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

<ul><li>The market reacted positively for <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>’s 3Q FY03/20 results as Z’s share price increased by c.4% since the results were released (and at one point during the last week was up c.8%). This coupled with some renewed enthusiasm over the stock over the past few months have put Z at 17x EV/OP – its highest for the past ten years. </li></ul><ul><li>Nonetheless, we hardly see anything of substance to take away from third quarter results and would continue to monitor Z’s results over the next few quarters to see if any of the risks that we have highlighted below would materialise.</li></ul>

The market reacted positively for Z Holdings (4689 JP)’s 3Q FY03/20 results as Z’s share price increased by c.4% since the results were released (and at one point during the last week was up c.8%). This coupled with some renewed enthusiasm over the stock over the past few months have put Z at 17x EV/OP – its highest for the past ten years. Nonetheless, we hardly see anything of substance to take away from third quarter results and would continue to monitor Z’s results over the next few quarters to see if any of the risks that we have highlighted below would materialise.

Z Holdings 3Q Update: A Lot of Hope but Little Substance

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus expectations for -¥5,487m. Top line growth was weak as Mercari focused on increasing supply to rebalance supply-demand on the platform but this appears to be in-line with expectations and the key is whether these efforts drive some modest acceleration in growth in 2H. Costs were a negative surprise but 2Q is likely to be the peak and while 3Q may not see a large decline, profitability should improve noticeably from 4Q as the Origami acquisition is digested. In particular, the sharp increase in the profitability of the Japanese flea market business to a 32% adjusted OPM, while perhaps a little inflated, points to the potential for consolidated profitability early next FY.</p>

Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus expectations for -¥5,487m. Top line growth was weak as Mercari focused on increasing supply to rebalance supply-demand on the platform but this appears to be in-line with expectations and the key is whether these efforts drive some modest acceleration in growth in 2H. Costs were a negative surprise but 2Q is likely to be the peak and while 3Q may not see a large decline, profitability should improve noticeably from 4Q as the Origami acquisition is digested. In particular, the sharp increase in the profitability of the Japanese flea market business to a 32% adjusted OPM, while perhaps a little inflated, points to the potential for consolidated profitability early next FY.

Event-Driven

<p>Yesterday after the close Mercari announced that it had come to terms with Origami CEO Yoshiki Yasui to acquire all outstanding shares of Origami, further consolidating the cashless payments industry in Japan. With Line Pay and PayPay both to come under Z Holdings following the acquisition of Line it seems like the path of least resistance for the industry could be consolidation into three major groups. We discuss the details below.</p>

Yesterday after the close Mercari announced that it had come to terms with Origami CEO Yoshiki Yasui to acquire all outstanding shares of Origami, further consolidating the cashless payments industry in Japan. With Line Pay and PayPay both to come under Z Holdings following the acquisition of Line it seems like the path of least resistance for the industry could be consolidation into three major groups. We discuss the details below.

Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation

<p>As we look out to the new year, we review and update one of our very highest conviction calls for the long-term: Mercari. Having followed the name since its listing, and with our own experience within a Japanese tech startup attempting to venture overseas we believe we have an edge in analysing the company and while the company still has a few things to prove, we believe their approach will lead to eventual success. Something which is clearly not priced in yet.</p>

As we look out to the new year, we review and update one of our very highest conviction calls for the long-term: Mercari. Having followed the name since its listing, and with our own experience within a Japanese tech startup attempting to venture overseas we believe we have an edge in analysing the company and while the company still has a few things to prove, we believe their approach will lead to eventual success. Something which is clearly not priced in yet.

2020 High Conviction - A Mercarific Holiday Season to All

'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>
<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE - COMPANIES •</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/110/839/original/2019-12-17_10-16-56.png?1576545466" class="editor-image img-responsive" data-smartkarma-image-id="110839"></figure><div class="content-caption">Source: Japan Analytics</div>
<p><strong>COMPANY RELATIVE PRICE SCORE OUTLIERS </strong>- The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can reveal attractive trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. </p>
</div><div><div><p>Following on from our previous Insight <a href="https://www.smartkarma.com/insights/japan-december-sector-peer-group-relative-price-scores-from-defensives-to-cylicals" target="_blank" data-smartkarma-citation="insights:35266" rel="noopener">December Sector &amp; Peer Group Relative Price Scores - From Defensives to Cylicals</a> which covered <strong>Sectors</strong> and <strong>Peer Groups</strong>, in the <strong>DETAIL</strong> section below, we update our list of Overbought and Oversold large-cap companies (market capitalisation over ¥100b) with the current <strong>Very Overbought</strong> (RPS&gt;5), <strong>Too-Late-To-Buy</strong> (RPS &gt;4.5) and <strong>Oversold</strong> (RPS &lt;-2) companies, as well as the largest positive and negative <strong>3-month Changes</strong> in RPS adding some stock-specific comments in each category.</p></div></div>


• RELATIVE PRICE SCORE - COMPANIES •
Source: Japan Analytics
COMPANY RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies are put on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can reveal attractive trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. 
Following on from our previous Insight December Sector &amp; Peer Group Relative Price Scores - From Defensives to Cylicals which covered Sectors and Peer Groups, in the DETAIL section below, we update our list of Overbought and Oversold large-cap companies (market capitalisation over ¥100b) with the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4.5) and Oversold (RPS &lt;-2) companies, as well as the largest positive and negative 3-month Changes in RPS adding some stock-specific comments in each category.

🇯🇵 JAPAN • December Company Relative Price Scores - Opportunities in the Outliers

Japan

Mercari, Inc. operates as an electronic commercial company. The Company offers electronic commercial software, operation management, marketing planning, and other marketplace services. Mercari serves customers worldwide.

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Mercari (4385 JP)

Z Holdings 3Q Update: A Lot of Hope but Little Substance

The market reacted positively for Z Holdings (4689 JP)’s 3Q FY03/20 results as Z’s share price increased by c.4% since the results were released...

Supun Walpola

Mercari – On Track for Loss Peak-Out

Mercari 2Q revenue of ¥18,445m barely exceeded consensus of ¥18,364m by 44bps while operating loss of -¥6,896m was worse than consensus...

Mio Kato

Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation

Yesterday after the close Mercari announced that it had come to terms with Origami CEO Yoshiki Yasui to acquire all outstanding shares of Origami,...

Mio Kato

2020 High Conviction - A Mercarific Holiday Season to All

As we look out to the new year, we review and update one of our very highest conviction calls for the long-term: Mercari. Having followed the name...

Mio Kato

🇯🇵 JAPAN • December Company Relative Price Scores - Opportunities in the Outliers

• RELATIVE PRICE SCORE - COMPANIES • COMPANY RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance...

Campbell Gunn

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