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

<a href="https://www.smartkarma.com/entities/baycurrent-consulting-inc" target="_blank" data-smartkarma-citation="entities:25985:1" rel="noopener">Baycurrent Consulting (6532 JP)</a>  offers a range of consultancy services in Japan including development and formulation of business strategy, digital transformation, M&amp;A and JV, improvement in operational capabilities and IT Services. The Covid-19 outbreak has accelerated the digital transformation in Japan which has led to increased requirements for consulting services in the country.BayCurrent’s share price has rallied almost 200% over the last 12-months to JPY46,250 per share from JPY15,740 per share a year ago. In this insight, we examine the company’s business model, key drivers, outlook, financials and valuation.

Baycurrent Consulting (6532 JP)  offers a range of consultancy services in Japan including development and formulation of business strategy, digital transformation, M&amp;A and JV, improvement in operational capabilities and IT Services. The Covid-19 outbreak has accelerated the digital transformation in Japan which has led to increased requirements for consulting services in the country.BayCurrent’s share price has rallied almost 200% over the last 12-months to JPY46,250 per share from JPY15,740 per share a year ago. In this insight, we examine the company’s business model, key drivers, outlook, financials and valuation.

Baycurrent Consulting: Strong Fundamentals; Up Almost 200% and Further Upside Likely

<a href="https://www.smartkarma.com/entities/shift-inc" target="_blank" data-smartkarma-citation="entities:7266:1" rel="noopener">Shift Inc (3697 JP)</a> offers outsourced software quality assurance and testing solutions to customers in the enterprise and entertainment markets in Japan. Shift is the market leader in the outsourced software testing service market in Japan with an estimated market share of 70%. The software testing market in Japan is estimated at JPY5.5 trn, however, only 1.0% of the market is currently outsourced while majority of software testing is carried out by in-house engineers at software development companies.The company’s shares have rallied more than 80.0% since March this year significantly outperforming the market. In this insight, we examine Shift’s business model, segments, financials, management, outlook and valuation.

Shift Inc (3697 JP) offers outsourced software quality assurance and testing solutions to customers in the enterprise and entertainment markets in Japan. Shift is the market leader in the outsourced software testing service market in Japan with an estimated market share of 70%. The software testing market in Japan is estimated at JPY5.5 trn, however, only 1.0% of the market is currently outsourced while majority of software testing is carried out by in-house engineers at software development companies.The company’s shares have rallied more than 80.0% since March this year significantly outperforming the market. In this insight, we examine Shift’s business model, segments, financials, management, outlook and valuation.

Shift Inc: Key Beneficiary of Shift in Software Testing Towards Outsourcing in Japan

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

In May, the Nikkei released a market consultation on proposed changes to the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> covering capping the weight of new constituents in the index at 1% by using a Price Adjustment Factor, limiting the number of index changes at a periodic review to 3, and changing the index universe from stocks listed on TSE's 1st section to stocks that are listed on the Prime Market (post the reorganisation). Most of the proposed changes were subsequently approved.This is the first <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> rebalance after the market consultation that tweaked things around. The tweaks could ensure the inclusion of stocks that were historically not included in the index due to their high stock price, though the impact will be much smaller since their weight in the index will not exceed 1%.At the upcoming rebalance, we see a high probability of <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a> and <a href="https://www.smartkarma.com/entities/zozo-inc" target="_blank" data-smartkarma-citation="entities:18379:1" rel="noopener">ZOZO Inc (3092 JP)</a> being included in the index while there is a lower probability of <a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661 JP)</a> and <a href="https://www.smartkarma.com/entities/orix-corp" target="_blank" data-smartkarma-citation="entities:9936:1" rel="noopener">Orix Corp (8591 JP)</a> being included.Potential deletion candidates are <a href="https://www.smartkarma.com/entities/toho-zinc-co-ltd" target="_blank" data-smartkarma-citation="entities:2796:1" rel="noopener">Toho Zinc (5707 JP)</a>, <a href="https://www.smartkarma.com/entities/sky-perfect-jsat-holdings" target="_blank" data-smartkarma-citation="entities:14097:1" rel="noopener">Sky Perfect Jsat (9412 JP)</a>, <a href="https://www.smartkarma.com/entities/maruha-nichiro-corp" target="_blank" data-smartkarma-citation="entities:20640:1" rel="noopener">Maruha Nichiro (1333 JP)</a> and <a href="https://www.smartkarma.com/entities/pacific-metals-co-ltd" target="_blank" data-smartkarma-citation="entities:3439:1" rel="noopener">Pacific Metals (5541 JP)</a>.There will be quite a large impact from passive trading on a few names.The changes will be announced early September and will be implemented at the close of trading on 30 September.

In May, the Nikkei released a market consultation on proposed changes to the Nikkei 225 (NKY INDEX) covering capping the weight of new constituents in the index at 1% by using a Price Adjustment Factor, limiting the number of index changes at a periodic review to 3, and changing the index universe from stocks listed on TSE's 1st section to stocks that are listed on the Prime Market (post the reorganisation). Most of the proposed changes were subsequently approved.This is the first Nikkei 225 (NKY INDEX) rebalance after the market consultation that tweaked things around. The tweaks could ensure the inclusion of stocks that were historically not included in the index due to their high stock price, though the impact will be much smaller since their weight in the index will not exceed 1%.At the upcoming rebalance, we see a high probability of Nintendo Co Ltd (7974 JP) and ZOZO Inc (3092 JP) being included in the index while there is a lower probability of Oriental Land (4661 JP) and Orix Corp (8591 JP) being included.Potential deletion candidates are Toho Zinc (5707 JP), Sky Perfect Jsat (9412 JP), Maruha Nichiro (1333 JP) and Pacific Metals (5541 JP).There will be quite a large impact from passive trading on a few names.The changes will be announced early September and will be implemented at the close of trading on 30 September.

Nikkei225 Index Rebalance Preview: Perennial Favourites Could Be In

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

In February, we wrote Sell into the Current Rally. Now, with shares down 25% from their peak, we see a buying opportunity.1Q growth rates were above the company's targets for FY Dec-21, with sales up 24.6%, operating profit up 33.4% and net profit up 33.9% year-on-year. Full year guidance is for a 25.9% increase in operating profit.MonotaR0's fourth distribution center, the Ibaraki Chuo Satellite Center, started operations in March. This should support 20%+ sales and profit growth at least through Dec-23, in our estimation, with efficiency gains outweighing increases in depreciation and personnel expenses.

In February, we wrote Sell into the Current Rally. Now, with shares down 25% from their peak, we see a buying opportunity.1Q growth rates were above the company's targets for FY Dec-21, with sales up 24.6%, operating profit up 33.4% and net profit up 33.9% year-on-year. Full year guidance is for a 25.9% increase in operating profit.MonotaR0's fourth distribution center, the Ibaraki Chuo Satellite Center, started operations in March. This should support 20%+ sales and profit growth at least through Dec-23, in our estimation, with efficiency gains outweighing increases in depreciation and personnel expenses.

MonotaRO (3064 JP): Buy into Current Weakness

MonotaRO continues to generate 20%+ sales growth and its operating and net margins should improve somewhat with the introduction of more efficient data-driven marketing and an end to losses overseas.But at 57x earnings, 36x EV/EBITDA and 5x sales projected for 2023, this is largely in the price and the shares have reached Overbought territory. As Campbell Gunn wrote in <a href="https://www.smartkarma.com/insights/japan-results-revisions-02-02-aisin-monotaro" target="_blank" data-smartkarma-citation="insights:47729" rel="noopener">🇯🇵 JAPAN • Results &amp; Revisions ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​02/​​​​​​​​​​​​​​02 - Aisin, MonotaRO</a> , While it may be too early to short MonotaRO shares, the case for the long 'side' is not compelling. MonotaRO plans to implement a 2-for-1 share split effective April 1, 2021.

MonotaRO continues to generate 20%+ sales growth and its operating and net margins should improve somewhat with the introduction of more efficient data-driven marketing and an end to losses overseas.But at 57x earnings, 36x EV/EBITDA and 5x sales projected for 2023, this is largely in the price and the shares have reached Overbought territory. As Campbell Gunn wrote in 🇯🇵 JAPAN • Results &amp; Revisions ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​02/​​​​​​​​​​​​​​02 - Aisin, MonotaRO , While it may be too early to short MonotaRO shares, the case for the long 'side' is not compelling. MonotaRO plans to implement a 2-for-1 share split effective April 1, 2021.

MonotaRO (3064 JP): Sell into Current Rally

Japan

MonotaRO Co., Ltd. mainly sells machine tools, engine parts, and factory consumable goods on the web site.

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MonotaRO Co Ltd (3064 JP)

Baycurrent Consulting: Strong Fundamentals; Up Almost 200% and Further Upside Likely

BayCurrent offers consultancy services in Japan and stock price has been up almost 200% over the last 12-months. Covid-19 has accelerated DX in...

Shifara Samsudeen, FCMA, CGMA

Shift Inc: Key Beneficiary of Shift in Software Testing Towards Outsourcing in Japan

There is no evidence that Shift’s revenue growth is decelerating and as per consensus estimates, Shift’s revenues will hit JPY100bn by the end of...

Shifara Samsudeen, FCMA, CGMA

Nikkei225 Index Rebalance Preview: Perennial Favourites Could Be In

Nintendo could be included in the NKY at the upcoming rebalance though the impact will not be very large. The new methodology could also result in...

Brian Freitas

MonotaRO (3064 JP): Buy into Current Weakness

Buying opportunity with shares down 25% from their February peak, 1Q growth rates ahead of management's FY Mar-21 targets, and projected valuations...

Scott Foster

MonotaRO (3064 JP): Sell into Current Rally

Sales growth and profitability remain firm, but valuations are extended and the shares have reached Overbought territory. Sell into current strength.

Scott Foster

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