Holdings (7735 JP): A Highly-Geared Laggard to Tokyo Electron

<p style="text-align: justify;">In our October 1 <em>Int’l Compass </em>we highlighted our belief that the lows were in place for this recent correction and that, combined with mostly healthy market dynamics, a bullish outlook is appropriate if the MSCI ACWI (ACWI-US) is above $77 support and, if the MSCI EM (EEM-US) is above $42.30 support. These indexes and market dynamics have only improved since October 1. As a result, our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. Below we summarize the basis for our bullish outlook. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.</p>

In our October 1 Int’l Compass we highlighted our belief that the lows were in place for this recent correction and that, combined with mostly healthy market dynamics, a bullish outlook is appropriate if the MSCI ACWI (ACWI-US) is above $77 support and, if the MSCI EM (EEM-US) is above $42.30 support. These indexes and market dynamics have only improved since October 1. As a result, our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. Below we summarize the basis for our bullish outlook. Open the attached file to read our complete International Strategy document, and to find links to detailed comments and recommendations for each of our 12 Sectors.

Japan

Tokyo Electron Limited manufactures and sells industrial electronics products, such as semiconductor manufacturing machines, computer system, and electronic components.  The Company products are sold in US, Taiwan, and others as well as in Japan.

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Tokyo Electron (8035 JP)

Global Equity Strategy: Bullish Outlook Intact

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. In this report, we...

Vermilion Research

Disco (6146 JP): 2Q Growth Unsustainable, Shares Overbought

Disco's share price has appreciated by more than 40% since September despite declining orders and guidance for sharp declines in sales and profits...

Scott Foster

Asia Short Interest: Sinopec, Kingdee, Anta, Recruit, Capcom, Sharp, Celltrion, Samsung, Delta, TSMC

The Short Interest report looks at large weekly movements across HK, Japan, Korea and Taiwan. Ping An saw a huge increase in shorts while TSMC saw...

Brian Freitas

Screen Holdings (7735 JP): A Highly-Geared Laggard to Tokyo Electron

Tokyo Electron, is Overbought. Screen has lagged but should benefit from rising demand for semiconductor, display and PCB equipment. We see...

Scott Foster

Global Equity Strategy: Bullish Outlook Intact

Read our complete International Strategy document to find detailed comments and recommendations for each of our 12 Sectors.

Vermilion Research

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