Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Equity Bottom-Up

<ul>
<li>Japan's largest M&amp;A advisor for SMEs reported its Q2 results for the current FY ending March 2021;</li>
<li>The company continued to underperform its major peers in growth throughout the pandemic;</li>
<li>The economic moat remained intact, in our opinion, and venturing businesses kept booming;</li>
<li>We see the decline in volume as a major risk to our previous valuation assumption and will keep a close eye in this regard.</li>
</ul>


Japan's largest M&amp;A advisor for SMEs reported its Q2 results for the current FY ending March 2021;
The company continued to underperform its major peers in growth throughout the pandemic;
The economic moat remained intact, in our opinion, and venturing businesses kept booming;
We see the decline in volume as a major risk to our previous valuation assumption and will keep a close eye in this regard.


Nihon M&A Center: Our Takeaways From The Q2 Results

<ul>
<li>Without a doubt, Nihon M&amp;A Center offers a lot of qualities that we like;</li>
<li>However, the valuation should discourage many alpha-seeking investors, including us;</li>
<li>The high price multiple resonates with the low-total-return estimate based on our DCF analysis.</li>
</ul>


Without a doubt, Nihon M&amp;A Center offers a lot of qualities that we like;
However, the valuation should discourage many alpha-seeking investors, including us;
The high price multiple resonates with the low-total-return estimate based on our DCF analysis.


Nihon M&A Center: Superior Quality But Hefty Valuation

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><div>
<p>Our best and worst pair is child apparel specialist <a href="https://www.smartkarma.com/entities/nishimatsuya-chain-co-ltd" target="_blank" data-smartkarma-citation="entities:13375:1" rel="noopener">Nishimatsuya Chain (7545 JP)</a> and food ingredients maker <a href="https://www.smartkarma.com/entities/riken-vitamin-co-ltd" target="_blank" data-smartkarma-citation="entities:20980:1" rel="noopener">Riken Vitamin (4526 JP)</a>. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/836/original/2020-10-01_06-09-42.png?1601500212" class="editor-image img-responsive" data-smartkarma-image-id="162836"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/837/original/2020-10-01_06-13-47.png?1601500441" class="editor-image img-responsive" data-smartkarma-image-id="162837"></figure><p>Source for all charts &amp; tables: Japan Analytics</p>
</div>
<hr>
<div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div>
<hr>
<div><p style="text-align: center;"><strong>20 Quarterly Results</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 30% Positive / 10% Neutral / 60% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> -1.9 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -7.5% Quarter YoY / -9.9% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change:</strong> -10.1ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 20%</p></li>
</ul></div>
<hr>
<div><p style="text-align: center;"><strong>15 Annual • 7 Interim Forecasts/Revisions</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p>Annual Forecast/Revision Score: 35% Positive / 6% Neutral / 59% Negative</p></li>
<li><p>Interim Forecast/Revision Score Change: 60% Positive / 0% Neutral / 40% Negative</p></li>
<li><p>Average Forecast/Revision Score Change: +0.6 points</p></li>
</ul></div>
</div>

• BEST &amp; WORST •
Our best and worst pair is child apparel specialist Nishimatsuya Chain (7545 JP) and food ingredients maker Riken Vitamin (4526 JP). 

Source for all charts &amp; tables: Japan Analytics


DAILY STATS

20 Quarterly Results

Results Score: 30% Positive / 10% Neutral / 60% Negative
Average Results Score Change: -1.9 points
Average % Change in Revenue: -7.5% Quarter YoY / -9.9% Rolling TTM YoY 
Average Operating Profit Margin Change: -10.1ppt
Percentage Making Quarterly Losses: 20%


15 Annual • 7 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 35% Positive / 6% Neutral / 59% Negative
Interim Forecast/Revision Score Change: 60% Positive / 0% Neutral / 40% Negative
Average Forecast/Revision Score Change: +0.6 points



🇯🇵 JAPAN • Results & Revisions 09/​​​30 - Nishimatsuya Chain, Adastria, Strike, Riken Vitamin

<ul>
<li>One of our previous articles briefly touched upon the M&amp;A market for Japanese SMEs;</li>
<li>Given the promising prospect of the space, we would like to explore and compare the top three players;</li>
<li>Our evaluation is conducted from both business fundamentals and share valuation perspectives.</li>
</ul>


One of our previous articles briefly touched upon the M&amp;A market for Japanese SMEs;
Given the promising prospect of the space, we would like to explore and compare the top three players;
Our evaluation is conducted from both business fundamentals and share valuation perspectives.


A Deeper Look into Japan's SME M&A Advisory Boutiques

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/015/original/2020-09-19_10-11-42.png?1600477913" class="editor-image img-responsive" data-smartkarma-image-id="160015"></figure><p><strong>NEW 2-YEAR $ HIGH?</strong> - With the Yen on a tear against the US Dollar and the TOPIX index focused more on the inauguration of the Suga-era rather than NASDAQ, TOPIX in US dollars terms is within 1.2% of a new two-year high and is 36% above the March low. A supporting factor has been the Bank of Japan's ETF purchase program which now appears to be anticipating currency-induced declines, rather than responding to actual decreases in TOPIX. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/020/original/2020-09-19_10-48-20.png?1600480112" class="editor-image img-responsive" data-smartkarma-image-id="160020"></figure><p><strong>BULL v. BEARS</strong> - The technical market bulls will point to the 50-day moving average now being above the 200-day average. Bears will caution that we are the upper end of both the Toraku and Absolute Breadth ranges and are now 'rolling over'. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/021/original/2020-09-19_11-10-05.png?1600481514" class="editor-image img-responsive" data-smartkarma-image-id="160021"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/022/original/2020-09-19_11-13-43.png?1600481635" class="editor-image img-responsive" data-smartkarma-image-id="160022"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/023/original/2020-09-19_11-14-25.png?1600481694" class="editor-image img-responsive" data-smartkarma-image-id="160023"></figure><p><strong>AN SME MARKET</strong> - As we noted last week, the ratio between TOPIX Small and TOPIX equalled its twenty-month high on Friday and could well reach parity if the Yen continues to appreciate. Indeed, the Value-Traded ratio is firmly in favour of a domestic small-cap-led market. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/025/original/2020-09-19_11-20-35.png?1600482049" class="editor-image img-responsive" data-smartkarma-image-id="160025"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/026/original/2020-09-19_11-24-09.png?1600482261" class="editor-image img-responsive" data-smartkarma-image-id="160026"></figure><p><strong>AGGREGATE RESULTS &amp; REVISION SCORES YET TO BOTTOM</strong> - On several days last week, positive scores outweighed negative ones, and on Thursday, only one company has scored negatively. Nevertheless, the trend in the cap-weighted aggregate Scores has yet to see any recovery in earnings momentum.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/040/original/2020-09-19_12-34-38.png?1600486493" class="editor-image img-responsive" data-smartkarma-image-id="160040"></figure><p><strong>33x FY2021</strong> - The gap between forecast and trailing aggregate operating income is now ¥6.5 trillion and ¥3.7 trillion for net income. The forward earnings multiple is 32.6 times close to three times 2018's trailing low.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/041/original/2020-09-19_13-55-21.png?1600491337" class="editor-image img-responsive" data-smartkarma-image-id="160041"></figure><hr><p style="text-align: center;"><strong>• BEST &amp; WORST RESULTS &amp; REViSIONS •</strong></p><p style="text-align: left;">The 'best' announcements on Friday were from home centre <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">DCM (3050 JP)</a> and, surprisingly, <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca). </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/007/original/2020-09-19_09-47-20.png?1600476454" class="editor-image img-responsive" data-smartkarma-image-id="160007"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/009/original/2020-09-19_09-55-21.png?1600476933" class="editor-image img-responsive" data-smartkarma-image-id="160009"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><p>Friday's 'worst' were from <a href="https://www.smartkarma.com/entities/asahi-diamond-industrial-co" target="_blank" data-smartkarma-citation="entities:9032:1" rel="noopener">Asahi Diamond (6140 JP)</a> and Albert (3906 JP) </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/010/original/2020-09-19_09-58-46.png?1600477139" class="editor-image img-responsive" data-smartkarma-image-id="160010"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/012/original/2020-09-19_10-00-34.png?1600477245" class="editor-image img-responsive" data-smartkarma-image-id="160012"></figure><hr><p style="text-align: center;"><strong>DAILY STATS</strong></p><hr><div></div><div><p><strong>Both of Fridays' results scored negatively with Internet marketing company Albert (3906 JP) being the 'worst' - as above. Forecasts and Revisions reverted to bein net negative again.</strong></p></div><hr><div><p style="text-align: center;"><strong> 17 Annual • 13 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li>Annual Forecast/Revision Score: 24% Positive / 16% Neutral / 65% Negative</li>
<li>Interim Forecast/Revision Score Change: 31% Positive / 0% Neutral / 69% Negative</li>
<li>Average Forecast/Revision Score Change: -6.4 points</li>
</ul></div>

NEW 2-YEAR $ HIGH? - With the Yen on a tear against the US Dollar and the TOPIX index focused more on the inauguration of the Suga-era rather than NASDAQ, TOPIX in US dollars terms is within 1.2% of a new two-year high and is 36% above the March low. A supporting factor has been the Bank of Japan's ETF purchase program which now appears to be anticipating currency-induced declines, rather than responding to actual decreases in TOPIX. BULL v. BEARS - The technical market bulls will point to the 50-day moving average now being above the 200-day average. Bears will caution that we are the upper end of both the Toraku and Absolute Breadth ranges and are now 'rolling over'. AN SME MARKET - As we noted last week, the ratio between TOPIX Small and TOPIX equalled its twenty-month high on Friday and could well reach parity if the Yen continues to appreciate. Indeed, the Value-Traded ratio is firmly in favour of a domestic small-cap-led market. AGGREGATE RESULTS &amp; REVISION SCORES YET TO BOTTOM - On several days last week, positive scores outweighed negative ones, and on Thursday, only one company has scored negatively. Nevertheless, the trend in the cap-weighted aggregate Scores has yet to see any recovery in earnings momentum.33x FY2021 - The gap between forecast and trailing aggregate operating income is now ¥6.5 trillion and ¥3.7 trillion for net income. The forward earnings multiple is 32.6 times close to three times 2018's trailing low.• BEST &amp; WORST RESULTS &amp; REViSIONS •The 'best' announcements on Friday were from home centre DCM (3050 JP) and, surprisingly, H.U. Group (4544 JP) (formerly Miraca). Source for all charts &amp; tables: Japan AnalyticsFriday's 'worst' were from Asahi Diamond (6140 JP) and Albert (3906 JP) DAILY STATSBoth of Fridays' results scored negatively with Internet marketing company Albert (3906 JP) being the 'worst' - as above. Forecasts and Revisions reverted to bein net negative again. 17 Annual • 13 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 24% Positive / 16% Neutral / 65% Negative
Interim Forecast/Revision Score Change: 31% Positive / 0% Neutral / 69% Negative
Average Forecast/Revision Score Change: -6.4 points


🇯🇵 JAPAN • Market Update & Results & Revisions 09/​​​​​​​​​​18 - DCM, H.U., Strike

Japan

Strike Company, Limited is mainly engaged in M&A intermediary services for various business types.  The Company also offers advisory services.

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Strike (6196 JP)

Nihon M&A Center: Our Takeaways From The Q2 Results

Despite the formidable economic moat, superior profitability, and booming venturing businesses, we would stay cautious concerning the near-term...

Steven Chen

Nihon M&A Center: Superior Quality But Hefty Valuation

The high price multiple resonates with the low-total-return projection based on our DCF analysis and should discourage many alpha-seeking investors.

Steven Chen

🇯🇵 JAPAN • Results & Revisions 09/30 - Nishimatsuya Chain, Adastria, Strike, Riken Vitamin

• BEST & WORST • Our best and worst pair is home centre Keiyo (8168 JP) and the department store J Front Retailing (3086 JP) although the...

Campbell Gunn

A Deeper Look into Japan's SME M&A Advisory Boutiques

It is not difficult to understand the promising prospect of the space, driven by a combination of multiple structural shifts in the country: e.g.,...

Steven Chen

🇯🇵 JAPAN • Market Update & Results & Revisions 09/18 - DCM, H.U., Strike

• BEST & WORST • DAILY STATS Both of Fridays' results scored negatively 23 Annual • 10 Interim Forecasts/Revisions Annual...

Campbell Gunn

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Nihon M&A Center: Our Takeaways From The Q2 Results

Despite the formidable economic moat, superior profitability, and booming venturing businesses, we would stay cautious concerning the near-term...

Steven Chen

Nihon M&A Center: Superior Quality But Hefty Valuation

The high price multiple resonates with the low-total-return projection based on our DCF analysis and should discourage many alpha-seeking investors.

Steven Chen

🇯🇵 JAPAN • Results & Revisions 09/​​​30 - Nishimatsuya Chain, Adastria, Strike, Riken Vitamin

• BEST & WORST • Our best and worst pair is home centre Keiyo (8168 JP) and the department store J Front Retailing (3086 JP) although the...

Campbell Gunn

A Deeper Look into Japan's SME M&A Advisory Boutiques

It is not difficult to understand the promising prospect of the space, driven by a combination of multiple structural shifts in the country: e.g.,...

Steven Chen

🇯🇵 JAPAN • Market Update & Results & Revisions 09/​​​​​​​​​​18 - DCM, H.U., Strike

• BEST & WORST • DAILY STATS Both of Fridays' results scored negatively 23 Annual • 10 Interim Forecasts/Revisions Annual...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 09/30 - Nishimatsuya Chain, Adastria, Strike, Riken Vitamin

🇯🇵 JAPAN • Market Update & Results & Revisions 09/18 - DCM, H.U., Strike