'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

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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. 

Thematic (Sector/Industry)

Japan Consumer discretionary / Thematic (Sector/Industry)

JAPAN RESULTS ROUNDUP - With results in for 2,285 companies or 60% of the total, this insight will review the current aggregate results and forecasts for the Market Composite (3,781 currently listed companies) as well as for 30 market sectors as defined in the Japan Analytics database. Another insight will update the data series after the release of the last results on 18th May.  In an upcoming insight to published next week, we shall dive deeper into results and forecasts aggregated by Peer Groups as well as by individual company, using a scoring methodology.SIXTH STRAIGHT POSITIVE QUARTER - Based on the results so far reported the current quarter appears set to be the sixth quarter in a row that Japanese corporate profits have improved. Since the low in the fourth calendar quarter of 2016, reported Operating Income has risen by 16% and Net Income has recovered by an impressive 48%. Forecast Operating Income and Net Income have improved by 22% and 39%, respectively over the same period. As a result, trailing and forecast PER ratios remain well below the two-year average.RATE OF CHANGE SLOWING - As is normal towards the end of a cycle, the rate of change is slowing. Quarter-on-quarter, Operating and Net Income have, so far, only increased by 1.4% and 1.9%, both of which are behind the rate of increase at similar stages in recent quarters. The Japan Analytics Results Score data series, which we shall cover in a separate insight, confirms this slowing of earnings momentum.CALLING THE TURN - The current earnings uptrend is the strongest since 2013 but is now past its peak regarding momentum. While the next two quarters may see further incremental improvement, the rate of change will likely continue to slow without a much weaker ¥/$ exchange rate. With reasonable current valuations and with the Bank of Japan ready and willing to support any significant market decline, the downside risk is limited. We do not think that this current cycle is abnormal and it will follow the path of those before and turn down in the current fiscal year. TTM RESULTS SUMMARY - Based on current TTM Results and ignoring valuation, the most attractive sectors are Utilities, Commerical Services, Other Consumer Products, Healthcare and Machinery and the least attractive sectors are Electrical Equipment, Internet, Technology Hardware, Restaurants, Media and Non-Bank Finance.FORECASTS SUMMARY - Based on current Forecasts and ignoring valuation, the most attractive sectors are Energy, Other Consumer Products, Information Technology, Machinery and Technology Hardware. The least attractive sectors are Media, Banks, Internet, Autos and RestaurantsFORECASTS V. TTM RESULTS - In aggregate, forecasts for the current fiscal year made so far are only very slightly ahead of the most recent TTM results. Operating Income is forecast to rise to ¥63 trillion or by 3.1%, and Operating Margins will increase by only 0.1% to 7.7%. Much of the improvement stems from the elimination of losses in two sectors where companies like <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba [6502 JP]</a> and <a href="https://www.smartkarma.com/entities/391" target="_blank" data-smartkarma-citation="entities:391:1">Sharp [6753 JP])</a> have been a drag on TTM Results. 14 of 29 sectors are forecasting margin declines relative to TTM, particularly those such as Construction, Media, Utilities, Internet and Commercial Services where labour costs are a large part of the cost mix.LIMITED ROOM FOR FURTHER MARGIN EXPANSION - While these numbers may improve after factoring in the results to be announced in the coming week, it appears that, in aggregate, Japanese listed companies are reaching the limits for margin expansion given the current business mix.<div class="content-highlight">SECTOR RECOMMENDATIONS -  Based on the current trends in TTM Results and Forecasts and taking valuation into account, attractive sectors include Information Technology. Other Consumer Products, Healthcare, Utilities and Machinery. Unattractive sectors include Auto, Internet, Media, Construction, Building Materials and Banks.</div>

JAPAN RESULTS ROUNDUP - With results in for 2,285 companies or 60% of the total, this insight will review the current aggregate results and forecasts for the Market Composite (3,781 currently listed companies) as well as for 30 market sectors as defined in the Japan Analytics database. Another insight will update the data series after the release of the last results on 18th May.  In an upcoming insight to published next week, we shall dive deeper into results and forecasts aggregated by Peer Groups as well as by individual company, using a scoring methodology.SIXTH STRAIGHT POSITIVE QUARTER - Based on the results so far reported the current quarter appears set to be the sixth quarter in a row that Japanese corporate profits have improved. Since the low in the fourth calendar quarter of 2016, reported Operating Income has risen by 16% and Net Income has recovered by an impressive 48%. Forecast Operating Income and Net Income have improved by 22% and 39%, respectively over the same period. As a result, trailing and forecast PER ratios remain well below the two-year average.RATE OF CHANGE SLOWING - As is normal towards the end of a cycle, the rate of change is slowing. Quarter-on-quarter, Operating and Net Income have, so far, only increased by 1.4% and 1.9%, both of which are behind the rate of increase at similar stages in recent quarters. The Japan Analytics Results Score data series, which we shall cover in a separate insight, confirms this slowing of earnings momentum.CALLING THE TURN - The current earnings uptrend is the strongest since 2013 but is now past its peak regarding momentum. While the next two quarters may see further incremental improvement, the rate of change will likely continue to slow without a much weaker ¥/$ exchange rate. With reasonable current valuations and with the Bank of Japan ready and willing to support any significant market decline, the downside risk is limited. We do not think that this current cycle is abnormal and it will follow the path of those before and turn down in the current fiscal year. TTM RESULTS SUMMARY - Based on current TTM Results and ignoring valuation, the most attractive sectors are Utilities, Commerical Services, Other Consumer Products, Healthcare and Machinery and the least attractive sectors are Electrical Equipment, Internet, Technology Hardware, Restaurants, Media and Non-Bank Finance.FORECASTS SUMMARY - Based on current Forecasts and ignoring valuation, the most attractive sectors are Energy, Other Consumer Products, Information Technology, Machinery and Technology Hardware. The least attractive sectors are Media, Banks, Internet, Autos and RestaurantsFORECASTS V. TTM RESULTS - In aggregate, forecasts for the current fiscal year made so far are only very slightly ahead of the most recent TTM results. Operating Income is forecast to rise to ¥63 trillion or by 3.1%, and Operating Margins will increase by only 0.1% to 7.7%. Much of the improvement stems from the elimination of losses in two sectors where companies like Toshiba [6502 JP] and Sharp [6753 JP]) have been a drag on TTM Results. 14 of 29 sectors are forecasting margin declines relative to TTM, particularly those such as Construction, Media, Utilities, Internet and Commercial Services where labour costs are a large part of the cost mix.LIMITED ROOM FOR FURTHER MARGIN EXPANSION - While these numbers may improve after factoring in the results to be announced in the coming week, it appears that, in aggregate, Japanese listed companies are reaching the limits for margin expansion given the current business mix.SECTOR RECOMMENDATIONS -  Based on the current trends in TTM Results and Forecasts and taking valuation into account, attractive sectors include Information Technology. Other Consumer Products, Healthcare, Utilities and Machinery. Unattractive sectors include Auto, Internet, Media, Construction, Building Materials and Banks.

Japan Results Roundup: Market Composite + Sector Aggregate Results & Forecasts - 6th Straight Up Q