IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Renrui Human Resources / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/renrui-human-resources-techn" target="_blank" data-smartkarma-citation="entities:28134:1" rel="noopener">Renrui Human Resources (6919 HK)</a> is the largest company operating in China’s flexible staffing services market by revenue in 2018, accounting for a 2.5% market share. Renrui has launched a Hong Kong IPO to raise net proceeds of HK$971 million ($124 million) at the mid-point of the IPO price range.</p><div class="content-highlight"><p>On the surface, Renrui appears to be heading in the right direction as the 1H19 results demonstrated robust growth, margin progression and cash generation. However, a closer look reveals several areas of caution. On balance, we are inclined to err on the side of caution by sitting out this IPO. </p></div>

Renrui Human Resources (6919 HK) is the largest company operating in China’s flexible staffing services market by revenue in 2018, accounting for a 2.5% market share. Renrui has launched a Hong Kong IPO to raise net proceeds of HK$971 million ($124 million) at the mid-point of the IPO price range.On the surface, Renrui appears to be heading in the right direction as the 1H19 results demonstrated robust growth, margin progression and cash generation. However, a closer look reveals several areas of caution. On balance, we are inclined to err on the side of caution by sitting out this IPO. 

Renrui HR Technology IPO Initiation: Not the Perfect Candidate

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

<p><a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a>  reported its 2Q FY03/20 financial results last week. The company reported revenue of JPY607bn (+5.0% YoY) and EBITDA of JPY90bn (+18.1% YoY) for 2QFY03/20. </p><p>Recruit’s 2Q FY03/20 revenue growth was almost similar to that of 1Q FY03/20 (+5.1% YoY) – however, there were a few notable differences between the two quarters. These include 1) decrease in revenue growth in the HR Technology segment due to the impact of the consolidation of Glassdoor wearing off, which was offset by, 2) revenue from domestic staffing operations picking up compared to the last quarter. </p><p>Recruit’s EBITDA margin also improved by 170bps to 14.9% in 2Q FY03/20 (cf. 13.2% in 2Q FY03/19). This was due to 1) EBITDA margin of Japanese staffing operations increasing due to the revisions to the labour law and 2) EBITDA of the HR Technology segment improving due to timing differences in marketing expenses. Out of the two, the latter is not sustainable. </p><p><strong>Despite Recruit’s rather strong 2Q FY03/20 results, concerns looming the company still remain abreast. Growth in domestic staffing operations, despite picking up in 2Q FY03/20, is still lower than in previous years. Global labour markets are also in a slowdown due to prevailing political and economic headwinds. The sustainability of revenue growth in some key sub-segments in the Media and Solutions segment, such as Travel (due to increased booking fees) and Housing and Real Estate (due to increased marketing spending) is also questionable. </strong></p>

Recruit Holdings (6098 JP)  reported its 2Q FY03/20 financial results last week. The company reported revenue of JPY607bn (+5.0% YoY) and EBITDA of JPY90bn (+18.1% YoY) for 2QFY03/20. Recruit’s 2Q FY03/20 revenue growth was almost similar to that of 1Q FY03/20 (+5.1% YoY) – however, there were a few notable differences between the two quarters. These include 1) decrease in revenue growth in the HR Technology segment due to the impact of the consolidation of Glassdoor wearing off, which was offset by, 2) revenue from domestic staffing operations picking up compared to the last quarter. Recruit’s EBITDA margin also improved by 170bps to 14.9% in 2Q FY03/20 (cf. 13.2% in 2Q FY03/19). This was due to 1) EBITDA margin of Japanese staffing operations increasing due to the revisions to the labour law and 2) EBITDA of the HR Technology segment improving due to timing differences in marketing expenses. Out of the two, the latter is not sustainable. Despite Recruit’s rather strong 2Q FY03/20 results, concerns looming the company still remain abreast. Growth in domestic staffing operations, despite picking up in 2Q FY03/20, is still lower than in previous years. Global labour markets are also in a slowdown due to prevailing political and economic headwinds. The sustainability of revenue growth in some key sub-segments in the Media and Solutions segment, such as Travel (due to increased booking fees) and Housing and Real Estate (due to increased marketing spending) is also questionable. 

Recruit Holdings: Strong 2Q Results But Too Expensive for Our Liking

<p><a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a>  has announced a secondary offering of 21.5m shares (around 7.2% of the total shares outstanding). The offer allows thirteen of its current shareholders to reduce their holdings in the company. The offer will be priced between 10th-12th of September at a 0%-10% discount.</p><p>In this note, we take closer look at Recruit’s fundamentals ahead of its proposed secondary offer.</p>

Recruit Holdings (6098 JP)  has announced a secondary offering of 21.5m shares (around 7.2% of the total shares outstanding). The offer allows thirteen of its current shareholders to reduce their holdings in the company. The offer will be priced between 10th-12th of September at a 0%-10% discount.In this note, we take closer look at Recruit’s fundamentals ahead of its proposed secondary offer.

Recruit Holdings: A Closer Look at Fundamentals Ahead of the Secondary Offer

Recruit Holdings / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a> announced a secondary offering of 121.5 million shares (7.2% of shares outstanding), assuming the over-allotment options are fully exercised. Recruit has launched the offering to provide an opportunity for thirteen shareholders to reduce their holdings.</p><div class="content-highlight"><p>Recruit shares have increased around 3x in three years, adjusting for the three-for-one stock split effective on July 2017. The strong outperformance is due to the solid performance of its three business segments - HR Technology, Media &amp; Solutions and Staffing. However, from a valuation perspective, Recruit is fully priced, and we would need a 10% discount to participate in the offering.</p></div>

Recruit Holdings (6098 JP) announced a secondary offering of 121.5 million shares (7.2% of shares outstanding), assuming the over-allotment options are fully exercised. Recruit has launched the offering to provide an opportunity for thirteen shareholders to reduce their holdings.Recruit shares have increased around 3x in three years, adjusting for the three-for-one stock split effective on July 2017. The strong outperformance is due to the solid performance of its three business segments - HR Technology, Media &amp; Solutions and Staffing. However, from a valuation perspective, Recruit is fully priced, and we would need a 10% discount to participate in the offering.

Recruit Holdings Secondary Offering: Coming at a Full Valuation

'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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/809/original/2019-08-04_13-24-01.png?1564892655" class="editor-image img-responsive" data-smartkarma-image-id="94809"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>SOUTHBOUND</strong> - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/810/original/2019-08-04_13-32-15.png?1564893149" class="editor-image img-responsive" data-smartkarma-image-id="94810"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/812/original/2019-08-04_13-39-03.png?1564893556" class="editor-image img-responsive" data-smartkarma-image-id="94812"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>BREAKDOWN</strong> - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/816/original/2019-08-04_13-44-46.png?1564893904" class="editor-image img-responsive" data-smartkarma-image-id="94816"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>YEN DRIVER</strong> - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1" rel="noopener">JUSDJPY CURNCY</a> over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.</p></div><center></center><div class="content-caption">The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell</div>

Source: Japan AnalyticsSOUTHBOUND - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.Source: Japan AnalyticsBREAKDOWN - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.Source: Japan AnalyticsYEN DRIVER - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in JUSDJPY CURNCY over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    In the DETAIL section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell

🇯🇵 Japan • Summer Results & Revisions First Cut - Southbound

Japan

Persol Holdings Co., Ltd. provides human resource solutions to a wide variety of customers worldwide. The Company's main operations include temporary staffing services, contract services, and employment services. Temp Holdings also provides outsourcing services and employment support services for job seekers.

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Persol Holdings (2181 JP)

Renrui HR Technology IPO Initiation: Not the Perfect Candidate

Renrui Human Resources (6919 HK) is the largest company operating in China’s flexible staffing services market by revenue in 2018, accounting for a...

Arun George

Recruit Holdings: Strong 2Q Results But Too Expensive for Our Liking

Recruit Holdings (6098 JP) reported its 2Q FY03/20 financial results last week. The company reported revenue of JPY607bn (+5.0% YoY) and EBITDA of...

Supun Walpola

Recruit Holdings: A Closer Look at Fundamentals Ahead of the Secondary Offer

Recruit Holdings (6098 JP) has announced a secondary offering of 21.5m shares (around 7.2% of the total shares outstanding). The offer allows...

Supun Walpola

Recruit Holdings Secondary Offering: Coming at a Full Valuation

Recruit Holdings (6098 JP) announced a secondary offering of 121.5 million shares (7.2% of shares outstanding), assuming the over-allotment options...

Arun George

🇯🇵 Japan • Summer Results & Revisions First Cut - Southbound

SOUTHBOUND - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings...

Campbell Gunn

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