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

<p><a href="https://www.smartkarma.com/entities/gmo-internet-inc/overview" target="_blank" rel="noopener">GMO Internet, Inc. (9449 JP) </a>announced its consolidated financial results for 2Q2019 on Tuesday (06th July 2019). The company’s revenue grew 3.4% YoY during 2Q2019 while operating profit declined 8.6% YoY during the quarter. Both revenue and operating profit were above consensus estimates. The growth in revenue was mainly driven by 14.5% YoY increase in Internet Infrastructure revenue coupled with 4.5% YoY growth in Online Advertising &amp; Media revenue which helped offset 1.3% YoY drop in Internet Finance revenues and 21% YoY decline in Cryptocurrency revenues.</p><p>The Cryptocurrency Segment which has struggled in the past with heavy losses reported almost three-fold growth in operating profit during the quarter. In 1Q2019, both Online Advertising &amp; Media and Internet Finance segments reported YoY decrease in revenue and operating profit which was worrying. However, the Online Advertising &amp; Media segment reported growth in revenue and operating profit during 2Q2019 while the Internet Finance segment’s financials showed significant improvement compared to the previous quarter indicating that 1Q decline was temporary. GMO shares are currently trading at JPY1,682 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries.</p><p>We discuss the details below.</p>

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 2Q2019 on Tuesday (06th July 2019). The company’s revenue grew 3.4% YoY during 2Q2019 while operating profit declined 8.6% YoY during the quarter. Both revenue and operating profit were above consensus estimates. The growth in revenue was mainly driven by 14.5% YoY increase in Internet Infrastructure revenue coupled with 4.5% YoY growth in Online Advertising &amp; Media revenue which helped offset 1.3% YoY drop in Internet Finance revenues and 21% YoY decline in Cryptocurrency revenues.The Cryptocurrency Segment which has struggled in the past with heavy losses reported almost three-fold growth in operating profit during the quarter. In 1Q2019, both Online Advertising &amp; Media and Internet Finance segments reported YoY decrease in revenue and operating profit which was worrying. However, the Online Advertising &amp; Media segment reported growth in revenue and operating profit during 2Q2019 while the Internet Finance segment’s financials showed significant improvement compared to the previous quarter indicating that 1Q decline was temporary. GMO shares are currently trading at JPY1,682 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries.We discuss the details below.

GMO Internet’s 2Q2019 Results Prove 1Q Decline Was Temporary; Shares Are Still Undervalued

<p><a href="https://www.smartkarma.com/entities/gmo-internet-inc/overview" target="_blank" rel="noopener">GMO Internet’s (9449 JP)</a> Cryptocurrency segment, which contributes close to 5% of consolidated revenues, has struggled in the recent past due to low bitcoin prices alongside an increase in its bitcoin mining expenses. The company managed to exit from its loss-making mining machine business (production and sale of mining machinery) while it is currently relocating its crypto mining business into countries with cheap electricity costs as a measure to turn-around the segment’s deteriorating performance.</p>
<p>The segment’s revenues are highly correlated with bitcoin prices and the current surge in bitcoin prices has caused a rally in GMO Internet’s stock prices. We have discussed the segment’s performance and its relationship with bitcoin prices in detail below.</p>

GMO Internet’s (9449 JP) Cryptocurrency segment, which contributes close to 5% of consolidated revenues, has struggled in the recent past due to low bitcoin prices alongside an increase in its bitcoin mining expenses. The company managed to exit from its loss-making mining machine business (production and sale of mining machinery) while it is currently relocating its crypto mining business into countries with cheap electricity costs as a measure to turn-around the segment’s deteriorating performance.
The segment’s revenues are highly correlated with bitcoin prices and the current surge in bitcoin prices has caused a rally in GMO Internet’s stock prices. We have discussed the segment’s performance and its relationship with bitcoin prices in detail below.

GMO Internet: Steady Growth in Share Price Due to Bitcoin Recovery

Supun Walpola

<p><a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">Gmo Payment Gateway (3769 JP)</a> (GMO PG) reported its financial results for 2QFY09/19 on Friday (10th May 2019). The company reported revenue of ¥7,769m (+20.3% YoY) and OP of ¥2,182 (+30.2% YoY) for the quarter. Revenue missed consensus by 7.5% mostly due to one-offs and special factors while OP was on par with consensus.</p><p>GMO PG’s strong 2Q results were on the back of double-digit revenue growth across all core business segments, including the largest business segment (around 58% of consolidated revenue), the Payment Processing business, which was up 24.2% YoY. Strong OP growth was driven by margin improvement in the Payment After Delivery service (PaD).</p><p>At FY1 PE and EV/OP multiples of 103x and 64x respectively, GMO PG continues to look quite expensive to us at the current pricing. However, GMO PG’s sustained topline growth, the potential for significant OP margin improvement going forward, and its position as an “arms-dealer” in the rapidly growing Japanese payment wars, makes the company an almost guaranteed winner. Thus, we maintain our bullish outlook for the company, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc/insights" target="_blank">As Expensive as It Is, This Is Not a Short</a>. </p>

Gmo Payment Gateway (3769 JP) (GMO PG) reported its financial results for 2QFY09/19 on Friday (10th May 2019). The company reported revenue of ¥7,769m (+20.3% YoY) and OP of ¥2,182 (+30.2% YoY) for the quarter. Revenue missed consensus by 7.5% mostly due to one-offs and special factors while OP was on par with consensus.GMO PG’s strong 2Q results were on the back of double-digit revenue growth across all core business segments, including the largest business segment (around 58% of consolidated revenue), the Payment Processing business, which was up 24.2% YoY. Strong OP growth was driven by margin improvement in the Payment After Delivery service (PaD).At FY1 PE and EV/OP multiples of 103x and 64x respectively, GMO PG continues to look quite expensive to us at the current pricing. However, GMO PG’s sustained topline growth, the potential for significant OP margin improvement going forward, and its position as an “arms-dealer” in the rapidly growing Japanese payment wars, makes the company an almost guaranteed winner. Thus, we maintain our bullish outlook for the company, As Expensive as It Is, This Is Not a Short. 

GMO Payment Gateway Posts Strong 2Q Results but Continues to Be Expensive

<p><a href="https://www.smartkarma.com/entities/gmo-internet-inc/insights" target="_blank">GMO Internet, Inc. (9449 JP)</a> announced its consolidated financial results for 1QFY12/19 on Thursday (9<sup>th</sup> May 2019). The company’s revenue for 1QFY12/19 increased by 7.2% YoY while OP declined by 5.1% YoY during the quarter. Both revenue and OP fell below consensus by 0.8% and 8.4% respectively. The strong performance of the Internet Infrastructure segment contributed to the growth in revenue during the quarter which offset declines in Online Advertising &amp; Media and Internet Finance segments.</p>
<p>The cryptocurrency segment which was known to have struggled in the past recorded stellar growth in revenue of 103.8% YoY in 1QFY12/19. Both the Cryptocurrency Exchange and Cryptocurrency Mining businesses reported growth in revenue during the quarter. However, the segment reported a net loss of JPY229m for the quarter compared to a net loss of JPY735m for the same quarter last year.</p>
<p>GMO is currently trading at JPY1,718 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries. The company’s share price has lost more than 40% since it peaked in June last year due to the negativity surrounding its cryptocurrency and mining segment. However, we believe further downside is limited as the company has closed down a majority of its mining related business which now weigh very little on the consolidated performance of the company. Further, the company’s key businesses, Internet Infrastructure, Online Advertising &amp; Media and Internet Finance generate solid recurring revenues, which should help the company achieve strong growth. Following its earnings announcement, the share price gained 5.2% from the previous days close.</p>

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 1QFY12/19 on Thursday (9th May 2019). The company’s revenue for 1QFY12/19 increased by 7.2% YoY while OP declined by 5.1% YoY during the quarter. Both revenue and OP fell below consensus by 0.8% and 8.4% respectively. The strong performance of the Internet Infrastructure segment contributed to the growth in revenue during the quarter which offset declines in Online Advertising &amp; Media and Internet Finance segments.
The cryptocurrency segment which was known to have struggled in the past recorded stellar growth in revenue of 103.8% YoY in 1QFY12/19. Both the Cryptocurrency Exchange and Cryptocurrency Mining businesses reported growth in revenue during the quarter. However, the segment reported a net loss of JPY229m for the quarter compared to a net loss of JPY735m for the same quarter last year.
GMO is currently trading at JPY1,718 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries. The company’s share price has lost more than 40% since it peaked in June last year due to the negativity surrounding its cryptocurrency and mining segment. However, we believe further downside is limited as the company has closed down a majority of its mining related business which now weigh very little on the consolidated performance of the company. Further, the company’s key businesses, Internet Infrastructure, Online Advertising &amp; Media and Internet Finance generate solid recurring revenues, which should help the company achieve strong growth. Following its earnings announcement, the share price gained 5.2% from the previous days close.

GMO Internet: 1QFY12/19 Results Fall Short of Consensus; Our Outlook Remains Positive

'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

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/087/536/original/2019-05-12_08-28-48.png?1557617338" class="editor-image img-responsive" data-smartkarma-image-id="87536"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/087/537/original/2019-05-12_08-29-53.png?1557617406" class="editor-image img-responsive" data-smartkarma-image-id="87537"></figure><p>Source: Japan Analytics</p>
</div><p><strong>SLIP-SLIDIN' AWAY</strong> - Japanese equities have lost 3.9% in the last holiday-shortened week and 4.6% or ¥30t since the bear-market rally peak on 17th April. The new Reiwa 令和 era has yet to see a positive close and the Bank of Japan has intervened to buy ETFs on three out of the last six trading days. A ¥2 appreciation in the Yen has cushioned the blow for non-resident/unhedged investors. For the first time since October 2018, the 50-day moving average of Total Market Value has been decisively breached. The remaining bulls will now be looking for a 'higher low' between ¥600t and ¥625t. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/087/533/original/2019-05-12_08-13-49.png?1557616440" class="editor-image img-responsive" data-smartkarma-image-id="87533"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/087/538/original/2019-05-12_08-38-11.png?1557617904" class="editor-image img-responsive" data-smartkarma-image-id="87538"></figure><p>Source: Japan Analytics</p>
</div><p><strong>BOUNCE AHEAD</strong> - The 5-day Relative Strength Index suggests a short-term recovery in the coming week, or until China announces its 'retaliation' measures to counter the recently-expanded US tariffs. 'Japan Inc.' is now voicing concerns about Japan's trade practices becoming the next focus for the US Trade Representative. Our Value Traded Ratio has also seen the strongest upward move- from 28 (the lowest level in nine months) to 53 (the highest since 21st December) in only eight trading days. Such sharp moves usually mark short-term low points.</p><p><strong>RESULTS &amp; REVISIONS</strong> - In the last four trading days, 1,153 Japanese companies have reported quarterly results, and there have been 855 initial forecasts for FY2020, 101 revision to annual forecasts, 598 initial interim estimates and ten revisions to interim forecasts. We are now at the halfway point of the Spring results announcements.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/087/539/original/2019-05-12_11-25-42.png?1557627962" class="editor-image img-responsive" data-smartkarma-image-id="87539"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RESULTS &amp; REVISION SCORE</strong> - Our scoring methodology continues to have a reasonable correlation (0.79) with the Total Market Value. In the DETAIL section below we will analyse the breakdown the three components of the score, update our Sector Scores and look at the best and worst large-cap company results over the week. In the meantime, Simon &amp; Garfunkel can provide some light relief.</p><center><iframe src="https://www.youtube.com/embed/ZNt5FnMK2sM" width="854" height="480" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></center><div class="content-caption">Simon &amp; Garfunkel: Slip-Slidin' Away - The Concert in Central Park, September 19, 1981</div>


Source: Japan Analytics
SLIP-SLIDIN' AWAY - Japanese equities have lost 3.9% in the last holiday-shortened week and 4.6% or ¥30t since the bear-market rally peak on 17th April. The new Reiwa 令和 era has yet to see a positive close and the Bank of Japan has intervened to buy ETFs on three out of the last six trading days. A ¥2 appreciation in the Yen has cushioned the blow for non-resident/unhedged investors. For the first time since October 2018, the 50-day moving average of Total Market Value has been decisively breached. The remaining bulls will now be looking for a 'higher low' between ¥600t and ¥625t. 
Source: Japan Analytics
BOUNCE AHEAD - The 5-day Relative Strength Index suggests a short-term recovery in the coming week, or until China announces its 'retaliation' measures to counter the recently-expanded US tariffs. 'Japan Inc.' is now voicing concerns about Japan's trade practices becoming the next focus for the US Trade Representative. Our Value Traded Ratio has also seen the strongest upward move- from 28 (the lowest level in nine months) to 53 (the highest since 21st December) in only eight trading days. Such sharp moves usually mark short-term low points.RESULTS &amp; REVISIONS - In the last four trading days, 1,153 Japanese companies have reported quarterly results, and there have been 855 initial forecasts for FY2020, 101 revision to annual forecasts, 598 initial interim estimates and ten revisions to interim forecasts. We are now at the halfway point of the Spring results announcements.Source: Japan AnalyticsRESULTS &amp; REVISION SCORE - Our scoring methodology continues to have a reasonable correlation (0.79) with the Total Market Value. In the DETAIL section below we will analyse the breakdown the three components of the score, update our Sector Scores and look at the best and worst large-cap company results over the week. In the meantime, Simon &amp; Garfunkel can provide some light relief.Simon &amp; Garfunkel: Slip-Slidin' Away - The Concert in Central Park, September 19, 1981

🇯🇵 Japan • Spring Results & Revisions & Market Update - Slip-Slidin' Away

Japan

GMO Internet Group, Inc. provides internet related services to its corporate customers. The company offers domain, server, security and settlement services through its "WEB Infrastructure & EC" business, and assists companies in attracting web users through its "Internet Media" business. GMO Internet Group conducts businesses in Japan.

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GMO Internet Group (9449 JP)

GMO Internet’s 2Q2019 Results Prove 1Q Decline Was Temporary; Shares Are Still Undervalued

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 2Q2019 on Tuesday (06th July 2019). The company’s revenue grew 3.4%...

Shifara Samsudeen, FCMA, CGMA

GMO Payment Gateway Posts Strong 2Q Results but Continues to Be Expensive

Gmo Payment Gateway (3769 JP) (GMO PG) reported its financial results for 2QFY09/19 on Friday (10th May 2019). The company reported revenue of...

Supun Walpola

GMO Internet: 1QFY12/19 Results Fall Short of Consensus; Our Outlook Remains Positive

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 1QFY12/19 on Thursday (9th May 2019). The company’s revenue for...

Shifara Samsudeen, FCMA, CGMA

🇯🇵 Japan • Spring Results & Revisions & Market Update - Slip-Slidin' Away

SLIP-SLIDIN' AWAY - Japanese equities have lost 3.9% in the last holiday-shortened week and 4.6% or ¥30t since the bear-market rally peak on 17th...

Campbell Gunn

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GMO Internet’s 2Q2019 Results Prove 1Q Decline Was Temporary; Shares Are Still Undervalued

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 2Q2019 on Tuesday (06th July 2019). The company’s revenue grew 3.4%...

Shifara Samsudeen, FCMA, CGMA

GMO Internet: Steady Growth in Share Price Due to Bitcoin Recovery

GMO Internet’s (9449 JP) Cryptocurrency segment, which contributes close to 5% of consolidated revenues, has struggled in the recent past due to...

Shifara Samsudeen, FCMA, CGMA

GMO Payment Gateway Posts Strong 2Q Results but Continues to Be Expensive

Gmo Payment Gateway (3769 JP) (GMO PG) reported its financial results for 2QFY09/19 on Friday (10th May 2019). The company reported revenue of...

Supun Walpola

GMO Internet: 1QFY12/19 Results Fall Short of Consensus; Our Outlook Remains Positive

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for 1QFY12/19 on Thursday (9th May 2019). The company’s revenue for...

Shifara Samsudeen, FCMA, CGMA

🇯🇵 Japan • Spring Results & Revisions & Market Update - Slip-Slidin' Away

SLIP-SLIDIN' AWAY - Japanese equities have lost 3.9% in the last holiday-shortened week and 4.6% or ¥30t since the bear-market rally peak on 17th...

Campbell Gunn