'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

Former Japan Equity PM with over 30 of experience now providing database-driven analysis of the market, sectors, peer groups and stocks for LightStream Research.

Leveraging data and graphic analysis provided by Japan Analytics, and the related Japan Analytics iPad App, we provide insights on companies are often ignored by the sell-side as well as challenging conventional wisdom on the market overall.

'Quantamental' Japan Specialist

🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

🇯🇵 JAPAN • Who’s Swimming Naked? > Part 2: Altman Z-Score

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

Taiyo Nippon Sanso: Acquisition of Praxair's European Business Will Tax Balance Sheet

Taiyo Nippon Sanso - Next on Mitsubishi Chem's List? Possibly Not

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. 

Equity Bottom-Up

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<div class="content-caption">Source • Japan Analytics</div>
<p><strong><a href="https://www.smartkarma.com/entities/taiyo-nippon-sanso-corp" target="_blank" data-smartkarma-citation="entities:15756:1" rel="noopener">TAIYO NIPPON SANSO (4091 JP)</a> -</strong> TNS, itself a three-way merger between Nippon Sanso, Taiyo Sanso and Toyo Sanso, has been one of Japan's more globally acquisitive companies in recent years. The company has bought businesses from Linde (North America), Praxair (Europe) and Air Liquide (USA), Air Products (Thailand) while buying businesses outright or majority stakes in India, Australia, Singapore, Thailand. From  2014, TNS became a consolidated subsidiary of <a href="https://www.smartkarma.com/entities/mitsubishi-chemical-holdings" target="_blank" data-smartkarma-citation="entities:12781:1" rel="noopener">Mitsubishi Chemical (4188 JP),</a> a stake that represents 44% of Mitsubishi Chemical's current market value. </p>
<p><strong>HIGH-PRESSURE PERFORMER -</strong> TNS shares have been one of the best-performing stocks in the Chemicals Sector in Japan since 2012, rising by 554% and reaching a daily closing high of ¥2,665 on 15th November 2019. Although no longer Overbought and having moved in a  narrow range since July 2019, TNS shares are still trading at the elevated levels commensurate with a high-growth company.</p>
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<div class="content-caption">Source • Japan Analytics</div>
<p><strong>TRULY GLOBAL</strong> - The domestic gas business is now only 42% of revenues and 29% of Operating Income, with the business spread geographically between the US (25%/25%), Europe (20%.28%), and Asia-Pacific (13%/11.9). Gas margins are higher overseas (10%/15%/10%) than in Japan 7.5%, which has been one of the drivers of the expansion abroad. </p>
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<div class="content-caption">Source • Company</div>
<p><strong>MOSTLY GAS</strong> - Although TNS has four main business lines, the non-Industrial Gas businesses are related to the application of gas technologies and products in fields related to electronics, medical care and energy. The exception is the THERMOS stainless steel vacuum flasks and thermal cookers business which commands margins of over 30% but is only 3% of sales.</p>
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<div class="content-caption">Source • Company</div>
<p><strong>HOLDCO</strong> - In October this year, the company will transition to a holding company and change its name to Nippon Sanso Holdings as outlined above. The aim is to devolve more decision-making authority to the regions/business groups.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/458/original/2020-02-12_11-59-45.png?1581481488" class="editor-image img-responsive" data-smartkarma-image-id="117458"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<p><strong>DOWNWARD REVISION</strong> - On 5th February, TNS announced a downward revision of Revenue, Operating Income and Net Income of 4%, 7% and 6%, respectively, due to weak performance in the domestic Gas and Thermos divisions and one-off costs relating to Nippon Ekitan. These revisions are the first downward revisions by the company in six years and will likely be followed by a cautious outlook for FY2021 at the full-year results announcement in May.</p>
<p><strong>AVOID/SELL</strong> - Although now more diversified, TNS remains primarily exposed to developed manufacturing economies and has yet to prove it can earn a positive residual return on its newly acquired assets. The company has attracted a premium valuation but has, so far, yet to justify investors' confidence. Shielded by the majority ownership of Mitsubishi Chemicals, there is little pressure than can be exerted on management to focus on returns rather than scale for scale's sake. <strong>We consider a TTM EV/OP ratio of 21.4 times excessive for a -1.5% return and recommend avoiding or selling TNS ahead of the upcoming cyclical downturn.</strong></p>


Source • Japan Analytics
TAIYO NIPPON SANSO (4091 JP) - TNS, itself a three-way merger between Nippon Sanso, Taiyo Sanso and Toyo Sanso, has been one of Japan's more globally acquisitive companies in recent years. The company has bought businesses from Linde (North America), Praxair (Europe) and Air Liquide (USA), Air Products (Thailand) while buying businesses outright or majority stakes in India, Australia, Singapore, Thailand. From  2014, TNS became a consolidated subsidiary of Mitsubishi Chemical (4188 JP), a stake that represents 44% of Mitsubishi Chemical's current market value. 
HIGH-PRESSURE PERFORMER - TNS shares have been one of the best-performing stocks in the Chemicals Sector in Japan since 2012, rising by 554% and reaching a daily closing high of ¥2,665 on 15th November 2019. Although no longer Overbought and having moved in a  narrow range since July 2019, TNS shares are still trading at the elevated levels commensurate with a high-growth company.

Source • Japan Analytics
TRULY GLOBAL - The domestic gas business is now only 42% of revenues and 29% of Operating Income, with the business spread geographically between the US (25%/25%), Europe (20%.28%), and Asia-Pacific (13%/11.9). Gas margins are higher overseas (10%/15%/10%) than in Japan 7.5%, which has been one of the drivers of the expansion abroad. 

Source • Company
MOSTLY GAS - Although TNS has four main business lines, the non-Industrial Gas businesses are related to the application of gas technologies and products in fields related to electronics, medical care and energy. The exception is the THERMOS stainless steel vacuum flasks and thermal cookers business which commands margins of over 30% but is only 3% of sales.

Source • Company
HOLDCO - In October this year, the company will transition to a holding company and change its name to Nippon Sanso Holdings as outlined above. The aim is to devolve more decision-making authority to the regions/business groups.

Source • Japan Analytics
DOWNWARD REVISION - On 5th February, TNS announced a downward revision of Revenue, Operating Income and Net Income of 4%, 7% and 6%, respectively, due to weak performance in the domestic Gas and Thermos divisions and one-off costs relating to Nippon Ekitan. These revisions are the first downward revisions by the company in six years and will likely be followed by a cautious outlook for FY2021 at the full-year results announcement in May.
AVOID/SELL - Although now more diversified, TNS remains primarily exposed to developed manufacturing economies and has yet to prove it can earn a positive residual return on its newly acquired assets. The company has attracted a premium valuation but has, so far, yet to justify investors' confidence. Shielded by the majority ownership of Mitsubishi Chemicals, there is little pressure than can be exerted on management to focus on returns rather than scale for scale's sake. We consider a TTM EV/OP ratio of 21.4 times excessive for a -1.5% return and recommend avoiding or selling TNS ahead of the upcoming cyclical downturn.

4091🇯🇵 Taiyo Nippon Sanso - High-Pressure • High-Stakes