Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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

<p>Benefiting from investor demand for COVID-resistant stocks, <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a> had an excellent run during the last six months, as share price increased more than 1,330% from the March 2020 low levels.</p><p>BASE was listed on 25th October 2019 at ¥1,300 per share - the higher end of the proposed price range and currently trades at ¥11,000 per share.</p><p>On 24<sup>th</sup> September 2020, the company’s board of directors resolved to raise around $125m via issuing 1.2m new shares to European and Asian institutional investors. The underwriters to this secondary offering are Daiwa Securities and Mizuho Securities. The book building period ends on 9<sup>th</sup> October 2020.</p><p>The company plans to use secondary listing proceeds on advertising, recruitment, M&amp;A and working capital purposes.</p><p>We feel this is an opportunistic move by BASE Inc to take full advantage of the currently inflated valuation multiples and therefore would avoid subscribing to the offer. Moreover, we would wait for a price reaction to the positive news flows such as BASE online store growth and consider arranging a short position at 20.0x consensus FY+2 EV/Sales – around ¥12,800 per share.</p>

Benefiting from investor demand for COVID-resistant stocks, BASE Inc (4477 JP) had an excellent run during the last six months, as share price increased more than 1,330% from the March 2020 low levels.BASE was listed on 25th October 2019 at ¥1,300 per share - the higher end of the proposed price range and currently trades at ¥11,000 per share.On 24th September 2020, the company’s board of directors resolved to raise around $125m via issuing 1.2m new shares to European and Asian institutional investors. The underwriters to this secondary offering are Daiwa Securities and Mizuho Securities. The book building period ends on 9th October 2020.The company plans to use secondary listing proceeds on advertising, recruitment, M&amp;A and working capital purposes.We feel this is an opportunistic move by BASE Inc to take full advantage of the currently inflated valuation multiples and therefore would avoid subscribing to the offer. Moreover, we would wait for a price reaction to the positive news flows such as BASE online store growth and consider arranging a short position at 20.0x consensus FY+2 EV/Sales – around ¥12,800 per share.

BASE Inc Raising $125m Via an Overseas Secondary Offer Targeting European and Asian Investors

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/693/original/2020-09-14_09-50-37.png?1600044664" class="editor-image img-responsive" data-smartkarma-image-id="158693"></figure><div class="content-caption">Source for all charts &amp; tables except as stated: Japan Analytics</div><p><strong>EQUITY-DRIVEN</strong> - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/694/original/File%202020-09-14%2010%2007%2037.jpeg?1600045681" class="editor-image img-responsive" data-smartkarma-image-id="158694"></figure><div class="content-caption">Source: multpl.com</div><p><strong>BOOK VALUE PER SHARE </strong>- In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a> which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as <a href="https://www.smartkarma.com/entities/sosei-group-corp" target="_blank" data-smartkarma-citation="entities:770:1" rel="noopener">Sosei (4565 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/696/original/2020-09-14_10-26-48.png?1600046818" class="editor-image img-responsive" data-smartkarma-image-id="158696"></figure><p><strong>WINNERS</strong> - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">Monotaro (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, and <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>. Some of the more surprising entries are <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/697/original/2020-09-14_10-33-13.png?1600047204" class="editor-image img-responsive" data-smartkarma-image-id="158697"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/698/original/2020-09-14_10-33-41.png?1600047231" class="editor-image img-responsive" data-smartkarma-image-id="158698"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/701/original/2020-09-14_10-47-56.png?1600048087" class="editor-image img-responsive" data-smartkarma-image-id="158701"></figure><p><strong>LOSERS</strong> - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a>, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a>, and <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon (8267 JP)</a>).  Also among the latter are two medical-related business - the now remained <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca) and recent Bain PE target <a href="https://www.smartkarma.com/entities/nichii-gakkan-co" target="_blank" data-smartkarma-citation="entities:6790:1" rel="noopener">Nichii Gakkan (9792 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/706/original/2020-09-14_10-57-45.png?1600048692" class="editor-image img-responsive" data-smartkarma-image-id="158706"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/707/original/2020-09-14_10-59-22.png?1600048774" class="editor-image img-responsive" data-smartkarma-image-id="158707"></figure><p>In the <strong>DETAIL</strong> section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.</p>

Source for all charts &amp; tables except as stated: Japan AnalyticsEQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.Source: multpl.comBOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as NTT (9432 JP) which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as Sosei (4565 JP).WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as Monotaro (3064 JP), M3 (2413 JP), GMO Payment Gateway (3769 JP), and Kobe Bussan (3038 JP). Some of the more surprising entries are mixi (2121 JP) and Tokyo Electric Power (9501 JP).  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (Toshiba (6502 JP), Nissan (7201 JP), Kirin (2503 JP), Lixil (5938 JP), and Aeon (8267 JP)).  Also among the latter are two medical-related business - the now remained H.U. Group (4544 JP) (formerly Miraca) and recent Bain PE target Nichii Gakkan (9792 JP).In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

Equity Bottom-Up

<div>
<div>
<p>On 23rd June, <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" rel="noopener">BASE (4477 JP)</a>’s e-commerce platform began handling cross-border e-commerce delivery services covering 150 countries. The company has teamed up with Neowing, an e-commerce platform for digital content to integrate the “NEOlogi App” into "BASE" to enable member stores to handle deliveries to customers who purchase products from overseas vendors.</p>
<p>BASE was listed on 25th October 2019 at ¥1,300 - the higher end of the proposed price range. At the time we <a href="https://www.smartkarma.com/insights/base-inc-ipo-excellent-customer-retention-justifies-high-promo-costs" target="_blank" rel="noopener">wrote</a>:- </p>
<blockquote>
<p>“BASE Inc’s IPO provides an opportunity to enter into the fast-growing Japanese payment processing space at a more than reasonable multiple”</p>
</blockquote>
<p>After an initial subdued performance, the share price has increased by 356% in the last three months. Most of the gains came after the first quarter results announcement when the company issued operating and net income guidance for the first time.</p>
</div>
</div>
<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/142/208/original/image_98872529421593080490603.png?1593080486" class="editor-image img-responsive" data-smartkarma-image-id="142208"></figure>
Source: Cap IQ</div>
<div>BASE has benefited from investor demand for COVID-resistant stocks and the company’s valuation multiples have stretched beyond those of even ‘pure-play’ payment processing companies. Although we maintain our positive long-term, the current valuation is unjustified and we recommend selling or reducing holdings.</div>



On 23rd June, BASE (4477 JP)’s e-commerce platform began handling cross-border e-commerce delivery services covering 150 countries. The company has teamed up with Neowing, an e-commerce platform for digital content to integrate the “NEOlogi App” into "BASE" to enable member stores to handle deliveries to customers who purchase products from overseas vendors.
BASE was listed on 25th October 2019 at ¥1,300 - the higher end of the proposed price range. At the time we wrote:- 

“BASE Inc’s IPO provides an opportunity to enter into the fast-growing Japanese payment processing space at a more than reasonable multiple”

After an initial subdued performance, the share price has increased by 356% in the last three months. Most of the gains came after the first quarter results announcement when the company issued operating and net income guidance for the first time.




Source: Cap IQ
BASE has benefited from investor demand for COVID-resistant stocks and the company’s valuation multiples have stretched beyond those of even ‘pure-play’ payment processing companies. Although we maintain our positive long-term, the current valuation is unjustified and we recommend selling or reducing holdings.

BASE: Robust Growth Through Collaboration with NEOlogi - Expensive @ 12.5x EV/​Sales

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals to elderly customers. The company also provides prepared ingredients to nursing facilities and supplies frozen bentos as an OEM. At its IPO in late 2017 which we covered <a href="https://www.smartkarma.com/insights/silver-life-ipo-aging-society-pure-play-to-usher-in-the-age-of-demographics" target="_blank" rel="noopener">here</a> the stock jumped 74% and continued rising thereafter to peak 490% above the IPO price in Sep 2018. Since then, however, it has fallen 40% and is just recovering from the COVID selloff and trading at 35.5x consensus PE. Now the company is an attractive bet on Japan’s ageing population and priced as such, but what makes the company truly interesting is its CEO. We explain why below.</p>

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals to elderly customers. The company also provides prepared ingredients to nursing facilities and supplies frozen bentos as an OEM. At its IPO in late 2017 which we covered here the stock jumped 74% and continued rising thereafter to peak 490% above the IPO price in Sep 2018. Since then, however, it has fallen 40% and is just recovering from the COVID selloff and trading at 35.5x consensus PE. Now the company is an attractive bet on Japan’s ageing population and priced as such, but what makes the company truly interesting is its CEO. We explain why below.

Silver Life – This Guy Is in Danger of Becoming Our Favourite CEO

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>In mid-February 2020, upon releasing full-year earnings, <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a> announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in <a href="https://www.smartkarma.com/insights/gmo-internet-9449-buyback-bigger-than-it-looks-smaller-than-it-looks" target="_blank" data-smartkarma-citation="insights:36580" rel="noopener">GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks</a>. </p><p>The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).</p><p>The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. </p><h2>The NEW News</h2><p><a href="https://ir.gmo.jp/pdf/presen/GMO_FY20_Q1_Consolidated_Results_Statement_200512.pdf" target="_blank" rel="noopener">Q1 earnings</a> were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.</p><p>TODAY after the close, after having <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info20200512_01.pdf" target="_blank" rel="noopener">announced</a> the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info2020514.pdf" target="_blank" rel="noopener">announced</a> a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. </p><p>Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. </p><p>It's worth looking at where we stand now.</p>

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks. The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. The NEW NewsQ1 earnings were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.TODAY after the close, after having announced the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company announced a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. It's worth looking at where we stand now.

Japan

GMO Payment Gateway, Inc. provides credit card transaction services for electronic commerce firms.

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

GMO Payment Gateway (3769 JP)

BASE Inc Raising $125m Via an Overseas Secondary Offer Targeting European and Asian Investors

Benefited from investor demand for COVID-resistant stocks, BASE Inc (4477 JP) had an excellent run during last six months, as share price increased...

Oshadhi Kumarasiri

BASE: Robust Growth Through Collaboration with NEOlogi - Expensive @ 12.5x EV/Sales

On 23rd June, BASE (4477 JP)’s e-commerce platform began handling cross-border e-commerce delivery services covering 150 countries. The company...

Oshadhi Kumarasiri

Silver Life – This Guy Is in Danger of Becoming Our Favourite CEO

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals...

Mio Kato

GMO Buyback - Approaching The End But...

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

BASE Inc Raising $125m Via an Overseas Secondary Offer Targeting European and Asian Investors

Benefited from investor demand for COVID-resistant stocks, BASE Inc (4477 JP) had an excellent run during last six months, as share price increased...

Oshadhi Kumarasiri

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

EQUITY-DRIVEN - Japans

Campbell Gunn

BASE: Robust Growth Through Collaboration with NEOlogi - Expensive @ 12.5x EV/​Sales

On 23rd June, BASE (4477 JP)’s e-commerce platform began handling cross-border e-commerce delivery services covering 150 countries. The company...

Oshadhi Kumarasiri

Silver Life – This Guy Is in Danger of Becoming Our Favourite CEO

Silver Life is in a prime spot within Japan’s ageing demographic space providing meal kits to franchisees who often add rice and deliver the meals...

Mio Kato

GMO Buyback - Approaching The End But...

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some...

Travis Lundy

BASE: Robust Growth Through Collaboration with NEOlogi - Expensive @ 12.5x EV/Sales