'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><p style="text-align: center;"><strong>• RESULTS &amp; REVISIONS SUMMARY - 2nd FEBRUARY •</strong></p></div><div><p>Of Tuesday's 86 results announcements, 70% scored positively for earnings momentum despite trailing revenues falling by 5.9% on average and a 0.3 percentage point decline in operating margins. Only 3% of companies were in the red for the quarter.  62% of the 50 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.9 points.</p></div><div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><p>Tuesday's best and worst large-cap pairing is the Toyota Group parts Peer Group led by <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso Corp (6902 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a>, and <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a> and <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO (3064 JP)</a>.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/401/original/2021-01-27_06-56-24.png?1612302725" class="editor-image img-responsive" data-smartkarma-image-id="186401"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/402/original/2021-02-03_06-52-38.png?1612302769" class="editor-image img-responsive" data-smartkarma-image-id="186402"></figure></section><div class="content-caption">     Source for all charts &amp; tables: Japan Analytics</div>

• RESULTS &amp; REVISIONS SUMMARY - 2nd FEBRUARY •Of Tuesday's 86 results announcements, 70% scored positively for earnings momentum despite trailing revenues falling by 5.9% on average and a 0.3 percentage point decline in operating margins. Only 3% of companies were in the red for the quarter.  62% of the 50 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.9 points.• BEST &amp; WORST •Tuesday's best and worst large-cap pairing is the Toyota Group parts Peer Group led by Denso Corp (6902 JP), Toyota Industries (6201 JP), and Aisin Seiki (7259 JP) and MonotaRO (3064 JP).     Source for all charts &amp; tables: Japan Analytics

🇯🇵 JAPAN • Results & Revisions ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​02/​​​​​​​​​​​​​​02 - Aisin, MonotaRO

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>This week in StubWorld ...</p>
<p><a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a> is up 37% in the past six months compared to ~4% for 8.5%-held <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> and ~13% for the TOPIX. As a result, the implied stub is at a decade high.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/733/original/image_39133792071606794763925.png?1606794767" class="editor-image img-responsive" data-smartkarma-image-id="175733"></figure>
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<div class="content-caption">Source: CapIQ. Lines for 6201 &amp; 7203 are base 100 from 10 years ago</div>
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<p>The stub expansion is likely driven by the demand for materials handling equipment, such as forklifts. Yet the implied stub ops have increased ¥482bn in value since late August. This is excessive. </p>
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<p>More below the fold.</p>
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<p>Preceding my comments on Toyota are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...
Toyota Industries (6201 JP) is up 37% in the past six months compared to ~4% for 8.5%-held Toyota Motor (7203 JP) and ~13% for the TOPIX. As a result, the implied stub is at a decade high.





Source: CapIQ. Lines for 6201 &amp; 7203 are base 100 from 10 years ago


The stub expansion is likely driven by the demand for materials handling equipment, such as forklifts. Yet the implied stub ops have increased ¥482bn in value since late August. This is excessive. 


More below the fold.

Preceding my comments on Toyota are the weekly setup/unwind tables for Asia-Pacific Holdcos.




These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.





StubWorld: Toyota Industries Unjustified Outperformance Vs. Toyota Motors

Travis Lundy

Quantitative Analysis

<p>Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled <a href="https://www.ft.com/content/a97cf336-518d-45dd-8092-ec0363c18725" target="_blank" rel="noopener"><em>Takeaways from 30 years of Covering the Japanese Market</em></a> in the Financial Times on 26 November (Thanksgiving) which is well worth a read.</p><p>He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. </p><section class="figure"><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/956/original/Screenshot%202020-11-29%20at%203.07.23%20PM.png?1606633655" class="editor-image img-responsive" data-smartkarma-image-id="174956"></figure></section><p>This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.</p></section><p>Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/969/original/Screenshot%202020-11-29%20at%203.40.57%20PM.png?1606635676" class="editor-image img-responsive" data-smartkarma-image-id="174969"></figure></section><p>It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.</p>
<p>There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. </p>
<p>Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. </p>
<p>Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.</p>
<p>Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.</p>
<p>This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.</p>
<p>The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.</p>
<p>Read on for the nitty gritty (as usual, we start with Conclusions First).</p></section>

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled Takeaways from 30 years of Covering the Japanese Market in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).

JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

<p><a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a> is up 24% in the past three months compared to ~5% for 8.5%-held <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> and ~6% for the TOPIX.</p>
<p>As a result, the implied stub is at levels only (briefly) surpassed in 2H17 and 1Q2018.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/164/055/original/image_67435027051602142877061.png?1602142878" class="editor-image img-responsive" data-smartkarma-image-id="164055"></figure>
<div class="content-caption">Source: CapIQ. Lines for 6201 &amp; 7203 are base 100 from 10 years ago</div>
<p>The stub expansion is likely driven by demand for materials handling equipment, such as forklifts, which have been on a progressive growth trail recently. TICO is a global leader in forklifts and shares of <a href="https://www.smartkarma.com/entities/kion-group-ag" target="_blank" data-smartkarma-citation="entities:21659:1" rel="noopener">KION Group AG (KGX GR)</a>, a key competitor, are up 36%/85% in the past three/six months.</p>
<p>Yet a closer inspection of earnings does not support TICO's recent outperformance - unless the market is assigning a significantly high valuation for the stub ops. I think the recent movement in TICO is unwarranted, and recommend an unwind trade.</p>
<p>As always, more below the fold. </p>

Toyota Industries (6201 JP) is up 24% in the past three months compared to ~5% for 8.5%-held Toyota Motor (7203 JP) and ~6% for the TOPIX.
As a result, the implied stub is at levels only (briefly) surpassed in 2H17 and 1Q2018.

Source: CapIQ. Lines for 6201 &amp; 7203 are base 100 from 10 years ago
The stub expansion is likely driven by demand for materials handling equipment, such as forklifts, which have been on a progressive growth trail recently. TICO is a global leader in forklifts and shares of KION Group AG (KGX GR), a key competitor, are up 36%/85% in the past three/six months.
Yet a closer inspection of earnings does not support TICO's recent outperformance - unless the market is assigning a significantly high valuation for the stub ops. I think the recent movement in TICO is unwarranted, and recommend an unwind trade.
As always, more below the fold. 

Toyota Industries (6201 JP): Trading Rich Vs Toyota Motors

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/033/original/2020-09-15_10-23-17.png?1600133037" class="editor-image img-responsive" data-smartkarma-image-id="159033"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><p><strong>THE BUFFETT TRADE</strong> - Much has already written on <a href="https://www.smartkarma.com/entities/berkshire-hathaway-inc-cl-b" target="_blank" data-smartkarma-citation="entities:8635:1" rel="noopener">Berkshire Hathaway</a>'s purchase of stakes in Japan's sogo shosha, including on this <a href="https://www.smartkarma.com/insights/a-quick-look-at-the-buffet-trade-and-the-most-obvious-follow-ons" target="_blank" data-smartkarma-citation="insights:43125" rel="noopener">platform</a>. The Japanese trading houses have a long and proud tradition and continue to attract the best talent from at home and abroad. In many respects, they have similarities with BH given their long-term approach to investing and focus on free cash flow generation. The differences are as striking, particularly the exposure to commodities and Asia, and the implications for both BH and Japan are profound.</p><p>In this<strong> DETAIL</strong> section, we examine: -</p><ul>
<li>the macro 'logic' driving these investments,</li>
<li>a more appropriate analytical and valuation methodology for these companies</li>
<li>the historically most-correlated peer groups and companies from both a technical and fundamental perspective if this trade were to be applied more broadly to the Japanese market. </li>
</ul><div class="content-highlight"><p><strong>We can summarise our approach to understanding the rationale behind the Buffett trade in the chart below. The sogo shosha are, in aggregate, significant generators of Residual Comprehensive Income, particularly relative to their current market valuations. Priced at a historically low 0.93x book, Japan's trading houses are one of the world's better deep value trades.</strong></p></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/053/original/2020-09-15_13-42-01.png?1600144936" class="editor-image img-responsive" data-smartkarma-image-id="159053"></figure>

Source for all charts &amp; tables: Japan AnalyticsTHE BUFFETT TRADE - Much has already written on Berkshire Hathaway's purchase of stakes in Japan's sogo shosha, including on this platform. The Japanese trading houses have a long and proud tradition and continue to attract the best talent from at home and abroad. In many respects, they have similarities with BH given their long-term approach to investing and focus on free cash flow generation. The differences are as striking, particularly the exposure to commodities and Asia, and the implications for both BH and Japan are profound.In this DETAIL section, we examine: -
the macro 'logic' driving these investments,
a more appropriate analytical and valuation methodology for these companies
the historically most-correlated peer groups and companies from both a technical and fundamental perspective if this trade were to be applied more broadly to the Japanese market. 
We can summarise our approach to understanding the rationale behind the Buffett trade in the chart below. The sogo shosha are, in aggregate, significant generators of Residual Comprehensive Income, particularly relative to their current market valuations. Priced at a historically low 0.93x book, Japan's trading houses are one of the world's better deep value trades.

🇯🇵 JAPAN • Analysing The "Buffett Trade", Valuing the Sogo Shosha & The Return of Asian Inflation

Japan

TOYOTA INDUSTRIES CORPORATION, a member of the Toyota Motor Group, assembles motor vehicles and manufactures automotive parts such as engines and air conditioner compressors.  The Company also produces industrial equipment and textile machinery as well as electronic devices such as computer modems and power inverters.

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Toyota Industries (6201 JP)

🇯🇵 JAPAN • Results & Revisions 02/02 - Aisin, MonotaRO

Of Tuesday's 86 results announcements, 70% scored positively for earnings momentum despite trailing revenues falling by 5.9% on average and a 0.3...

Campbell Gunn

StubWorld: Toyota Industries Unjustified Outperformance Vs. Toyota Motors

If you are in the Stub, unwind it here (sell 6201 buy back 7203). If you are not in the Stub/Holdco Trade, put it on in reverse. At least, it...

David Blennerhassett

JAPAN FLOW: Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

The Japanese market has unusual flow cyclicality. Foreigners take price. They have been net sellers. They buy when USD-denom TOPIX outperforms....

Travis Lundy