Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Equity Bottom-Up

<p>We fine tune our earnings estimates in anticipation of 1Q earnings and find that even with conservative assumptions FY earnings are likely to beat company guidance and consensus by 12% and 10% respectively. Our base case estimate is FY OP of JPY40bn, 25% above company guidance. Gross margins and certain aspects of SG&amp;A have displayed consistent trends over the company's history. Thus, variance in the OP trend has tended to be a result of fluctuations in revenue or transaction value growth rates and promotional expenses.</p><div class="content-caption"><strong>Our Fitted Gross Profit Model Performs Well</strong></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/030/596/original/Modeled%20Fit.png?1501211183" class="editor-image img-responsive" data-smartkarma-image-id="30596"></figure><div style="text-align: left;" class="content-caption">Source: Company Disclosures, Author Estimates</div>

We fine tune our earnings estimates in anticipation of 1Q earnings and find that even with conservative assumptions FY earnings are likely to beat company guidance and consensus by 12% and 10% respectively. Our base case estimate is FY OP of JPY40bn, 25% above company guidance. Gross margins and certain aspects of SG&amp;A have displayed consistent trends over the company's history. Thus, variance in the OP trend has tended to be a result of fluctuations in revenue or transaction value growth rates and promotional expenses.Our Fitted Gross Profit Model Performs WellSource: Company Disclosures, Author Estimates

Start Today: We Expect 50% YoY OP Growth This FY; Significant Deceleration Likely Over a Year Away

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

<p>United Arrows operates some 361 fashion outlets in Japan.  44% of sales are ladies, 30% men’s wear and 10% accessories. Average spend at “United Arrows” is Y20,000.</p><p>First half sales rose 2% to Y65.1bn but operating profit fell 53% to Y1.7bn. The full year operating profit forecast was revised down from Y11.3bn to Y9.1bn (-18%). This is now said to be conservative. First half numbers were worse than expected as existing store sales fell 0.1% vs. the forecast growth of 3.8%. If there was any good…</p>

United Arrows operates some 361 fashion outlets in Japan.  44% of sales are ladies, 30% men’s wear and 10% accessories. Average spend at “United Arrows” is Y20,000.First half sales rose 2% to Y65.1bn but operating profit fell 53% to Y1.7bn. The full year operating profit forecast was revised down from Y11.3bn to Y9.1bn (-18%). This is now said to be conservative. First half numbers were worse than expected as existing store sales fell 0.1% vs. the forecast growth of 3.8%. If there was any good…

Not Overly Expensive on 14x and They Yield 2.7%.

Japan

VT HOLDINGS CO., LTD. sells automobiles produced by Honda, replacement parts, and used cars.  The Company provides vehicle maintenance and repair services and arranges automobile financing and insurance.

GEO Holdings Corporation operates stores that rent and sell videos, CDs, DVDs, games, and books nationwide. The Company also buys and sells used books and CDs. GEO operates its own stores and also franchise stores.

Komehyo Co., Ltd. operates discount and recycle retail stores.  The Company sells jewelry, precious metal, watch, bag, Kimono, home appliances and musical instrument.

XEBIO Holdings CO., LTD. engages in operating retail stores in Japan. Its stores offer sports equipment, including ski and snowboard wear, baseball, soccer, and golf equipment; and apparel, such as men's and women's casuals, house ware, children's clothing, knick-knacks, and accessories, as well as tailoring services.

Joshin Denki Co., Ltd. operates a chain store specialized in household appliances and computers.  The Company also sells its products through catalog shopping and on-line shopping.  Joshin Denki operates its own stores and also franchise stores.

HONEYS. CO., LTD. plans, manufactures, and retails ladies' casual clothing and accessories.  The Company operates stores throughout Japan.

AOYAMA TRADING Co., Ltd. is a menswear chain store known as Yofuku-no-Aoyama. The Company sells suits, jacket, formal wears, casual wears, shirts, ties, and business shoes.  The Company also operates credit card business.

G-7 Holdings Inc. retails automobile parts and accessories. The Company provides maintenance services including vehicle inspection and oil change. G-7 Holdings also operates used car, motorcycle business, and outdoor sports stores.

World Co., Ltd. designs, manufactures, and distributes apparels. The Company produces women's garments, men's garments, children's garments, and other products. World also operates investment businesses.

NISSAN TOKYO SALES HOLDINGS CO., LTD sells new and pre-owned passenger cars and commercialvehicles produced by Nissan Motor mainly in central Tokyo area. The Company also sells car parts and provides maintenance service. NISSAN TOKYO SALES HOLDINGS also operates office building rental, car leasing service, and insurance service.  The Company's subsidiaries sell Jaguar and Renault cars.

PC Jeweller Ltd. manufacture, retails, and wholesale jewelry.  The Company sells jewelry through its showrooms and over the Internet.  PC Jeweller offers a wide range of products including gold jewellery, diamond jewellery and other jewellery including silver articles, with a focus on diamond jewellery and jewellery for weddings.

Beijing Bashi Media Co., Ltd. provides urban bus transportation and advertising services.  The Company also provides taxi, inter-provincial transportation, car rental, and other transportation related services.

Haverty Furniture Companies, Inc. sells home furnishings.  The Company stores are located in southern and central United States.  Haverty's offers brand name furniture, such as Broyhill, Thomasville, Lane/Action, La-Z-Boy, and Clayton Marcus.

Wuxi Commercial Mansion Grand Orient Co., Ltd. operates a department store retail business. Its department stores sell a variety of products including home appliances, apparel, textiles, and leather products.  Wuxi Commercial also sells cars. The Company sells its general merchandise through its own website www.eastall.com and has operation in food serve.

Wuxi Commercial Mansion Grand Orient Co (600327 CH)

Cortina Holdings Limited retails and distributes luxury watches in the Asia Pacific region.  The Company also trades, imports, and exports pens, lighters, and clocks.

Shinsegae International Co., Ltd. was spun off from Shinsegae in 1996.  The company imports and distributes famous foreign brands and manufactures/distribut es domestic brand.  The Company's line of business includes the wholesale distribution of men's and women's apparel.

America's Car-Mart, Inc, sells and finances the sale of used automobiles and trucks.  The Company operates its dealerships primarily in small cities and rural locations throughout the South-Central United States and provides financing for substantially all of its customers.  Car-Mart's customers are principally consumers with limited or damaged credit histories.

Designer Brands Inc. designs, produces, and retails footwear and accessories. The Company offers shoes, boots, sandals, sneakers, socks, handbags, and accessories. Designer Brands serves customers in the United States.

Fujian Zhangzhou Development Co., Ltd., trades automobile, manages and operates toll roads, produces and distributes tap water, and provides waste management services.

China Meidong Auto Holdings Limited is an automobile dealership and maintenance group in China.

UNITED ARROWS LTD., operates fashion stores, specializing in casual clothing and accessory for men and women.  The Company has stores nationwide.  Main forces are United Arrows, Green Label Relaxing and Chrome Hearts.

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United Arrows (7606 JP)

Start Today: We Expect 50% YoY OP Growth This FY; Significant Deceleration Likely Over a Year Away

We fine tune our earnings estimates in anticipation of 1Q earnings and find that even with conservative assumptions FY earnings are likely to beat...

Mio Kato

Not Overly Expensive on 14x and They Yield 2.7%.

United Arrows operates some 361 fashion outlets in Japan. 44% of sales are ladies, 30% men’s wear and 10% accessories. Average spend at “United...

Pearl Hill Advisors

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