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

<a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent Inc (4751 JP)</a> reported 2Q FY09/19 financial results on Wednesday (24th April). CyberAgent reported revenue of ¥117.3bn (+7% YoY) and OP of ¥8.6bn (-25% YoY) for 2Q FY09/19. Both Revenue and OP were above consensus estimates of ¥113.6bn and ¥7.0bn respectively.
The slowdown in the Internet Advertisement business continues, as segment’s revenue was up by only 10.8% YoY in 2QFY09/19, compared to the average growth of around 20% YoY seen in the last two years. The Game business also remains sluggish, down 1% YoY, as the new hit game title, Dragalia Lost, failed to impress for the second consecutive quarter.
In the meantime, Media business revenue was up by 29% YoY, with growth seems to be coming mainly from the AbemaTV front; the number of AbemaTV premium subscribers was up 12% QoQ (an increase of around 43K in absolute terms).
We have revised our FY09/19E revenue expectation upwards for AbemaTV by around JPY4bn (which is around a 30% increase from our previous forecast of ¥12bn) to reflect robust growth in the number of subscribers and advertisement revenue. Our revenue and OP forecasts for the Internet Advertisement and Game businesses remain unchanged.
Our revised SOTP valuation for CyberAgent gives a FY1 target price of ¥4,750, which implies an upside of 10% from Wednesday’s close, with potential for further upside in the medium term.

Cyberagent Inc (4751 JP) reported 2Q FY09/19 financial results on Wednesday (24th April). CyberAgent reported revenue of ¥117.3bn (+7% YoY) and OP of ¥8.6bn (-25% YoY) for 2Q FY09/19. Both Revenue and OP were above consensus estimates of ¥113.6bn and ¥7.0bn respectively.
The slowdown in the Internet Advertisement business continues, as segment’s revenue was up by only 10.8% YoY in 2QFY09/19, compared to the average growth of around 20% YoY seen in the last two years. The Game business also remains sluggish, down 1% YoY, as the new hit game title, Dragalia Lost, failed to impress for the second consecutive quarter.
In the meantime, Media business revenue was up by 29% YoY, with growth seems to be coming mainly from the AbemaTV front; the number of AbemaTV premium subscribers was up 12% QoQ (an increase of around 43K in absolute terms).
We have revised our FY09/19E revenue expectation upwards for AbemaTV by around JPY4bn (which is around a 30% increase from our previous forecast of ¥12bn) to reflect robust growth in the number of subscribers and advertisement revenue. Our revenue and OP forecasts for the Internet Advertisement and Game businesses remain unchanged.
Our revised SOTP valuation for CyberAgent gives a FY1 target price of ¥4,750, which implies an upside of 10% from Wednesday’s close, with potential for further upside in the medium term.

CyberAgent (4751 JP) 2Q Earnings Update: AbemaTV Continues to Impress

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.

CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

<a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772:1">LINE Corp (3938 JP)</a> is one of the top Japanese names in our "Watchlist" of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 
Since being added to the "Watchlist" in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE's blockchain and cryptocurrency plans.
<div class="content-highlight">
In our opinion, potential synergies between LINE’s cryptocurrency business and its other business ventures are quite enticing. LINE could very well lure “millions” of its existing messaging and LINE Pay users to be a part of its blockchain eco-system. 
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LINE Corp (3938 JP) is one of the top Japanese names in our "Watchlist" of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 
Since being added to the "Watchlist" in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE's blockchain and cryptocurrency plans.

In our opinion, potential synergies between LINE’s cryptocurrency business and its other business ventures are quite enticing. LINE could very well lure “millions” of its existing messaging and LINE Pay users to be a part of its blockchain eco-system. 


This Week in Blockchain & Cryptos: Revisiting LINE's Crypto Plans

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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. 

Quantitative Analysis

- MARKET COMPOSITE -<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/374/original/2019-02-10_16-48-41.png?1549784942" class="editor-image img-responsive" data-smartkarma-image-id="78374"></figure>Source: Japan Analytics
</div>RECOVERY TOPPING OUT - Both the market and our 'percentage-above-moving-averages' ratio peaked on 5th February and, as covered in our earlier Insight, <a href="https://www.smartkarma.com/insights/japan-results-revisions-second-cut-bottom-line-breakdown" target="_blank" data-smartkarma-citation="insights:27862">Japan: Results &amp; Revisions Second Cut - Bottom Line Breakdown</a>,  both may now head lower and retest the Christmas lows.<hr>- SECTORS -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/383/original/2019-02-10_17-14-18.png?1549786476" class="editor-image img-responsive" data-smartkarma-image-id="78383"></figure><div style="text-align: left;" class="content-caption">
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>SECTOR BREAKDOWN - The top six sectors measured by their percentage above the weighted average of 5-240 Days remain domestic and defensive. REITs, Information Technology, Media, and Utilities continue from our previous review with Transportation and Telecommunications replacing Restaurants and Healthcare. Equally predictable is the bottom half-dozen - Banks, Autos, Metals and Chemicals remain from two weeks ago, with Non-Bank Finance and Other Materials replacing Construction and Building Materials. <hr>- COMPANIES -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/385/original/2019-02-10_17-31-03.png?1549787483" class="editor-image img-responsive" data-smartkarma-image-id="78385"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/386/original/2019-02-10_17-32-57.png?1549787590" class="editor-image img-responsive" data-smartkarma-image-id="78386"></figure><div class="content-caption">Source: Japan Analytics</div>COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. Nevertheless, the list of negative outliers outperformed the list of positive outliers by 3% over the last two weeks with <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> falling by 72% and despite <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> falling by a further 22%.In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. <a href="https://www.smartkarma.com/entities/4126" target="_blank" data-smartkarma-citation="entities:4126:1">Lasertec (6920 JP)</a>  is currently the most 'extreme' positive outlier, and <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> is the most 'extreme' negative outlier, having topped the 13th January positive outlier list.

- MARKET COMPOSITE -
Source: Japan Analytics
RECOVERY TOPPING OUT - Both the market and our 'percentage-above-moving-averages' ratio peaked on 5th February and, as covered in our earlier Insight, Japan: Results &amp; Revisions Second Cut - Bottom Line Breakdown,  both may now head lower and retest the Christmas lows.- SECTORS -
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.SECTOR BREAKDOWN - The top six sectors measured by their percentage above the weighted average of 5-240 Days remain domestic and defensive. REITs, Information Technology, Media, and Utilities continue from our previous review with Transportation and Telecommunications replacing Restaurants and Healthcare. Equally predictable is the bottom half-dozen - Banks, Autos, Metals and Chemicals remain from two weeks ago, with Non-Bank Finance and Other Materials replacing Construction and Building Materials. - COMPANIES -Source: Japan AnalyticsCOMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. Nevertheless, the list of negative outliers outperformed the list of positive outliers by 3% over the last two weeks with SanBio (4592 JP) falling by 72% and despite ZOZO (3092 JP) falling by a further 22%.In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note. Lasertec (6920 JP)  is currently the most 'extreme' positive outlier, and SanBio (4592 JP) is the most 'extreme' negative outlier, having topped the 13th January positive outlier list.

Japan: Moving Average Outliers - Lasertec, SanBio, Digital Arts, Modec & Leopalace21

<div class="content-caption">

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/315/original/2019-02-09_12-04-43.png?1549681495" class="editor-image img-responsive" data-smartkarma-image-id="78315"></figure>
Source: Japan Analytics
</div>
TUMBLING DICE - After <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> (-52%) and <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> (-50%), <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">CyberAgent (4751 JP)</a> is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace <a href="https://www.smartkarma.com/entities/19521" target="_blank" data-smartkarma-citation="entities:19521:1">Furukawa (5715 JP)</a> in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/317/original/2019-02-09_12-52-50.png?1549684397" class="editor-image img-responsive" data-smartkarma-image-id="78317"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the <a href="https://en.wikipedia.org/wiki/Skyscraper_Index" target="_blank">Skyscraper Index</a>. 
<div class="content-highlight">
This Insight will review: - 
<ul>
<li class="">CyberAgent's growth strategy</li>
<li class="">The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins </li>
<li class="">The three main business segments - Internet Advertising, Game Software, and Media</li>
<li class="">Cash Flow and Valuation</li>
</ul>
We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/318/original/2019-02-09_13-06-39.png?1549685220" class="editor-image img-responsive" data-smartkarma-image-id="78318"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 
<center><iframe src="https://www.youtube.com/embed/6U8JlcB_BzA" width="963" height="722" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></center>
<div class="content-caption">Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 </div>




Source: Japan Analytics

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace Furukawa (5715 JP) in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   

Source: CyberAgent Way 2018
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the Skyscraper Index. 

This Insight will review: - 

CyberAgent's growth strategy
The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins 
The three main business segments - Internet Advertising, Game Software, and Media
Cash Flow and Valuation

We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 


Source: CyberAgent Way 2018
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 

Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 

Japan

CyberAgent, Inc. operates blog media website, Ameba.  The Company also operates internet advertising agency, foreign exchange trading website, and creates PC and mobile contents such as advertisements and games. CyberAgent invests in companies with internet related business.

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CyberAgent Inc (4751 JP)

CyberAgent (4751 JP) 2Q Earnings Update: AbemaTV Continues to Impress

Cyberagent Inc (4751 JP) reported 2Q FY09/19 financial results on Wednesday (24th April). CyberAgent reported revenue of ¥117.3bn (+7% YoY) and OP...

Supun Walpola

CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters....

Supun Walpola

This Week in Blockchain & Cryptos: Revisiting LINE's Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our "Watchlist" of listed companies in Japan and South Korea that are adopting blockchain...

Supun Walpola

Japan: Moving Average Outliers - Lasertec, SanBio, Digital Arts, Modec & Leopalace21

- MARKET COMPOSITE -RECOVERY TOPPING OUT - Both the market and our 'percentage-above-moving-averages' ratio peaked on 5th February and, as covered...

Campbell Gunn

CyberAgent: Tumbling Dice

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in...

Campbell Gunn

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