Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back from last year's sell-off as double-digit sales and profit growth continue. The price/sales ratio drops to 3.5x over the next three years on our forecast, suggesting upside potential of more than 40% based on recent history valuation ranges. MonotaRO is the only pure-play e-commerce MRO investment in the Japanese stock market. With over 10,000 SKUs (stock keeping units - i.e., individual items, including gloves, hand and power tools, hardware, painting supplies, etc.) for sale to construction companies, manufacturers, the auto repair shops and other customers, the company is well-positioned to benefit from the convenience and economic efficiency that e-commerce brings to the B2B MRO market. Sales, which were up 21% to ¥69.6b in FY Dec-16, should exceed ¥110b within three years while operating profit, which was up 34% to ¥9.5b , should reach ¥17b.  ROE should remain above 30%. The greatest risk may be over-optimism. The customer base has expanded at an annual rate of 23% - 27% for the past seven years, resulting in larger absolute increases each year, which is not sustainable. Our forecast, which we believe is reasonably conservative, assumes that the customer growth rate will drop to 17% by 2019. That implies a 68% increase from 2.2 million to 3.7 million registered accounts over the next three years.That having been said, management is targeting further growth in customer acquisition this year, Japanese e-commerce appears to be far from mature, and consolidated subsidiaries in South Korea and Indonesia give MonotaRO the potential for meaningful expansion outside Japan.

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back from last year's sell-off as double-digit sales and profit growth continue. The price/sales ratio drops to 3.5x over the next three years on our forecast, suggesting upside potential of more than 40% based on recent history valuation ranges. MonotaRO is the only pure-play e-commerce MRO investment in the Japanese stock market. With over 10,000 SKUs (stock keeping units - i.e., individual items, including gloves, hand and power tools, hardware, painting supplies, etc.) for sale to construction companies, manufacturers, the auto repair shops and other customers, the company is well-positioned to benefit from the convenience and economic efficiency that e-commerce brings to the B2B MRO market. Sales, which were up 21% to ¥69.6b in FY Dec-16, should exceed ¥110b within three years while operating profit, which was up 34% to ¥9.5b , should reach ¥17b.  ROE should remain above 30%. The greatest risk may be over-optimism. The customer base has expanded at an annual rate of 23% - 27% for the past seven years, resulting in larger absolute increases each year, which is not sustainable. Our forecast, which we believe is reasonably conservative, assumes that the customer growth rate will drop to 17% by 2019. That implies a 68% increase from 2.2 million to 3.7 million registered accounts over the next three years.That having been said, management is targeting further growth in customer acquisition this year, Japanese e-commerce appears to be far from mature, and consolidated subsidiaries in South Korea and Indonesia give MonotaRO the potential for meaningful expansion outside Japan.

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)

MonotaRO: Japan's "Amazon of Tools"

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back...

Scott Foster

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52-week Range

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