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/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> reported 4Q and full-year FY03/19 financial results in late April, prior to the Golden Week. YJ reported revenue of JPY955bn (+6.4% YoY) and OP of JPY141bn (-24.5% YoY). Both revenue and OP were on par with the consensus and guidance. Media business showed only moderate growth (+5.2% YoY) as user engagement continued to slow down. However, with the steady increase in smartphone users (+9.7% YoY) coupled with the launch of video ads (targeting these smartphone users), Media business is likely to sustain its moderate growth in the medium-term. Commerce businesscontinued to grow at a healthy rate (+8.9% YoY) driven by the steady double-digit growth in the e-commerce transaction value for the fourth consecutive year. We expect YJ’s consolidated revenue to grow at a 3-year CAGR of 8.0% over FY03/19-22E, and in the process, to surpass the JPY1trn mark for the first time in FY03/20E. YJ’s OP guidance for FY03/20E is in the range of JPY146-150bn, which translates to an OP margin of 14.6%-15.0% (cf.14.6% in FY03/19 and 20.3% in FY03/18E). This seems slightly on the conservative side to us given that a large part of the OP decrease in FY03/19 was due to growth-related expenses and one-time losses (excluding these OP margin would have been around 17.4% in FY03/19).Our FY1 target price for YJ based on the historical median EV/OP multiple of 10.7x is JPY400, which implies a 33% upside to the current share price of JPY302 (as at 7th May 2018). We remain positive about YJ’s medium-term prospects, given the steady growth in the Commerce business and potential for a margin recovery. Further upside for YJ is likely once its payments business, PayPay, starts making significant contributions to operating results.

Yahoo Japan (4689 JP) reported 4Q and full-year FY03/19 financial results in late April, prior to the Golden Week. YJ reported revenue of JPY955bn (+6.4% YoY) and OP of JPY141bn (-24.5% YoY). Both revenue and OP were on par with the consensus and guidance. Media business showed only moderate growth (+5.2% YoY) as user engagement continued to slow down. However, with the steady increase in smartphone users (+9.7% YoY) coupled with the launch of video ads (targeting these smartphone users), Media business is likely to sustain its moderate growth in the medium-term. Commerce businesscontinued to grow at a healthy rate (+8.9% YoY) driven by the steady double-digit growth in the e-commerce transaction value for the fourth consecutive year. We expect YJ’s consolidated revenue to grow at a 3-year CAGR of 8.0% over FY03/19-22E, and in the process, to surpass the JPY1trn mark for the first time in FY03/20E. YJ’s OP guidance for FY03/20E is in the range of JPY146-150bn, which translates to an OP margin of 14.6%-15.0% (cf.14.6% in FY03/19 and 20.3% in FY03/18E). This seems slightly on the conservative side to us given that a large part of the OP decrease in FY03/19 was due to growth-related expenses and one-time losses (excluding these OP margin would have been around 17.4% in FY03/19).Our FY1 target price for YJ based on the historical median EV/OP multiple of 10.7x is JPY400, which implies a 33% upside to the current share price of JPY302 (as at 7th May 2018). We remain positive about YJ’s medium-term prospects, given the steady growth in the Commerce business and potential for a margin recovery. Further upside for YJ is likely once its payments business, PayPay, starts making significant contributions to operating results. 

Yahoo Japan: A Disappointing FY03/19 but Future Looks Promising

<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

'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. 

<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 

<a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a>  reported 3Q FY03/19 financial results last Monday (04th February). Revenue and OP were on par with consensus. YJ revised the lower range of its FY03/19E OP guidance upwards by JPY7bn to JPY140bn mainly due to lower than expected growth related expenses (expenses for new challenges as per the management). Meanwhile, the upper limit of the FY03/19E OP guidance of JPY143bn remains unchanged. The revised OP guidance for FY03/19E is JPY140-143bn.<div class="content-caption">Key Financials FY03/17-21E</div><table class="table table-striped"><tbody>
<tr>
<td></td>
<td>FY03/17*</td>
<td>FY03/18*</td>
<td>FY03/19E</td>
<td>FY03/20E</td>
<td>FY03/21E</td>
</tr>
<tr>
<td>Revenue (JPY bn)</td>
<td style="text-align: right;">           865</td>
<td style="text-align: right;">           909</td>
<td style="text-align: right;">           956</td>
<td style="text-align: right;">        1,022</td>
<td style="text-align: right;">        1,095</td>
</tr>
<tr>
<td>YoY Growth %</td>
<td style="text-align: right;">-</td>
<td style="text-align: right;">5.1%</td>
<td style="text-align: right;">5.2%</td>
<td style="text-align: right;">6.9%</td>
<td style="text-align: right;">7.2%</td>
</tr>
<tr>
<td>OP (JPY bn)</td>
<td style="text-align: right;">           179</td>
<td style="text-align: right;">           186</td>
<td style="text-align: right;">           153</td>
<td style="text-align: right;">           158</td>
<td style="text-align: right;">           168</td>
</tr>
<tr>
<td>OP Margin %</td>
<td style="text-align: right;">20.7%</td>
<td style="text-align: right;">20.4%</td>
<td style="text-align: right;">16.0%</td>
<td style="text-align: right;">15.5%</td>
<td style="text-align: right;">15.4%</td>
</tr>
<tr>
<td></td>
<td style="text-align: right;"> </td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Media Business</td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Revenue (JPY bn)</td>
<td style="text-align: right;">           282</td>
<td style="text-align: right;">           288</td>
<td style="text-align: right;">           303</td>
<td style="text-align: right;">           305</td>
<td style="text-align: right;">           307</td>
</tr>
<tr>
<td>OP Margin %</td>
<td style="text-align: right;">57.5%</td>
<td style="text-align: right;">58.7%</td>
<td style="text-align: right;">48.0%</td>
<td style="text-align: right;">50.0%</td>
<td style="text-align: right;">52.0%</td>
</tr>
<tr>
<td> </td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Consumer Business</td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Revenue (JPY bn)</td>
<td style="text-align: right;">           512</td>
<td style="text-align: right;">           597</td>
<td style="text-align: right;">           652</td>
<td style="text-align: right;">           717</td>
<td style="text-align: right;">           789</td>
</tr>
<tr>
<td>OP Margin %</td>
<td style="text-align: right;">12.7%</td>
<td style="text-align: right;">12.6%</td>
<td style="text-align: right;">9.5%</td>
<td style="text-align: right;">10.0%</td>
<td style="text-align: right;">10.0%</td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption">*Some data points are not comparable with the latest figures due to a segment reclassification in FY03/19. </div><div style="text-align: left;" class="content-caption">Source: Company Disclosures and LSR Estimates</div>

Yahoo Japan (4689 JP)  reported 3Q FY03/19 financial results last Monday (04th February). Revenue and OP were on par with consensus. YJ revised the lower range of its FY03/19E OP guidance upwards by JPY7bn to JPY140bn mainly due to lower than expected growth related expenses (expenses for new challenges as per the management). Meanwhile, the upper limit of the FY03/19E OP guidance of JPY143bn remains unchanged. The revised OP guidance for FY03/19E is JPY140-143bn.Key Financials FY03/17-21E


FY03/17*
FY03/18*
FY03/19E
FY03/20E
FY03/21E


Revenue (JPY bn)
           865
           909
           956
        1,022
        1,095


YoY Growth %
-
5.1%
5.2%
6.9%
7.2%


OP (JPY bn)
           179
           186
           153
           158
           168


OP Margin %
20.7%
20.4%
16.0%
15.5%
15.4%



 






Media Business







Revenue (JPY bn)
           282
           288
           303
           305
           307


OP Margin %
57.5%
58.7%
48.0%
50.0%
52.0%


 







Consumer Business







Revenue (JPY bn)
           512
           597
           652
           717
           789


OP Margin %
12.7%
12.6%
9.5%
10.0%
10.0%

*Some data points are not comparable with the latest figures due to a segment reclassification in FY03/19. Source: Company Disclosures and LSR Estimates

Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run

Japan

DENTSU INC. mainly provides comprehensive advertising services.  The Company also provides marketing and event planning & promotion services.  Dentsu has associated companies in the US, Europe, and Asia.

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Dentsu Inc (4324 JP)

Yahoo Japan: A Disappointing FY03/19 but Future Looks Promising

Yahoo Japan (4689 JP) reported 4Q and full-year FY03/19 financial results in late April, prior to the Golden Week. YJ reported revenue of JPY955bn...

Supun Walpola

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

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

Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run

Yahoo Japan (4689 JP) reported 3Q FY03/19 financial results last Monday (04th February). Revenue and OP were on par with consensus. YJ revised the...

Supun Walpola

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