Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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

Epic Games’ Fortnite will be shutting down in China on the 15th of November after a two-year testing period. This is a good sign to us that China’s gaming sector is now a structural short. It also increases the probability of our call that Epic may not need Tencent as a shareholder anymore being realised in some form or the other.

Epic Games’ Fortnite will be shutting down in China on the 15th of November after a two-year testing period. This is a good sign to us that China’s gaming sector is now a structural short. It also increases the probability of our call that Epic may not need Tencent as a shareholder anymore being realised in some form or the other.

Tencent – Fortnite Is Punching Out and You Should Too

Koei Tecmo delivered reasonable 2Q results with Online and Mobile revenue continuing to grow, if at a slightly slower pace. The company declined to raise highly conservative guidance of ¥24.5bn in OP and premium valuations pose some downside risks.

Koei Tecmo delivered reasonable 2Q results with Online and Mobile revenue continuing to grow, if at a slightly slower pace. The company declined to raise highly conservative guidance of ¥24.5bn in OP and premium valuations pose some downside risks.

Equity Capital Markets

In <a href="https://www.smartkarma.com/insights/krafton-ipo-this-should-be-pulled" target="_blank" rel="noopener">(1) Krafton IPO – This Should Be Pulled | Smartkarma </a>we said:
<blockquote>
Given the increasingly aggressive moves in China to reign in tech companies we also believe that greater regulation of mobile gaming overall is not impossible. Not only is there a strong gambling element but it is not likely to be viewed as positive for productivity at a time when labour cost inflation is an increasing problem. We believe stricter curbs on mobile gaming in China are a matter of time though we do not yet have a clear idea as to when this might occur.
</blockquote>
Apparently that matter of time is <a href="https://asia.nikkei.com/Business/China-tech/Tencent-dives-after-Chinese-media-calls-gaming-spiritual-opium" target="_blank" rel="noopener">looking like it will be a lot sooner than we expected</a>.

In (1) Krafton IPO – This Should Be Pulled | Smartkarma we said:

Given the increasingly aggressive moves in China to reign in tech companies we also believe that greater regulation of mobile gaming overall is not impossible. Not only is there a strong gambling element but it is not likely to be viewed as positive for productivity at a time when labour cost inflation is an increasing problem. We believe stricter curbs on mobile gaming in China are a matter of time though we do not yet have a clear idea as to when this might occur.

Apparently that matter of time is looking like it will be a lot sooner than we expected.

Koei Tecmo posted some stellar results today with ¥20.5bn in revenue (consensus ¥14.5) and OP of ¥9.7bn (consensus ¥5.9bn), putting the company on track to hit our ¥34-39bn FY OP target vs. consensus at ¥28.5bn. ¥8.7bn in income below the OP line was also a notable positive surprise thanks to strong investment income. How much of this is priced in though?

Koei Tecmo posted some stellar results today with ¥20.5bn in revenue (consensus ¥14.5) and OP of ¥9.7bn (consensus ¥5.9bn), putting the company on track to hit our ¥34-39bn FY OP target vs. consensus at ¥28.5bn. ¥8.7bn in income below the OP line was also a notable positive surprise thanks to strong investment income. How much of this is priced in though?

Koei Tecmo – Beats Consensus but Is That Enough?

Koei Tecmo generated ¥24.4bn in OP beating guidance of ¥22bn but coming in a touch below consensus of ¥25.0bn. Despite the slight miss and weak guidance of ¥24.5bn in OP vs. consensus ¥28.0bn for consensus we believe that consensus is too conservative, and OP will clear ¥30bn next year and potentially ¥45bn the year after. Despite THAT, however, we believe it may be time to step off this ride.

Koei Tecmo generated ¥24.4bn in OP beating guidance of ¥22bn but coming in a touch below consensus of ¥25.0bn. Despite the slight miss and weak guidance of ¥24.5bn in OP vs. consensus ¥28.0bn for consensus we believe that consensus is too conservative, and OP will clear ¥30bn next year and potentially ¥45bn the year after. Despite THAT, however, we believe it may be time to step off this ride.

Japan

Koei Tecmo Holdings Co.,Ltd. is a holding company which was established through the merger of Koei Co., Ltd. and Tecmo Ltd. The Company develops and distributes video game software for personal computers and home video game consoles. The Company also operates other media business such as marketing of books and CDs and amusement facility operation.

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Koei Tecmo Holdings (3635 JP)

Tencent – Fortnite Is Punching Out and You Should Too

Epic Games’ Fortnite will be shutting down in China on the 15th of November after a two-year testing period. This is a good sign to us that China’s...

Mio Kato

Koei Tecmo – On Track

Koei Tecmo delivered reasonable 2Q results with Online and Mobile revenue continuing to grow, but declined to raise conservative guidance of...

Mio Kato

Krafton IPO - Didi'd by Spiritual Opium?

News laying the ground for tightened regulation on online gaming in China is hitting related stocks hard with many down 10%, but the juiciest short...

Mio Kato

Koei Tecmo – Beats Consensus but Is That Enough?

Koei Tecmo posted stellar 1Q results including ¥8.7bn in income below the OP line but with multiples significantly above peers will that be enough?

Mio Kato

Koei Tecmo – Turning Cautious

Koei Tecmo has returned 147% since we first identified its potential in November 2019 outperforming TOPIX by more than 100% in a year and a half......

Mio Kato

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