'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. 

Thematic (Sector/Industry)

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/132/original/2019-03-25_18-58-11.png?1553507902" class="editor-image img-responsive" data-smartkarma-image-id="83132"></figure>Source: Japan Analytics
</div>There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">S</a><a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">oftbank Group (9984 JP)</a>) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/206/original/2019-03-25_17-46-58.png?1553565764" class="editor-image img-responsive" data-smartkarma-image-id="83206"></figure><div class="content-caption">Source: Japan Analytics</div>OVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'.


Source: Japan Analytics
There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33 Information &amp; Communication sub-Sector but is broader in that it encompasses all companies listed on all sections and exchanges but is also narrower in that we have excluded Telecommunications (including Softbank Group (9984 JP)) and Information Technology companies. We have adopted a 'quantamental' approach which covers the long-term and current trends for Japan's Internet Sector as a whole, as well as eight sub-Sectors or Peer Groups and the Sectors' leading companies by market capitalisation.  Our focus is exclusively on the locally-listed universe and is based on disclosed financial and market data. We do not provide any forecasts, other than the companies' own forecasts and we do not attempt to make any business model or strategic judgments. Our focus is purely on financial and market performance. We do not cover unlisted and defunct companies such as Livedoor and, therefore, there is implicit survivor bias in the data. The broad themes that are developed in DETAIL below are grouped into six topics as follows: - • SUMMARY •  • FUNDAMENTAL OVERVIEW •  • SCORING - RESULTS &amp; REVISIONS / RELATIVE PRICE •  • RESULTS TRENDS •  • VALUATION • • RECOMMENDATIONS •Source: Japan AnalyticsOVERVIEW - As will be covered in greater DETAIL below, Japan has failed to evolve a substantial Internet Sector and, in many business models, has been passed by global competitors including in the home market. Although Internet Sector revenues have grown steadily and now account for close to 1% of the total for all listed companies, operating margins have declined by half in the last seven years and are now only four percentage points higher than the market average. Accordingly, as measured by our Results &amp; Revision Score, the Sector is close to a twelve-year low. The market's response is an unchanged Sector weight in the market composite despite the addition of 111 new companies in the last six years, and a Relative Price Score that has moved in a narrow range over that period. The Sector averages disguise the weak business and market performance of a handful of Sector leaders as well as the overvaluation of the Sector's more successful business models, which is partly a result of a lack of alternatives. Despite the world's most significant Internet investor - Softbank Group (9984 JP)'s Vision Fund - being based in Japan, this fund and other global investors in Internet business have been right to give Japan a 'pass'. 

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

Equity Bottom-Up

<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 

Specialist in Japanese equities, Kheiron Group

Nathan Ramler, CFA

Specialist in Japanese equities

Kheiron Group

Tokyo-based with experience in global equity markets and M&A. Striving to add value and insight. 

Specialists in Japan

Japan's B2C e-commerce industry is growing sales volumes close to 10% YoY each year, but the level of online activity remains behind other developed markets. Globally, e-commerce volumes are growing around 20% per year. The Japanese government does not want Japan to be left behind and wishes to see more domestic e-commerce activity as well as strong growth in cross-border e-commerce. Domestic giants <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a> and <a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> are growing faster than the overall market. So is global powerhouse <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com (AMZN US)</a> in Japan. Together the three represent nearly half of the market today, up from 40% 4 years ago. Both <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a> and <a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> have seen profit margins squeezed in recent years, most notably by increasing competition, including from profit insensitive Amazon Japan. We believe e-commerce profit margins will remain under pressure and note managements' efforts to diversify.  The upcoming earnings season will provide a once-a-year window into Japan's e-commerce industry. <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com (AMZN US)</a> will announce its full year results on 31 January 2019, and the company's filings include annual sales figures for its Japan operations.

Japan's B2C e-commerce industry is growing sales volumes close to 10% YoY each year, but the level of online activity remains behind other developed markets. Globally, e-commerce volumes are growing around 20% per year. The Japanese government does not want Japan to be left behind and wishes to see more domestic e-commerce activity as well as strong growth in cross-border e-commerce. Domestic giants Rakuten (4755 JP) and Yahoo Japan (4689 JP) are growing faster than the overall market. So is global powerhouse Amazon.com (AMZN US) in Japan. Together the three represent nearly half of the market today, up from 40% 4 years ago. Both Rakuten (4755 JP) and Yahoo Japan (4689 JP) have seen profit margins squeezed in recent years, most notably by increasing competition, including from profit insensitive Amazon Japan. We believe e-commerce profit margins will remain under pressure and note managements' efforts to diversify.  The upcoming earnings season will provide a once-a-year window into Japan's e-commerce industry. Amazon.com (AMZN US) will announce its full year results on 31 January 2019, and the company's filings include annual sales figures for its Japan operations. 

Rakuten (4755 JP) & Yahoo Japan (4689 JP) Are Battling for Share in the Growing Japanese EC Market

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. 

JapanConsuming’s retail ranking for FY2017 has now been compiled, and the results show that the retail industry enjoyed another extremely good year in FY2017. 
There are now 79 companies with sales of ¥250 billion or more, including franchise operators and holding companies, and overall sales grew by 4.5%, way ahead of the 1.9% growth in retail sales overall, showing how much the bigger businesses are outperforming the rest of the sector, and how quickly they are eating up market share.
What follows is a comprehensive review of the major developments, focusing on the two key trends of e-commerce and greater group concentration, with an analysis of each of the major format sectors in the ranking.
It’s a long read but provides a complete and concise summary of both winners and losers, and the key trends in the retail sector at the moment.

JapanConsuming’s retail ranking for FY2017 has now been compiled, and the results show that the retail industry enjoyed another extremely good year in FY2017. 
There are now 79 companies with sales of ¥250 billion or more, including franchise operators and holding companies, and overall sales grew by 4.5%, way ahead of the 1.9% growth in retail sales overall, showing how much the bigger businesses are outperforming the rest of the sector, and how quickly they are eating up market share.
What follows is a comprehensive review of the major developments, focusing on the two key trends of e-commerce and greater group concentration, with an analysis of each of the major format sectors in the ranking.
It’s a long read but provides a complete and concise summary of both winners and losers, and the key trends in the retail sector at the moment.

Retail Ranking FY2017-18: Winners and Losers in Japanese Retailing

INTERNET, TELECOMS &amp; HEALTHCARE ▲ RETAIL, RESTAURANTS &amp; RAILWAYS▼- Domestic non-financial sectors continue to shine in Japan. However, in the last two weeks, there has been a marked shift away from lower-margin domestic sectors that are now seeing rising fixed and variable costs (Restaurants, Transportation, Media, Retail and Food) towards higher-margin sectors such as Telecommunications, Internet, Healthcare and Information Technology.  The weaker Yen has helped reduce the negative momentum in…

INTERNET, TELECOMS &amp; HEALTHCARE ▲ RETAIL, RESTAURANTS &amp; RAILWAYS▼- Domestic non-financial sectors continue to shine in Japan. However, in the last two weeks, there has been a marked shift away from lower-margin domestic sectors that are now seeing rising fixed and variable costs (Restaurants, Transportation, Media, Retail and Food) towards higher-margin sectors such as Telecommunications, Internet, Healthcare and Information Technology.  The weaker Yen has helped reduce the negative momentum in…

Japan: Sector Weight 3 Month Change - Bi-Polar With A Twist

Japan

ASKUL Corporation sells office equipment products to medium and small sized business offices via the Internet and facsimiles.  The Company provides next day delivery services throughout Japan.

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Askul Corp (2678 JP)

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33...

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

Retail Ranking FY2017-18: Winners and Losers in Japanese Retailing

JapanConsuming’s retail ranking for FY2017 has now been compiled, and the results show that the retail industry enjoyed another extremely good year...

Michael Causton

Japan: Sector Weight 3 Month Change - Bi-Polar With A Twist

INTERNET, TELECOMS & HEALTHCARE ▲ RETAIL, RESTAURANTS & RAILWAYS▼- Domestic non-financial sectors continue to shine in Japan. However, in...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

🇯🇵 Japan • Internet Sector Review - 'Japan Passing'

There are currently 241 listed Japanese companies that can be categorised as Internet businesses. Our classification overlaps with the TOPIX-33...

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

Rakuten (4755 JP) & Yahoo Japan (4689 JP) Are Battling for Share in the Growing Japanese EC Market

Japan's B2C e-commerce industry is growing sales volumes close to 10% YoY each year, but the level of online activity remains behind other...

Nathan Ramler, CFA

Retail Ranking FY2017-18: Winners and Losers in Japanese Retailing

JapanConsuming’s retail ranking for FY2017 has now been compiled, and the results show that the retail industry enjoyed another extremely good year...

Michael Causton

Japan: Sector Weight 3 Month Change - Bi-Polar With A Twist

INTERNET, TELECOMS & HEALTHCARE ▲ RETAIL, RESTAURANTS & RAILWAYS▼- Domestic non-financial sectors continue to shine in Japan. However, in...

Campbell Gunn