Equity Analyst, LightStream Research

Supun Walpola

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><a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a>’s (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that enterprise SaaS operations are a defensive business model during the pandemic. However, we believe the concerns we had about MF in our previous notes are still valid. Despite shifting to a more affordable (at the same time less profitable for MF) price plan, and spending heavily on subsidies, MF’s enterprise SaaS business has not seen a marked increase in new customers. We see positives for MF in its fintech operations, however, these businesses are still in their early stages of monetisation. We also believe MF’s chances of turning profitable is slim in the next few years as we expect the company to spend heavily on customer acquisition. We believe further upside for MF is limited in the short-run. Our SOTP valuation gives MF a FY1 target price of JPY 6,707, which is only a slight upside from the current market price (of JPY 6,580 as of 8th of July 2020).</p>

Money Forward (3994 JP)’s (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that enterprise SaaS operations are a defensive business model during the pandemic. However, we believe the concerns we had about MF in our previous notes are still valid. Despite shifting to a more affordable (at the same time less profitable for MF) price plan, and spending heavily on subsidies, MF’s enterprise SaaS business has not seen a marked increase in new customers. We see positives for MF in its fintech operations, however, these businesses are still in their early stages of monetisation. We also believe MF’s chances of turning profitable is slim in the next few years as we expect the company to spend heavily on customer acquisition. We believe further upside for MF is limited in the short-run. Our SOTP valuation gives MF a FY1 target price of JPY 6,707, which is only a slight upside from the current market price (of JPY 6,580 as of 8th of July 2020).

Money Forward: Upside Is Capped in the Short-Run

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Money Forward stock is currently offering an attractive entry point for both short-term traders and long-term investors. The stock’s price and RS exhibit bullish short-term reversals at 2.5-year base support -- buy. The size of the base implies a price target of ~9,300 JPY or +47% from current levels. Our long-term bullish thesis will remain intact as long as the stock does not decisively break below 5450 support... <em>see chart below</em>.</p>

Money Forward stock is currently offering an attractive entry point for both short-term traders and long-term investors. The stock’s price and RS exhibit bullish short-term reversals at 2.5-year base support -- buy. The size of the base implies a price target of ~9,300 JPY or +47% from current levels. Our long-term bullish thesis will remain intact as long as the stock does not decisively break below 5450 support... see chart below.

Company Spotlight: Buy Money Forward, Inc. (3994-JP)

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/030/original/2020-04-15_06-24-46.png?1586899501" class="editor-image img-responsive" data-smartkarma-image-id="128030"></figure><div class="content-caption">Source • Arbor Data Science</div><p><strong>PEAK ANXIETY</strong> - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on Google, is rising as is online criticism of the government's measured approach.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/036/original/File%202020-04-15%203%2004%2046.jpeg?1586899729" class="editor-image img-responsive" data-smartkarma-image-id="128036"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/037/original/File%202020-04-15%203%2006%2028.jpeg?1586899741" class="editor-image img-responsive" data-smartkarma-image-id="128037"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/039/original/File%202020-04-15%203%2005%2041.jpeg?1586899760" class="editor-image img-responsive" data-smartkarma-image-id="128039"></figure><div class="content-caption">Source • Apple</div><p><strong>MOBILITY TRENDS</strong> - Apple is now using direction requests in Apple Maps to <a href="https://www.apple.com/covid19/mobility" target="_blank" rel="noopener">chart</a> 'mobility trends' around the world. Transit mobility is Tokyo is 51% below the level of three months ago and is 42% lower across Japan. The data for other countries illustrates the more limited impact of Japan's containment measures and in our view is a reasonable measure of the relative effect on GDP and supports our bullish view on 'domestic' Japan.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/042/original/2020-04-15_06-39-49.png?1586900420" class="editor-image img-responsive" data-smartkarma-image-id="128042"></figure><div class="content-caption">Source • Our World in Data</div><p><strong>OUR WORLD IN DATA</strong> - We have long been a fan of our alma mater Oxford University's Global Change Data Lab. Their COVID-19 slide deck was released yesterday and is well worth your time. We have selected a few slides below that are relevant to Japan.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/043/original/File%202020-04-14%2018%2032%2003.jpeg?1586900548" class="editor-image img-responsive" data-smartkarma-image-id="128043"></figure><ul><li>Japan's fatalities are doubling every ten days - one of the lowest rates globally.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/044/original/File%202020-04-14%2018%2039%2010.jpeg?1586900641" class="editor-image img-responsive" data-smartkarma-image-id="128044"></figure><ul><li>Japan's Case Fatality Rate (CFR) of 1.8% is within the lower bound and does not suggest an under-reporting of cases.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/045/original/File%202020-04-14%2018%2040%2043.jpeg?1586900773" class="editor-image img-responsive" data-smartkarma-image-id="128045"></figure><ul><li>Japan's CFR has been steadily declining and is now below that od Taiwan and South Korea.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/046/original/File%202020-04-14%2018%2033%2050.jpeg?1586900867" class="editor-image img-responsive" data-smartkarma-image-id="128046"></figure><ul><li>Lastly, Japan's death per million population is the lowest in the developed world.</li></ul><p></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/052/original/2020-04-15_06-53-50.png?1586901264" class="editor-image img-responsive" data-smartkarma-image-id="128052"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE OTHER ZOOM</strong> - On a lighter note, ZOOM (6694 JP) is a Japanese niche audio recording equipment specialist. The recent 75% 'pop' in the share price may be a case of mistaken identity ;).</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/055/original/2020-04-15_07-06-30.png?1586902007" class="editor-image img-responsive" data-smartkarma-image-id="128055"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>IN OTHER NEWS</strong> - We have always found the case for <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP)</a> as limited at best and were surprised to see Ichigo Asset Management, and less so INCJ, inject new capital into the business which had a negative net worth of ¥108b in December. After an investigation which delayed the reporting of their third-quarter results, it now appears that the company has been engaging in improper accounting practices. An overvaluation of inventories has inflated consolidated operating income by ¥7.7 billion. The amounts are a small drop in the ocean of red ink displayed above. OF greater interest is who, if anyone, will 'take responsibility'. We do not consider the shares 'investment-grade'.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/022/original/2020-04-15_04-21-02.png?1586892129" class="editor-image img-responsive" data-smartkarma-image-id="128022"></figure><div style="text-align: center;" class="content-caption">Source • Japan Analytics</div><p><strong>MID AND SMALL</strong> - Lastly in this section, we would note that TOPIX Small is lagging TOPIX in this 'FOMO rally'. Smaller stocks are more domestically-orientated and for those without liquidity or sizing constraints trade at significantly more attractive valuations.</p><p>In the <strong>DETAIL </strong>below, we shall review the large-cap results, revisions and initial forecast announcements made yesterday. The positive/neutral/negative balance for all 96 results was 39:15:42; for the 39 revisions/forecasts, the split was 18:4:17. We are now 'winding down' for the results for February/May/August/November companies. There were no large-cap revisions yesterday and only six large-cap results. Of the 59 companies that reported full-year results yesterday, only 30 made initial forecasts for the current year and none of the five large-caps did so. As with the delay in annual reports discussed in our previous Insight, investors will have to learn to 'make do' with much less information this year.</p><p>By popular request, we shall keep providing this series of Insights to reflect the evolving response of Japan's corporates to the pandemic.  </p>

Source • Arbor Data SciencePEAK ANXIETY - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on Google, is rising as is online criticism of the government's measured approach.Source • AppleMOBILITY TRENDS - Apple is now using direction requests in Apple Maps to chart 'mobility trends' around the world. Transit mobility is Tokyo is 51% below the level of three months ago and is 42% lower across Japan. The data for other countries illustrates the more limited impact of Japan's containment measures and in our view is a reasonable measure of the relative effect on GDP and supports our bullish view on 'domestic' Japan.Source • Our World in DataOUR WORLD IN DATA - We have long been a fan of our alma mater Oxford University's Global Change Data Lab. Their COVID-19 slide deck was released yesterday and is well worth your time. We have selected a few slides below that are relevant to Japan.Japan's fatalities are doubling every ten days - one of the lowest rates globally.Japan's Case Fatality Rate (CFR) of 1.8% is within the lower bound and does not suggest an under-reporting of cases.Japan's CFR has been steadily declining and is now below that od Taiwan and South Korea.Lastly, Japan's death per million population is the lowest in the developed world.Source • Japan AnalyticsTHE OTHER ZOOM - On a lighter note, ZOOM (6694 JP) is a Japanese niche audio recording equipment specialist. The recent 75% 'pop' in the share price may be a case of mistaken identity ;).Source • Japan AnalyticsIN OTHER NEWS - We have always found the case for Japan Display (6740 JP) as limited at best and were surprised to see Ichigo Asset Management, and less so INCJ, inject new capital into the business which had a negative net worth of ¥108b in December. After an investigation which delayed the reporting of their third-quarter results, it now appears that the company has been engaging in improper accounting practices. An overvaluation of inventories has inflated consolidated operating income by ¥7.7 billion. The amounts are a small drop in the ocean of red ink displayed above. OF greater interest is who, if anyone, will 'take responsibility'. We do not consider the shares 'investment-grade'.Source • Japan AnalyticsMID AND SMALL - Lastly in this section, we would note that TOPIX Small is lagging TOPIX in this 'FOMO rally'. Smaller stocks are more domestically-orientated and for those without liquidity or sizing constraints trade at significantly more attractive valuations.In the DETAIL below, we shall review the large-cap results, revisions and initial forecast announcements made yesterday. The positive/neutral/negative balance for all 96 results was 39:15:42; for the 39 revisions/forecasts, the split was 18:4:17. We are now 'winding down' for the results for February/May/August/November companies. There were no large-cap revisions yesterday and only six large-cap results. Of the 59 companies that reported full-year results yesterday, only 30 made initial forecasts for the current year and none of the five large-caps did so. As with the delay in annual reports discussed in our previous Insight, investors will have to learn to 'make do' with much less information this year.By popular request, we shall keep providing this series of Insights to reflect the evolving response of Japan's corporates to the pandemic.  

🇯🇵 JAPAN • Revisions & Results 14th April - Peak Anxiety

<p><a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a> (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of our bull-thesis for MF was its new pricing plan for the MF Business (then known as “MF Cloud” – a SaaS-type service platform for businesses). MF Business revenue increased by c.55% YoY in FY11/19 on the back of the new price plan. However, we have concerns over the sustainability of this growth, and we expect MF Business revenue to increase at a much lower 3-year CAGR of c.36% over the forecast period. We also believe that the chances of MF making positive EBITDA over the next 2-3 years is slim as the company continues to spend heavily on customer acquisition. We see positives for MF in its MF Home and MF X business segments; however, it is unlikely that these would materialise in a meaningful way in the next 2-3 years. </p>

Money Forward (3994 JP) (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of our bull-thesis for MF was its new pricing plan for the MF Business (then known as “MF Cloud” – a SaaS-type service platform for businesses). MF Business revenue increased by c.55% YoY in FY11/19 on the back of the new price plan. However, we have concerns over the sustainability of this growth, and we expect MF Business revenue to increase at a much lower 3-year CAGR of c.36% over the forecast period. We also believe that the chances of MF making positive EBITDA over the next 2-3 years is slim as the company continues to spend heavily on customer acquisition. We see positives for MF in its MF Home and MF X business segments; however, it is unlikely that these would materialise in a meaningful way in the next 2-3 years. 

Money Forward: The New Price Plan Might Not Be As Successful As It Seems

Shifara Samsudeen, FCMA, CGMA

<p>Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are the company’s first post-IPO earnings. During the second quarter, Freee reported revenues of JPY1,580m, a 56.1% increase compared to the same quarter a year ago. The growth in revenue was mainly driven by an increase in the number of paid customers alongside growth in ARPU during the quarter.</p>

Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are the company’s first post-IPO earnings. During the second quarter, Freee reported revenues of JPY1,580m, a 56.1% increase compared to the same quarter a year ago. The growth in revenue was mainly driven by an increase in the number of paid customers alongside growth in ARPU during the quarter.

Freee’s First Post-IPO Results: Revenues and Paid Customers Increase

Japan

Money Forward, Inc. develops mobile application software. The Company produces automatic household account book softwares, household account book application softwares, and other products. Money Forward also provides personal financial management, cloud based accounting solutions, and other services.

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Money Forward (3994 JP)

Money Forward: Upside Is Capped in the Short-Run

Money Forward (3994 JP)’s (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that...

Supun Walpola

Company Spotlight: Buy Money Forward, Inc. (3994-JP)

Money Forward stock is currently offering an attractive entry point for both short-term traders and long-term investors. The stock’s price and RS...

Vermilion Research

🇯🇵 JAPAN • Revisions & Results 14th April - Peak Anxiety

PEAK ANXIETY - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on...

Campbell Gunn

Money Forward: The New Price Plan Might Not Be As Successful As It Seems

Money Forward (3994 JP) (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of...

Supun Walpola

Freee’s First Post-IPO Results: Revenues and Paid Customers Increase

Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are...

Shifara Samsudeen, FCMA, CGMA

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