Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

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>This insight takes a look at the fundamentals of <a href="https://www.smartkarma.com/entities/nissan-shatai-co-ltd" target="_blank" data-smartkarma-citation="entities:9104:1" rel="noopener">Nissan Shatai (7222 JP)</a> (will also be referred to as Shatai) -the passenger vehicle and LCV manufacturer for <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a>.</p>
<p>Our key points are:</p>
<ul>
<li>The company’s revenue growth has been fairly stable over the past five years. However, given the economic conditions in its key markets (the U.S., China, and Japan), the company expects a decline in revenue for FY03/20. This is the case with most automakers.</li>
<li>We expect Shatai’s LCV segment to be its key growth driver over the long term. However, the company might need to invest appropriately to capitalise on the opportunities in the commercial vehicle (CV) industry.</li>
<li>Given the absence of close local players, we have compared Shatai with two Chinese peers- <a href="https://www.smartkarma.com/entities/jiangling-motors-corp-ltd" target="_blank" data-smartkarma-citation="entities:28250:1" rel="noopener">Jiangling Motors Corp Ltd (000550 CH)</a> and <a href="https://www.smartkarma.com/entities/beiqi-foton-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:4732:1" rel="noopener">Beiqi Foton Motor Co Ltd A (600166 CH)</a>.</li>
<li>During the recent quarters, Shatai has been underperforming these peers on revenue growth rates. However, historically, when market conditions have been good, Shatai has been able to generate growth rates close to these peers (sometimes better).</li>
<li>Profitability has declined on both gross and operating levels. However, Shatai’s OPM has been relatively less volatile when compared to its peers.</li>
<li>The company enjoys a strong cash position (with positive FCF over the past five years), with net cash at almost 77% of its market cap.</li>
<li>The company is trading below the historical median of its peers on EV/EBIT, but looks quite expensive on PE. That said, we think that EV/EBIT is a better metric to value Shatai as the PE multiple does not price in the company’s strong cash position.</li>
<li>We note Effissimo Capital’s (the second major shareholder) rising stake in the company, with ownership being held since 2007. Thus, Effissimo possibly thinks that Shatai is likely to report better results as it focuses on LCVs or is probably interested in buying out Shatai or being bought out of it by Nissan.</li>
<li>We also note that Shatai’s relationship with Nissan is similar to that which Toyota Auto Body Co. had with <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>.  Given that Toyota Auto Body was eventually bought by Toyota in 2011, we feel that a similar scenario might be possible with Shatai.</li>
</ul>
<div class="content-highlight">
<p>In short, Shatai seems to be a company with potential, and its cash-rich position would make it an attractive acquisition target via an LBO if Nissan were willing to sell. We will be following up on this, looking at the possible ways Shatai could be bought (or sold) and if Nissan or Effissimo will be interested in doing so.</p>
</div>

This insight takes a look at the fundamentals of Nissan Shatai (7222 JP) (will also be referred to as Shatai) -the passenger vehicle and LCV manufacturer for Nissan Motor (7201 JP).
Our key points are:

The company’s revenue growth has been fairly stable over the past five years. However, given the economic conditions in its key markets (the U.S., China, and Japan), the company expects a decline in revenue for FY03/20. This is the case with most automakers.
We expect Shatai’s LCV segment to be its key growth driver over the long term. However, the company might need to invest appropriately to capitalise on the opportunities in the commercial vehicle (CV) industry.
Given the absence of close local players, we have compared Shatai with two Chinese peers- Jiangling Motors Corp Ltd (000550 CH) and Beiqi Foton Motor Co Ltd A (600166 CH).
During the recent quarters, Shatai has been underperforming these peers on revenue growth rates. However, historically, when market conditions have been good, Shatai has been able to generate growth rates close to these peers (sometimes better).
Profitability has declined on both gross and operating levels. However, Shatai’s OPM has been relatively less volatile when compared to its peers.
The company enjoys a strong cash position (with positive FCF over the past five years), with net cash at almost 77% of its market cap.
The company is trading below the historical median of its peers on EV/EBIT, but looks quite expensive on PE. That said, we think that EV/EBIT is a better metric to value Shatai as the PE multiple does not price in the company’s strong cash position.
We note Effissimo Capital’s (the second major shareholder) rising stake in the company, with ownership being held since 2007. Thus, Effissimo possibly thinks that Shatai is likely to report better results as it focuses on LCVs or is probably interested in buying out Shatai or being bought out of it by Nissan.
We also note that Shatai’s relationship with Nissan is similar to that which Toyota Auto Body Co. had with Toyota Motor (7203 JP).  Given that Toyota Auto Body was eventually bought by Toyota in 2011, we feel that a similar scenario might be possible with Shatai.


In short, Shatai seems to be a company with potential, and its cash-rich position would make it an attractive acquisition target via an LBO if Nissan were willing to sell. We will be following up on this, looking at the possible ways Shatai could be bought (or sold) and if Nissan or Effissimo will be interested in doing so.


Nissan Shatai - Strong Cash Position and Cash Flows Seem to Have Attracted Effissimo