Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<ul>
<li>Internet advertising revenue growth has come in below expectations for Google, Meta and CyberAgent as ad budgets appear to be shrinking</li>
<li>There is an indirect read-across to Z Holdings which has almost always posted slower ad growth although it has some insulation from volatility with eCommerce and LINE official accounts</li>
<li>Sill, management targets for ad revenue growth of 5-10% look increasingly challenging which is an issue when Media generates c. 80% of profitability. We remain cautious</li>
</ul>


Internet advertising revenue growth has come in below expectations for Google, Meta and CyberAgent as ad budgets appear to be shrinking
There is an indirect read-across to Z Holdings which has almost always posted slower ad growth although it has some insulation from volatility with eCommerce and LINE official accounts
Sill, management targets for ad revenue growth of 5-10% look increasingly challenging which is an issue when Media generates c. 80% of profitability. We remain cautious


Z Holdings (Neutral) - Quick Thoughts on the Read Across from Google, Meta, and CyberAgent

Thematic (Sector/Industry)

<ul>
<li>The Ministry of Health Labor and Welfare is likely to allow funds transfer service providers (cashless apps) to support digital salary payments </li>
<li>That could boost user and transaction volume growth rates although there are challenges like remittance limits and direct access to cash that need to be addressed</li>
<li>An expansion in utility is positive although comparable valuations from global peers remains under pressure</li>
</ul>


The Ministry of Health Labor and Welfare is likely to allow funds transfer service providers (cashless apps) to support digital salary payments 
That could boost user and transaction volume growth rates although there are challenges like remittance limits and direct access to cash that need to be addressed
An expansion in utility is positive although comparable valuations from global peers remains under pressure


Japan Fintech - Rule Changes Should Benefit Cashless Apps like PayPay

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<ul>
<li>Quick (Q)-commerce continues to grow, with rapid home delivery providing a new level of convenience to meet demand from busy, urban consumers.  </li>
<li>Z Holdings’ team of Yahoo, Askul and Demae-can have run what is now called Yahoo Mart since 2020 which has opened its first three retail stores, a new omnichannel model.</li>
<li>Given the data analysis and supply chain power of its backers, these stores could quickly become a thorn in the side of the big convenience store chains.</li>
</ul>


Quick (Q)-commerce continues to grow, with rapid home delivery providing a new level of convenience to meet demand from busy, urban consumers.  
Z Holdings’ team of Yahoo, Askul and Demae-can have run what is now called Yahoo Mart since 2020 which has opened its first three retail stores, a new omnichannel model.
Given the data analysis and supply chain power of its backers, these stores could quickly become a thorn in the side of the big convenience store chains.


Yahoo Mart's Q-Conbini Stores: A Potential Competitor to the Big 3 CVS?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>As a follow-on to <a href="https://www.smartkarma.com/insights/topix-october-2022-rebal-big-names-with-big-flows" target="_blank" data-smartkarma-citation="insights:81835" rel="noopener">TOPIX October 2022 Rebal - BIG Names with BIG Flows</a> which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.</li>
<li>In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.</li>
<li>Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.</li>
</ul>


As a follow-on to TOPIX October 2022 Rebal - BIG Names with BIG Flows which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.
In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.
Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.


TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

<ul>
<li>The PayPay conversion is complete and management is focused on managing costs, which is reassuring for ZHD financial targets and for an eventual IPO</li>
<li>There was less said about the latter, however, whilst detail on the valuation gain that parent Softbank Corp needs to hit its own operating income target has not been confirmed</li>
<li>Our valuation of ¥500bn for PayPay looks more reasonable as 50-73% YTD declines in public comps have brought trading multiples in line (PayPay at 5x FY22e revenue versus 5-8x)</li>
</ul>


The PayPay conversion is complete and management is focused on managing costs, which is reassuring for ZHD financial targets and for an eventual IPO
There was less said about the latter, however, whilst detail on the valuation gain that parent Softbank Corp needs to hit its own operating income target has not been confirmed
Our valuation of ¥500bn for PayPay looks more reasonable as 50-73% YTD declines in public comps have brought trading multiples in line (PayPay at 5x FY22e revenue versus 5-8x)


Z Holdings / PayPay - A Focus on Margin Improvement as ZHD Moves to Consolidate

Japan

LY Corporation operates as an internet search engine "Yahoo! JAPAN". The Company provides electronic commerce and settlement finance services for small medium enterprises and individuals. LY also operates media business including search linked advertising and display advertising services.

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LY (4689 JP)

Z Holdings (Neutral) - Quick Thoughts on the Read Across from Google, Meta, and CyberAgent

Industry ad revenue growth has disappointed which could put Z Holding's target of 5-10% growth at risk. Unique exposure to eCommerce monetization...

Kirk Boodry

Japan Fintech - Rule Changes Should Benefit Cashless Apps like PayPay

The MHLW is likely to update rules on digital wage payments by fiscal year end, opening the door for cashless apps to participate. That is positive...

Kirk Boodry

Yahoo Mart's Q-Conbini Stores: A Potential Competitor to the Big 3 CVS?

All big 3 e-commerce firms in Japan now have an omnichannel model to win out in the next big fight for share: FMCG. Z Holdings' has been slower...

Michael Causton

TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

This companion piece to the first October 2022 FFW Rebalance piece shows both large (>¥5bn) and small (¥1-5bn) intra-sector flows. Using the flows...

Travis Lundy

Z Holdings / PayPay - A Focus on Margin Improvement as ZHD Moves to Consolidate

Z Holdings confirmed it is PayPay’s majority stake. An update on the business includes a stronger message improving the cost structure. Our PayPay...

Kirk Boodry

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