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 Capital Markets

Topsports International / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/topsports-international" target="_blank" data-smartkarma-citation="entities:28153:1" rel="noopener">Topsports International (6110 HK)</a> made a successful IPO debut last week. TIH was priced at HK$ 8.50 per share near the bottom end of the IPO price range (HK$ 8.30 – HK$ 10.10) raising $1.01bn. TIH’s share price rose 14% post-debut closing at HK$ 9.70 last week (at the time this note is published TIH’s share is trading at HK$ 9.35 down slightly from last week’s high but still 10% higher than the IPO price).TIH is the largest sports footwear and apparel retailer in China (with a market share of around 15.9% in 2018). TIH has more than a decade-long relationship with Nike and Adidas and is currently the largest retail partner for both the brands in China. Nike and Adidas account for around 87% of TIH’s revenue. TIH operates 8,000+ retail stores in China and almost all of them are mono-brand stores. Retail sales account for around 90% of TIH’s revenue and the rest comes from wholesaling to downstream retailers.In our IPO preview, <a href="https://www.smartkarma.com/insights/topsports-ipo-part-i-medium-term-prospects-outweighs-risks" target="_blank" data-smartkarma-citation="insights:31939" rel="noopener">Topsports IPO (Part I): Medium-Term Prospects Outweighs Risks</a>, we were broadly positive about TIH’s medium-term prospects as we believed that the company should be able to leverage its position as the largest retail partner in China for its principal brands to hold on to a decent share of both Nike’s and Adidas’ declining wholesale revenues. We also suggested that TIH’s strategy to shift to larger store formats and to move into underpenetrated suburban areas in China seems to have played well and would strengthen the company’s topline in the medium term despite long-term risks from growing direct to consumer (DTC) sales, emerging local competition and overreliance on its principal brands.<div class="content-highlight">TIH’s successful IPO debut reaffirms our thoughts, however, we believe that the stock is still cheap compared to its strong growth profile and margins.</div>

Topsports International (6110 HK) made a successful IPO debut last week. TIH was priced at HK$ 8.50 per share near the bottom end of the IPO price range (HK$ 8.30 – HK$ 10.10) raising $1.01bn. TIH’s share price rose 14% post-debut closing at HK$ 9.70 last week (at the time this note is published TIH’s share is trading at HK$ 9.35 down slightly from last week’s high but still 10% higher than the IPO price).TIH is the largest sports footwear and apparel retailer in China (with a market share of around 15.9% in 2018). TIH has more than a decade-long relationship with Nike and Adidas and is currently the largest retail partner for both the brands in China. Nike and Adidas account for around 87% of TIH’s revenue. TIH operates 8,000+ retail stores in China and almost all of them are mono-brand stores. Retail sales account for around 90% of TIH’s revenue and the rest comes from wholesaling to downstream retailers.In our IPO preview, Topsports IPO (Part I): Medium-Term Prospects Outweighs Risks, we were broadly positive about TIH’s medium-term prospects as we believed that the company should be able to leverage its position as the largest retail partner in China for its principal brands to hold on to a decent share of both Nike’s and Adidas’ declining wholesale revenues. We also suggested that TIH’s strategy to shift to larger store formats and to move into underpenetrated suburban areas in China seems to have played well and would strengthen the company’s topline in the medium term despite long-term risks from growing direct to consumer (DTC) sales, emerging local competition and overreliance on its principal brands.TIH’s successful IPO debut reaffirms our thoughts, however, we believe that the stock is still cheap compared to its strong growth profile and margins.

Topsports International Holdings: Post-IPO Thoughts on Valuation

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/topsports-international" target="_blank" data-smartkarma-citation="entities:28153:1" rel="noopener">Topsports International (6110 HK)</a> will commence trading on Thursday, 10 October. Topsports priced its IPO at HK$8.50 per share (towards the low-end of the range). The allotment results showed that both the international and Hong Kong offer Shares were "moderately over-subscribed."<div class="content-highlight">In <a href="https://www.smartkarma.com/insights/topsports-international-ipo-valuation-just-do-it" target="_blank" rel="noopener">our valuation note</a>, we said that we would be tempted to participate up to the mid-point of the offered price range of HK$8.30-10.10 per share. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is undemanding. </div>

Topsports International (6110 HK) will commence trading on Thursday, 10 October. Topsports priced its IPO at HK$8.50 per share (towards the low-end of the range). The allotment results showed that both the international and Hong Kong offer Shares were "moderately over-subscribed."In our valuation note, we said that we would be tempted to participate up to the mid-point of the offered price range of HK$8.30-10.10 per share. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is undemanding. 

Topsports International: Trading Debut, Valuation Scenario Analysis

<a href="https://www.smartkarma.com/entities/topsports-international" target="_blank" data-smartkarma-citation="entities:28153:1" rel="noopener">Topsports International (TOP HK)</a> is the sportswear division of Belle International. Topsports is the largest sportswear retailer in China as measured by retail sales value, with a 15.9% market share in 2018, according to Frost &amp; Sullivan. Topsports has launched its IPO at an indicative price band of HK$8.30-10.10 per share to raise up to $1.2 billion. <div class="content-highlight">Notwithstanding the weak 1QFY20 results (likely a one-off), we believe that Topsport’s fundamentals offer more positives than negatives. Overall, our valuation analysis suggests that we would be tempted to participate up to the mid-point of the offered price range.</div>

Topsports International (TOP HK) is the sportswear division of Belle International. Topsports is the largest sportswear retailer in China as measured by retail sales value, with a 15.9% market share in 2018, according to Frost &amp; Sullivan. Topsports has launched its IPO at an indicative price band of HK$8.30-10.10 per share to raise up to $1.2 billion. Notwithstanding the weak 1QFY20 results (likely a one-off), we believe that Topsport’s fundamentals offer more positives than negatives. Overall, our valuation analysis suggests that we would be tempted to participate up to the mid-point of the offered price range.

Topsports International IPO: Valuation - Just Do It

'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. 

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/254/original/2019-01-11_07-07-55.png?1547158094" class="editor-image img-responsive" data-smartkarma-image-id="75254"></figure>
<div style="text-align: center;" class="content-caption">Source: Japan Analytics</div>
ONWARD AND OUT - <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a>, formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last ten trading days after <a href="https://www.smartkarma.com/entities/14502" target="_blank" data-smartkarma-citation="entities:14502:1">Benefit One (2412 JP)</a>, <a href="https://www.smartkarma.com/entities/14750" target="_blank" data-smartkarma-citation="entities:14750:1">Rizap (2928 JP)</a>, <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a>, <a href="https://www.smartkarma.com/entities/7611" target="_blank" data-smartkarma-citation="entities:7611:1">Hoshizaki (6465 JP)</a>, and <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman Co Ltd (7564 JP)</a>. According to Nikkei XTECH, on 25th December apparel maker <a href="https://www.smartkarma.com/entities/11370" target="_blank" data-smartkarma-citation="entities:11370:1">Onward (8016 JP)</a> suspended selling of its products on ZOZOTOWN and will leave the platform altogether. Although Onward products are estimated to account for less than 3% of total transactions on the site, there are concerns that other apparel makers will follow suit as a result of the emerging direct competition on the site from ZOZO's private label. Since reaching our 4.0 'Overbought' threshold on 9th July 2018, ZOZO shares have corrected by 57% - the worst performance of any large cap from that date - as concerns mounted over the private brand strategy and the behaviour of CEO Yusaku Maezawa.  Since bottoming on 4th January, the shares have risen by 18% following positive comments from the CEO about sales over the New Year holiday period.    
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/074/908/original/2019-01-08_11-30-36.png?1546914652" class="editor-image img-responsive" data-smartkarma-image-id="74908"></figure>
PRIVATE-LABEL STRETCH GOALS- The 'teething problems' of ZOZO entering the private-label apparel business have been well-documented by <a href="https://www.smartkarma.com/profiles/2415" target="_blank" data-smartkarma-citation="accounts:2415">Michael Causton</a> in a recent <a href="https://www.smartkarma.com/insights/zozo-teething-problems-for-private-brand-and-signs-of-hubris" target="_blank" data-smartkarma-citation="insights:26266">Insight</a> on Smartkarma. Michael rightly questions the feasibility of the company scaling a ¥200b apparel business within the next three years while targeting an additional incremental ¥400b in e-commerce revenue, particularly as it has taken ZOZO twenty years to reach the first ¥100b in annual revenues. In the DETAIL section below, we shall examine ZOZO's current and possible future financial condition as it strives to become one of the top-ten global fashion retailers. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/075/261/original/2019-01-11_07-22-02.png?1547158945" class="editor-image img-responsive" data-smartkarma-image-id="75261"></figure>
'ZOSO' &amp; THE STAIRWAY TO HEAVEN - In addition to some notable purchases of modern art at record-breaking prices, CEO Maezawa also last year booked himself on Space X's first flight to the moon. With apologies, the lyrics of the peerless song from Led Zeppelin's untitled fourth album - known by fans as 'Zoso' after the symbol designed by Jimmy Page for the inner sleeve - come to mind:- 
There's a lad(y) who's sure All that glitters is gold And (s)he's buying a stairway to heaven When(s)he gets there (s)he knows If the stores are all closed With a word (s)he can get what (s)he came for.

ZOZO (3092 JP)

Source: Japan Analytics
ONWARD AND OUT - ZOZO (3092 JP), formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last ten trading days after Benefit One (2412 JP), Rizap (2928 JP), Takeda Pharmaceutical (4502 JP), Hoshizaki (6465 JP), and Workman Co Ltd (7564 JP). According to Nikkei XTECH, on 25th December apparel maker Onward (8016 JP) suspended selling of its products on ZOZOTOWN and will leave the platform altogether. Although Onward products are estimated to account for less than 3% of total transactions on the site, there are concerns that other apparel makers will follow suit as a result of the emerging direct competition on the site from ZOZO's private label. Since reaching our 4.0 'Overbought' threshold on 9th July 2018, ZOZO shares have corrected by 57% - the worst performance of any large cap from that date - as concerns mounted over the private brand strategy and the behaviour of CEO Yusaku Maezawa.  Since bottoming on 4th January, the shares have risen by 18% following positive comments from the CEO about sales over the New Year holiday period.    

PRIVATE-LABEL STRETCH GOALS- The 'teething problems' of ZOZO entering the private-label apparel business have been well-documented by Michael Causton in a recent Insight on Smartkarma. Michael rightly questions the feasibility of the company scaling a ¥200b apparel business within the next three years while targeting an additional incremental ¥400b in e-commerce revenue, particularly as it has taken ZOZO twenty years to reach the first ¥100b in annual revenues. In the DETAIL section below, we shall examine ZOZO's current and possible future financial condition as it strives to become one of the top-ten global fashion retailers. 

'ZOSO' &amp; THE STAIRWAY TO HEAVEN - In addition to some notable purchases of modern art at record-breaking prices, CEO Maezawa also last year booked himself on Space X's first flight to the moon. With apologies, the lyrics of the peerless song from Led Zeppelin's untitled fourth album - known by fans as 'Zoso' after the symbol designed by Jimmy Page for the inner sleeve - come to mind:- 
There's a lad(y) who's sure All that glitters is gold And (s)he's buying a stairway to heaven When(s)he gets there (s)he knows If the stores are all closed With a word (s)he can get what (s)he came for.

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Key Points:
<a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a> is a quiet success story, clothing Japan’s army of workers who need specialist work clothing and uniforms, but it also has a growing following among mainstream consumers too.
Workman is also one of the most consistent performers, with the highest operating margins among apparel-related retailers in each of the last 10 years. It is a franchise operation unlike many apparel competitors, but nevertheless, it has an unsurpassed record in maintaining those margins, while expanding sales and profits year in, year out.
Workman may be in for a more accelerated period of growth, however. Last month saw the launch of a new chain called <a href="https://www.workman.co.jp/workman-plus" target="_blank">Workman Plus</a>. This is an entirely new chain, and one that focuses on consumers buying leisurewear rather than workers buying work gear. The store mixes the best elements of its existing 800-store core chain with the wide range and price points of a sports chain like Decathlon. The first store had first day sales 3x higher than typical for the first day of a Workman store.
There are a number of major sports chains in Japan with which Workman's new chain competes in some areas, but there is no chain quite like Workman Plus. Given the rampant growth in the 'athleisure'  and outdoor-fashion markets, combined with Workman's existing reputation for cost performance, we expect the new chain to be a hit with consumers and shopping mall developers alike and a major new growth area for Workman.
<a href="https://www.smartkarma.com/profiles/2531" target="_blank" data-smartkarma-citation="accounts:2531">Campbell Gunn</a> points out <a href="https://www.smartkarma.com/insights/japan-moving-average-outliers-results-driven" target="_blank">here</a> that Workman is overbought and recommends profit taking at this point. As and when the stock/markets drop a bit, we believe Workman to be an excellent long-term growth story, and for the new chain to bring in significant new levels of operating profit.

Key Points:
Workman (7564 JP) is a quiet success story, clothing Japan’s army of workers who need specialist work clothing and uniforms, but it also has a growing following among mainstream consumers too.
Workman is also one of the most consistent performers, with the highest operating margins among apparel-related retailers in each of the last 10 years. It is a franchise operation unlike many apparel competitors, but nevertheless, it has an unsurpassed record in maintaining those margins, while expanding sales and profits year in, year out.
Workman may be in for a more accelerated period of growth, however. Last month saw the launch of a new chain called Workman Plus. This is an entirely new chain, and one that focuses on consumers buying leisurewear rather than workers buying work gear. The store mixes the best elements of its existing 800-store core chain with the wide range and price points of a sports chain like Decathlon. The first store had first day sales 3x higher than typical for the first day of a Workman store.
There are a number of major sports chains in Japan with which Workman's new chain competes in some areas, but there is no chain quite like Workman Plus. Given the rampant growth in the 'athleisure'  and outdoor-fashion markets, combined with Workman's existing reputation for cost performance, we expect the new chain to be a hit with consumers and shopping mall developers alike and a major new growth area for Workman.
Campbell Gunn points out here that Workman is overbought and recommends profit taking at this point. As and when the stock/markets drop a bit, we believe Workman to be an excellent long-term growth story, and for the new chain to bring in significant new levels of operating profit.

Workman Breaks Out of Trade Sales with New Sports/Active Chain Promising Major Growth

Japan

ABC-MART, INC. plans, develops, wholesales, and retails shoes.  The Company also plans and develops brand name shoes such as VANS and G.T. HAWKINS.  ABC-Mart imports and wholesales shoes, apparel, bags, and sundries as well.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

ABC Mart (2670 JP)

Topsports International Holdings: Post-IPO Thoughts on Valuation

Topsports International (6110 HK) made a successful IPO debut last week. TIH was priced at HK$ 8.50 per share near the bottom end of the IPO price...

Supun Walpola

Topsports International: Trading Debut, Valuation Scenario Analysis

Topsports International (6110 HK) will commence trading on Thursday, 10 October. Topsports priced its IPO at HK$8.50 per share (towards the low-end...

Arun George

Topsports International IPO: Valuation - Just Do It

Topsports International (TOP HK) is the sportswear division of Belle International. Topsports is the largest sportswear retailer in China as...

Arun George

ZOZO - Buying a Stairway to Heaven

ZOZO (3092 JP) ONWARD AND OUT - ZOZO (3092 JP), formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last...

Campbell Gunn

Workman Breaks Out of Trade Sales with New Sports/Active Chain Promising Major Growth

Key Points: Workman (7564 JP) is a quiet success story, clothing Japan’s army of workers who need specialist work clothing and uniforms, but it...

Michael Causton

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)