What will soon to be FY1 EPS numbers mean

With Year-end Earnings season nearing, we are about to see all the new Guidance and FY1 forecasts. As we have previously shown, Analysts do not really worry about FY2 until it becomes FY1. So we went out and calculated an EPS number based on the 10-year historical median PE. This gives a kind of baseline to compare with the new FY1 estimates. For example, Sankyo’s (6417) current FY2 EPS forecast ¥145, however the 10Y median PE based EPS is ¥309. As you can see in the chart below, the median PE based EPS is significantly higher than any EPS forecast since 2012. If Sankyo’s PE is to move back in line with historical numbers, either EPS has to go up a lot or Price has to give more. 

In the attached files, we have the historical charts with the TOPIX500 universe and then also a screen comparing the PE EPS with current FY2 forecasts with both positive and negative results. For example, TDK’s median PE based EPS is just ¥355 compared to the current FY2 EPS is at ¥1,331. TDK’s current FY2 PE is at 4.5x while its historical median PE is 17x. Maybe the new FY1 estimates will be lower than the current FY2, but there still looks to be good room for expansion.

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What Worked Asia - 08 Apr 2016 - Value worked in Malaysia / Size did not in Thailand and Taiwan

What Worked – China was all about a selloff in Size and a continued trend in downward momentum. Names down over the last 3 months continued to go down this week. ZTE Corp was down 15% and Intime Retail was down 10%. In Hong Kong it was all about names with positive EPS revisions, Shougang Fushan Resource was up 7% and Joy City Property was up 11%. In Singapore there was a move into PBR and Growth names and away from high ROE names. High ROE names that did poorly were Bumitama Agri down 6% and Sinarmas Land down 4%.

Low PBR names that did well were China Aviation Oil up 6% and Wing Tai Holdings up 5%. India saw a slight selloff in Beta names. BEML Limited was down 13% and Adani Ports & Special Economic Zone was down 10%. High Dividend Yield names were hurt in the Philippines this week. Philippine Long Distance Telephone was down 5% and Premium Leisure was down 2%. In South Korea there was a slight selloff in Value and Size this week. iMarket Korea was down 15% and TongYang Life Insurance was down 9%. In Malaysia PE did well this week. UOA Development was up 5% this week.

Who Moved – 80 names spiked on volume this week, which is pretty low for Asia –ex Japan. The volume spikes look to be well distributed across the region. On the positive side, Philippine Trust is up 350%, Celltrion Pharma was up 55% and Relaxo Footwears was up 29%. On the negative side, ZTE Corp was down 15%, PT Blue Bird was down 11% and Youngone Holdings was down 8%.

Summary

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What Worked Japan - 08 Apr 2016 - Value / Beta were hurt again and Retail names continue to do well

What Worked Despite TOPIX down just 1%, Value was destroyed. FY1 PE came in with a negative 35% IC. While PE really has not worked since the end of February it has only done this poorly once in the last 2 years. Nachi-Fujikoshi was down 12%, Daicel Corp was down 10% and Fuji Heavy Industries was down 9%. High Beta also names took a good hit this week. Along with the Value factors, Beta has not really done well since February and those were just sporadic bounces. Beta has not consistently done well since last October. This week NTN Corp was down 9%, Mazda was down 8% and Toyota Boshoku was down 9%.

Momentum continued to work, but this is negative momentum. Names down over the last year continued to go down. Mitsui Engineering & Shipbuilding was down 8% and IHI Corp was down 8%. Names with a high % of Retail Investors and OP growth names seem to be the only names that did well this week. Retail names have pretty much consistently worked since the end of last year. Cosmo Energy was up 11%, Sumitomo Dainippon Pharma was up 9% and Maruha Nichiro was up 13%.

Who Moved – Not a lot of names moved on volume this week. Only 13 names had volume more than 1 standard deviation above the mean this week.  On the positive side, Kewpie Corp was up 16%, Toyobo was up 13% and Azbil Corp was up 5%. On the other side, Nachi-Fujikoshi was down 12%, Toyota Boshoku was down 9% and Hokuhoku Financial was down 4%..

Summary

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What Worked Asia - 01 Apr 2016 - Only Size worked in China but Value was strong in the Philippines

What Worked – There was a slight move into Size in China, however other than Size really nothing else worked. Dalian Wanda Commercial was up 21% and Dalian Port was up 17%. In Hong Kong really nothing stood out this week. In South Korea there was a reverse with a selloff in Size and a slight move into Beta and names that were up over the last month.  Yungjin Phama was up 39% and Daewoong Pharma was up 23%.

Singapore saw a slight move away from high beta names and into Quality. Hong Leong Finance was up 4% and Haw Par Corp was up 3%. In Indonesia, Value was hurt across the board. Bank Pembangunan Daerah Jawa Barat was down 7% and Bank Danamon Indonesia was down 7%. On the other side, Value did well in the Philippines. High Div Yield names that did well were First Gen Corp was up 8% and D&L Industries was up 4%.

Who Moved – A good number of the volume spikes came in Taiwan and Indonesia. At the Sector level, Process Industries and Producer Manufacturing saw a good number of spikes. On the positive side, Yungjin Pharma was up 39%, Dalian Wanda Commercial was up 21% and Texhong Textile Group was up 17%. On the negative side, Wisdom Sports was down 33%, Boer Power was down 25% and Ruentex Development was down 15%.

Summary

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What Worked Japan - 01 Apr 2016 - Value really has not worked for the last month

What Worked With TOPIX down almost 5%, Value took another hit this week. Dividend Yield and PBR were hurt the most. High Dividend Yield names have not done this poorly in the last two years. Div Yield names that were hurt this week were Anritsu Corp down 13%, Okasan Securities down 11% and Dowa Holding down 11%. Low PBR names that took a hit this week were Rohm down 9%, Citizen down 9% and Yokohama Rubber down 9%. High ROE names continued to well. High ROE name have done well over the last month.

However with only 33 names up in TOPIX 500 doing well is a relative term. Konami Holdings was up 9%, CyberAgent was up 5% and SCREEN Holdings was up 5%. Names that were down over the last month continued to go down this week. Alps Electric was down 11%, Nippon Express was down 12% and Panasonic was down 10%. We also saw a selloff in names with a high Beta names this week.

Who Moved The good news is that while TOPIX was down 5%, it did not move down on volume. Only 12 names move on volume this week. Unfortunately, there wasn’t a positive side. However on the negative side, Ajinomoto was down 11%, Zensho Holdings was down 9% and Sony Financial was down 10%.

Summary

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What Worked Asia - 25 Mar 2016 - Value was hurt as Investors moved into Quality

What Worked – In China there was a good selloff in names that were up over the last month. Zoomlion Heavy Industries was down 8% and Sunac China was down 7%. PBR was also hurt in China. Sino-Ocean Land was down 13%. In Hong Kong, ROE did well this week. CSPC Pharmaceutical Group was up 14% and Virscend Education was up 14%. In Hong Kong, there was also a selloff in names up over the last month. China Minsheng Financial was down 15%. In Singapore there was a selloff in high Beta and names up over the last month. Yoma Strategic Holdings was down 6% and Ezion Holdings was down 6%.

In South Korea PE and ROE names did well. Hansol Chemical was up 15% and Korea Petro Chemical was up 7%. 1-month momentum names were also hurt in South Korea. Komipharm International was down 12%. In India, Beta did well at the expense of quality. Just Dial was up 16% and Welspun India was up 15%.

Who Moved – 234 names moved on volume this week. A good number of the names that moved on volume were in Malaysia, Taiwan and India. At the Sector level, Process Industries and Finance made up a good portion of the volume spikes. On the positive side, Crown International was up 34%, Prince Housing & Development was up 23% and Taiwan High Speed Rail was up 26%. On the negative side, Boer Power Holdings was down 24%, China Lesso Group was down 18% and China Traditional Chinese Medicine was down 18%.

Summary

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What Worked Japan - 25 Mar 2016 - Value was hurt and Size/Quality Benefited

What Worked While really nothing stood out last week, as for direction this week was only slightly better. There was a slight selloff in Value names and a move into Quality this week. Low FY1 PE names that did poorly were Kaken Pharma down 14%, Nippon Kayaku down 11% and DMG Mori down 10%. High ROE names that outperformed were COLORPL up 15%, Kakaku.com up 11% and Matsumotokiyoshi up 8%. Negative momentum looks to be one of the  strongest factor currently driving the market.

Names that went down over the last year continued to go down this week. Sharp was down 12% after being down 41% over the last year, Nippon Kayaku was down 11% and Sumco was down 9%. We also saw a move into Retail names and a slight move away from high Beta and large-cap names. High Retail names that did well were Kokuyo up 10%, OKI Electric Industries up 8% and Tsuruha up 8%. High Beta names that were hurt were Seiko Epson down 9% and Unipres Corp down 8%.

Who Moved Only 15 names moved on volume this week and the majority of the names were down. Only three of the fifteen names move up on volume this week. Morinaga Milk was up 10%, Sangetsu was up 4% and Sumitomo Forestry was flat on the positive side. On the other side, Kaken Pharma was down 14%, Nippon Kayaku was down 11% and NOF Corp was down 5% all on strong volume.

Summary

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When Analysts are confused Price Volatility increases

With Earnings Season just right around the corner we looked for names where there is a high standard deviation in Analyst Estimates. Basically which Companies have analysts estimates all over the place. We then looked back over the last 4 years to see how those “confused” names performed and what happened to volatility over the three months from March 24rd. Aside from last year when there was only a 6% difference in volatility in quintile 5 (highest standard deviation) vs. quintile 1 (lowest standard deviation), quintile 5 volatility was 30% higher than quintile 1 volatility in the previous 3 years.

As you would expected with higher volatility, comes bigger return but positive and negative. Quintile 5, outperformed Quintile 1, three out of the last four years. However in 2012 it was down 16% relative to only 7% for quintile 1. Below I have attached the returns and volatility for the different quintiles.

Quintile Summary

For this season we have highlight names that have a large dispersion of Estimates. We screened for names that 1- five or more Analyst cover the Company. 2- Mkt-Cap above ¥100bn and current FY1 EPS divided by Standard Deviation is greater than 30%. For the ones with the largest standard deviation, they look to have had recently significant declines in EPS forecast over the last couple of months. In the attached file we have also included the historical number for each Company.

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What Worked Asia - 18 Mar 2016 - Generally Value worked across the Region except for HK where pretty much nothing really stood out

What Worked – In China Value and Size were the strongest factors this week, while Quality names were hurt. Logan Property was up 15% and FIH Mobile was up 13%. In Hong Kong, pretty much nothing stood out and there was only a slight move into large-cap names. China Goldjoy was up 35% and Xinyi Glass was up 14%. Singapore was all about Beta and Momentum. High Beta names that were up were Yoma Strategic Holdings up 18% and Sinarmas Land 12%. India saw a clear move into Value and Beta and away from Quality. ICICI Bank was up 7% and NMDC Limited was up 5%.

South Korea also saw a move into Value and away from Quality. Daewoo International was up 13% and Samsung Card was up 10%. Dividend Yield and large cap dominated in Taiwan this week. Taiwan Paiho was up 8% and CTCI Corp was up 9%. In Thailand OP growth and EPS revision drove the market while large-cap names suffered. Thai Airways was up 16% and Vibhavadi Medical was up 9%. In Malaysia there was a clear move away from Quality and into Value names. Eco World Development was up 12% and Mah Sing Group was up 7%.

Who Moved – 198 names moved on volume this week. A good number of the volumes spikes came in Taiwan and Thailand. At the Sector Level, the Process Industries and Finance Sectors came in with a good number of volume spikes. On the positive side, Mason Financial Holdings was up 26% and Globe Telecom was up 24% and Sunny Optical was up 19%  this week. On the other side, G-Resources Group was down 23%, Pfizer India was down 15% and Kong Sun Holdings was down 11%.

Summary

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What Worked Japan - 18 Mar 2016 - Slight move into Quality and away from Value / Beta

What Worked While really nothing stood out last week, as for direction this week was only slightly better. There was a slight selloff in Value names and a move into Quality this week. Low FY1 PE names that did poorly were Kaken Pharma down 14%, Nippon Kayaku down 11% and DMG Mori down 10%. High ROE names that outperformed were COLORPL up 15%, Kakaku.com up 11% and Matsumotokiyoshi up 8%. Negative momentum looks to be one of the  strongest factor currently driving the market.

Names that went down over the last year continued to go down this week. Sharp was down 12% after being down 41% over the last year, Nippon Kayaku was down 11% and Sumco was down 9%. We also saw a move into Retail names and a slight move away from high Beta and large-cap names. High Retail names that did well were Kokuyo up 10%, OKI Electric Industries up 8% and Tsuruha up 8%. High Beta names that were hurt were Seiko Epson down 9% and Unipres Corp down 8%.

Who Moved Only 15 names moved on volume this week and the majority of the names were down. Only three of the fifteen names move up on volume this week. Morinaga Milk was up 10%, Sangetsu was up 4% and Sumitomo Forestry was flat on the positive side. On the other side, Kaken Pharma was down 14%, Nippon Kayaku was down 11% and NOF Corp was down 5% all on strong volume.

Summary

Factor Performance Japan

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