Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

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

<ul>
<li>Nihon M&amp;A reported 4QFY03/2023 results last week. Revenue increased 86.7% YoY to ¥11.4bn (vs consensus ¥10.0bn) while OP for the quarter more than quadrupled to ¥4.2bn (vs consensus ¥4.9bn).</li>
<li>Full-Year FY03/2023 revenue of ¥41.3bn and OP of ¥15.3bn were slightly below guidance of ¥42bn and ¥18bn respectively and the company has put aside its medium-term growth plan by 2years.</li>
<li>We continue to prefer Baycurrent over <a href="https://www.smartkarma.com/entities/nihon-m-a-center-inc" target="_blank" data-smartkarma-citation="entities:17616:1" rel="noopener">Nihon M&amp;A Center (2127 JP)</a> in the Japanese consulting/M&amp;A space as Baycurrent continues to make strong progress.</li>
</ul>


Nihon M&amp;A reported 4QFY03/2023 results last week. Revenue increased 86.7% YoY to ¥11.4bn (vs consensus ¥10.0bn) while OP for the quarter more than quadrupled to ¥4.2bn (vs consensus ¥4.9bn).
Full-Year FY03/2023 revenue of ¥41.3bn and OP of ¥15.3bn were slightly below guidance of ¥42bn and ¥18bn respectively and the company has put aside its medium-term growth plan by 2years.
We continue to prefer Baycurrent over Nihon M&amp;A Center (2127 JP) in the Japanese consulting/M&amp;A space as Baycurrent continues to make strong progress.


Nihon M&A: Puts Aside Mid-Term Growth Plan by Two Years

<ul>
<li>Baycurrent reported fourth quarter and full-year FY02/2023 results on Friday. 4Q revenues increased 32.1% YoY to ¥21.2bn (vs consensus ¥20.7bn) and OP increased 60.8% to ¥9.6bn (vs consensus ¥8.3bn).</li>
<li>Full-Year revenue and OP increased 32% and 39% YoY respectively to ¥76.1bn and ¥29.9bn, beating own guidance by 7% and 15% respectively.</li>
<li>The company’s FY02/2023E guidance is too conservative as there has been no signs of an earnings slowdown as DX consulting and high-value add projects would drive next phase of growth.</li>
</ul>


Baycurrent reported fourth quarter and full-year FY02/2023 results on Friday. 4Q revenues increased 32.1% YoY to ¥21.2bn (vs consensus ¥20.7bn) and OP increased 60.8% to ¥9.6bn (vs consensus ¥8.3bn).
Full-Year revenue and OP increased 32% and 39% YoY respectively to ¥76.1bn and ¥29.9bn, beating own guidance by 7% and 15% respectively.
The company’s FY02/2023E guidance is too conservative as there has been no signs of an earnings slowdown as DX consulting and high-value add projects would drive next phase of growth.


Baycurrent Consulting: Strong Earnings Beat with an Overly Conservative Guidance

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nihon-m-a-center-inc" target="_blank" data-smartkarma-citation="entities:17616:1" rel="noopener">Nihon M&amp;A Center (2127 JP)</a> reported 3QFY03/2022 results. Revenue declined 9.9% YoY to JPY9.8bn (vs consensus JPY13.6bn) while OP dropped 21.9% YoY to JPY3.2bn (vs consensus JPY6.1bn).</li>
<li>Though there had been an increase in the no. of transactions completed during the quarter, revenue declined due to price pressures.</li>
<li>Share price has declined 22.8% during today’s trade due to weaker-than-expected earnings and we think full-year FY03/2022E guidance is too hard to achieve.</li>
</ul>



Nihon M&amp;A Center (2127 JP) reported 3QFY03/2022 results. Revenue declined 9.9% YoY to JPY9.8bn (vs consensus JPY13.6bn) while OP dropped 21.9% YoY to JPY3.2bn (vs consensus JPY6.1bn).
Though there had been an increase in the no. of transactions completed during the quarter, revenue declined due to price pressures.
Share price has declined 22.8% during today’s trade due to weaker-than-expected earnings and we think full-year FY03/2022E guidance is too hard to achieve.


Nihon M&A: Weak Earnings and Guidance for Full-Year Seems Too Optimistic

<ul>
<li>Baycurrent’s share price has moved up 41.3% YTD with the company reporting strong earnings for 3QFY02/2023 which beat consensus estimates by a huge margin.</li>
<li>With pandemic conditions fading off, share price began to fall with top-line growth declining slightly. However, growth rates have bounced back, and margins have seen strong improvement reaching new highs.</li>
<li>Though share priced has rallied significantly over the last few months, we think there is further upside driven by value-added projects and expansion into new consulting areas.</li>
</ul>


Baycurrent’s share price has moved up 41.3% YTD with the company reporting strong earnings for 3QFY02/2023 which beat consensus estimates by a huge margin.
With pandemic conditions fading off, share price began to fall with top-line growth declining slightly. However, growth rates have bounced back, and margins have seen strong improvement reaching new highs.
Though share priced has rallied significantly over the last few months, we think there is further upside driven by value-added projects and expansion into new consulting areas.


Baycurrent Consulting: High Value-Added Projects and New Consulting Areas Drive New Phase of Growth

<ul>
<li>Shift offers outsourced software testing services and is the market leader in Japan. Software testing market is estimated at JPY5.5trn in Japan but only 1% of the market is outsourced.</li>
<li>The company has been rebranding itself from software testing provider to digital transformation (DX) and business services provider and this expansion has further potential to drive growth in the long-term.</li>
<li>Though Shift’s valuation multiples look expensive, we think there is further upside given the strong growth in top line alongside further improvement in margins.</li>
</ul>


Shift offers outsourced software testing services and is the market leader in Japan. Software testing market is estimated at JPY5.5trn in Japan but only 1% of the market is outsourced.
The company has been rebranding itself from software testing provider to digital transformation (DX) and business services provider and this expansion has further potential to drive growth in the long-term.
Though Shift’s valuation multiples look expensive, we think there is further upside given the strong growth in top line alongside further improvement in margins.


2023 High Conviction: Shift’s Growth Strategy Starting to Deliver Results

Japan

Baycurrent Inc. offers comprehensive consulting services in a wide variety of industries. The Company provides business strategy consulting, information technology consulting, information technology integration, and other services. Baycurrent provides its services throughout Japan.

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Baycurrent (6532 JP)

Nihon M&A: Puts Aside Mid-Term Growth Plan by Two Years

Nihon M&A's FY03/2023 earnings were below its own guidance and the company has put aside its mid-term growth plan by 2 years. We prefer Baycurrent...

Shifara Samsudeen, FCMA, CGMA

Baycurrent Consulting: Strong Earnings Beat with an Overly Conservative Guidance

Baycurrent's 4Q earnings beat estimate and FY02/2024E guidance was too conservative. The company has managed to beat top line guidance every year...

Shifara Samsudeen, FCMA, CGMA

Nihon M&A: Weak Earnings and Guidance for Full-Year Seems Too Optimistic

3Q earnings below consensus which has led to more than 20% fall in share price. Though the company hasn't changed previous guidance, 4Q is the...

Shifara Samsudeen, FCMA, CGMA

Baycurrent Consulting: High Value-Added Projects and New Consulting Areas Drive New Phase of Growth

Baycurrent’s share price has moved up 41.3% YTD. Though share price is close to all-time high, we think there is further upside driven by value...

Shifara Samsudeen, FCMA, CGMA

2023 High Conviction: Shift’s Growth Strategy Starting to Deliver Results

Being the market leader and having created a barrier in the enterprise software testing segment, Shift is well positioned to benefit from strong...

Shifara Samsudeen, FCMA, CGMA

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