'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)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/030/original/2020-04-15_06-24-46.png?1586899501" class="editor-image img-responsive" data-smartkarma-image-id="128030"></figure><div class="content-caption">Source • Arbor Data Science</div><p><strong>PEAK ANXIETY</strong> - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on Google, is rising as is online criticism of the government's measured approach.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/036/original/File%202020-04-15%203%2004%2046.jpeg?1586899729" class="editor-image img-responsive" data-smartkarma-image-id="128036"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/037/original/File%202020-04-15%203%2006%2028.jpeg?1586899741" class="editor-image img-responsive" data-smartkarma-image-id="128037"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/039/original/File%202020-04-15%203%2005%2041.jpeg?1586899760" class="editor-image img-responsive" data-smartkarma-image-id="128039"></figure><div class="content-caption">Source • Apple</div><p><strong>MOBILITY TRENDS</strong> - Apple is now using direction requests in Apple Maps to <a href="https://www.apple.com/covid19/mobility" target="_blank" rel="noopener">chart</a> 'mobility trends' around the world. Transit mobility is Tokyo is 51% below the level of three months ago and is 42% lower across Japan. The data for other countries illustrates the more limited impact of Japan's containment measures and in our view is a reasonable measure of the relative effect on GDP and supports our bullish view on 'domestic' Japan.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/042/original/2020-04-15_06-39-49.png?1586900420" class="editor-image img-responsive" data-smartkarma-image-id="128042"></figure><div class="content-caption">Source • Our World in Data</div><p><strong>OUR WORLD IN DATA</strong> - We have long been a fan of our alma mater Oxford University's Global Change Data Lab. Their COVID-19 slide deck was released yesterday and is well worth your time. We have selected a few slides below that are relevant to Japan.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/043/original/File%202020-04-14%2018%2032%2003.jpeg?1586900548" class="editor-image img-responsive" data-smartkarma-image-id="128043"></figure><ul><li>Japan's fatalities are doubling every ten days - one of the lowest rates globally.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/044/original/File%202020-04-14%2018%2039%2010.jpeg?1586900641" class="editor-image img-responsive" data-smartkarma-image-id="128044"></figure><ul><li>Japan's Case Fatality Rate (CFR) of 1.8% is within the lower bound and does not suggest an under-reporting of cases.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/045/original/File%202020-04-14%2018%2040%2043.jpeg?1586900773" class="editor-image img-responsive" data-smartkarma-image-id="128045"></figure><ul><li>Japan's CFR has been steadily declining and is now below that od Taiwan and South Korea.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/046/original/File%202020-04-14%2018%2033%2050.jpeg?1586900867" class="editor-image img-responsive" data-smartkarma-image-id="128046"></figure><ul><li>Lastly, Japan's death per million population is the lowest in the developed world.</li></ul><p></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/052/original/2020-04-15_06-53-50.png?1586901264" class="editor-image img-responsive" data-smartkarma-image-id="128052"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE OTHER ZOOM</strong> - On a lighter note, ZOOM (6694 JP) is a Japanese niche audio recording equipment specialist. The recent 75% 'pop' in the share price may be a case of mistaken identity ;).</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/055/original/2020-04-15_07-06-30.png?1586902007" class="editor-image img-responsive" data-smartkarma-image-id="128055"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>IN OTHER NEWS</strong> - We have always found the case for <a href="https://www.smartkarma.com/entities/japan-display-inc" target="_blank" data-smartkarma-citation="entities:8280:1" rel="noopener">Japan Display (6740 JP)</a> as limited at best and were surprised to see Ichigo Asset Management, and less so INCJ, inject new capital into the business which had a negative net worth of ¥108b in December. After an investigation which delayed the reporting of their third-quarter results, it now appears that the company has been engaging in improper accounting practices. An overvaluation of inventories has inflated consolidated operating income by ¥7.7 billion. The amounts are a small drop in the ocean of red ink displayed above. OF greater interest is who, if anyone, will 'take responsibility'. We do not consider the shares 'investment-grade'.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/022/original/2020-04-15_04-21-02.png?1586892129" class="editor-image img-responsive" data-smartkarma-image-id="128022"></figure><div style="text-align: center;" class="content-caption">Source • Japan Analytics</div><p><strong>MID AND SMALL</strong> - Lastly in this section, we would note that TOPIX Small is lagging TOPIX in this 'FOMO rally'. Smaller stocks are more domestically-orientated and for those without liquidity or sizing constraints trade at significantly more attractive valuations.</p><p>In the <strong>DETAIL </strong>below, we shall review the large-cap results, revisions and initial forecast announcements made yesterday. The positive/neutral/negative balance for all 96 results was 39:15:42; for the 39 revisions/forecasts, the split was 18:4:17. We are now 'winding down' for the results for February/May/August/November companies. There were no large-cap revisions yesterday and only six large-cap results. Of the 59 companies that reported full-year results yesterday, only 30 made initial forecasts for the current year and none of the five large-caps did so. As with the delay in annual reports discussed in our previous Insight, investors will have to learn to 'make do' with much less information this year.</p><p>By popular request, we shall keep providing this series of Insights to reflect the evolving response of Japan's corporates to the pandemic.  </p>

Source • Arbor Data SciencePEAK ANXIETY - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on Google, is rising as is online criticism of the government's measured approach.Source • AppleMOBILITY TRENDS - Apple is now using direction requests in Apple Maps to chart 'mobility trends' around the world. Transit mobility is Tokyo is 51% below the level of three months ago and is 42% lower across Japan. The data for other countries illustrates the more limited impact of Japan's containment measures and in our view is a reasonable measure of the relative effect on GDP and supports our bullish view on 'domestic' Japan.Source • Our World in DataOUR WORLD IN DATA - We have long been a fan of our alma mater Oxford University's Global Change Data Lab. Their COVID-19 slide deck was released yesterday and is well worth your time. We have selected a few slides below that are relevant to Japan.Japan's fatalities are doubling every ten days - one of the lowest rates globally.Japan's Case Fatality Rate (CFR) of 1.8% is within the lower bound and does not suggest an under-reporting of cases.Japan's CFR has been steadily declining and is now below that od Taiwan and South Korea.Lastly, Japan's death per million population is the lowest in the developed world.Source • Japan AnalyticsTHE OTHER ZOOM - On a lighter note, ZOOM (6694 JP) is a Japanese niche audio recording equipment specialist. The recent 75% 'pop' in the share price may be a case of mistaken identity ;).Source • Japan AnalyticsIN OTHER NEWS - We have always found the case for Japan Display (6740 JP) as limited at best and were surprised to see Ichigo Asset Management, and less so INCJ, inject new capital into the business which had a negative net worth of ¥108b in December. After an investigation which delayed the reporting of their third-quarter results, it now appears that the company has been engaging in improper accounting practices. An overvaluation of inventories has inflated consolidated operating income by ¥7.7 billion. The amounts are a small drop in the ocean of red ink displayed above. OF greater interest is who, if anyone, will 'take responsibility'. We do not consider the shares 'investment-grade'.Source • Japan AnalyticsMID AND SMALL - Lastly in this section, we would note that TOPIX Small is lagging TOPIX in this 'FOMO rally'. Smaller stocks are more domestically-orientated and for those without liquidity or sizing constraints trade at significantly more attractive valuations.In the DETAIL below, we shall review the large-cap results, revisions and initial forecast announcements made yesterday. The positive/neutral/negative balance for all 96 results was 39:15:42; for the 39 revisions/forecasts, the split was 18:4:17. We are now 'winding down' for the results for February/May/August/November companies. There were no large-cap revisions yesterday and only six large-cap results. Of the 59 companies that reported full-year results yesterday, only 30 made initial forecasts for the current year and none of the five large-caps did so. As with the delay in annual reports discussed in our previous Insight, investors will have to learn to 'make do' with much less information this year.By popular request, we shall keep providing this series of Insights to reflect the evolving response of Japan's corporates to the pandemic.  

🇯🇵 JAPAN • Revisions & Results 14th April - Peak Anxiety

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a> (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of our bull-thesis for MF was its new pricing plan for the MF Business (then known as “MF Cloud” – a SaaS-type service platform for businesses). MF Business revenue increased by c.55% YoY in FY11/19 on the back of the new price plan. However, we have concerns over the sustainability of this growth, and we expect MF Business revenue to increase at a much lower 3-year CAGR of c.36% over the forecast period. We also believe that the chances of MF making positive EBITDA over the next 2-3 years is slim as the company continues to spend heavily on customer acquisition. We see positives for MF in its MF Home and MF X business segments; however, it is unlikely that these would materialise in a meaningful way in the next 2-3 years. </p>

Money Forward (3994 JP) (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of our bull-thesis for MF was its new pricing plan for the MF Business (then known as “MF Cloud” – a SaaS-type service platform for businesses). MF Business revenue increased by c.55% YoY in FY11/19 on the back of the new price plan. However, we have concerns over the sustainability of this growth, and we expect MF Business revenue to increase at a much lower 3-year CAGR of c.36% over the forecast period. We also believe that the chances of MF making positive EBITDA over the next 2-3 years is slim as the company continues to spend heavily on customer acquisition. We see positives for MF in its MF Home and MF X business segments; however, it is unlikely that these would materialise in a meaningful way in the next 2-3 years. 

Money Forward: The New Price Plan Might Not Be As Successful As It Seems

Shifara Samsudeen, ACMA, CGMA

<p>Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are the company’s first post-IPO earnings. During the second quarter, Freee reported revenues of JPY1,580m, a 56.1% increase compared to the same quarter a year ago. The growth in revenue was mainly driven by an increase in the number of paid customers alongside growth in ARPU during the quarter.</p>

Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are the company’s first post-IPO earnings. During the second quarter, Freee reported revenues of JPY1,580m, a 56.1% increase compared to the same quarter a year ago. The growth in revenue was mainly driven by an increase in the number of paid customers alongside growth in ARPU during the quarter.

Freee’s First Post-IPO Results: Revenues and Paid Customers Increase

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">Freee (4478 JP)</a> (freee) raised US$322m in its mothers listing in Japan. Freee was founded by an ex-Google employee and counts <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> and <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> amongst its shareholders. It operates in the SaaS segment and hence, is likely to draw ample attention. </p></div><div><p>In my earlier notes:</p></div><div>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/freee-pre-ipo-has-been-growing-fast-but-missing-data-points-leave-quite-a-few-niggling-doubts" target="_blank" rel="noopener">freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts</a>, I talked about the company’s background and analysed its past performance.</li>
<li>
<a href="https://www.smartkarma.com/insights/freee-k-k-pre-ipo-the-battle-is-far-from-over" target="_blank" rel="noopener">Freee K. K. Pre-IPO - The Battle Is Far from Over,</a> I look at what peers have been doing and how Freee stacks up against its peers.</li>
<li>
<a href="https://www.smartkarma.com/insights/free-k-k-ipo-it-s-not-exactly-freee-but-looks-ok-at-the-lower-end" target="_blank" rel="noopener">Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End</a>, I ran the deal through our ECM framework and commented on valuations.</li>
</ul>
<p>In this note, I'll look at the deal dynamics and provide a table with implied valuation at different share price levels.</p>
</div>

Freee (4478 JP) (freee) raised US$322m in its mothers listing in Japan. Freee was founded by an ex-Google employee and counts Recruit Holdings (6098 JP) and LINE Corp (3938 JP) amongst its shareholders. It operates in the SaaS segment and hence, is likely to draw ample attention. In my earlier notes:


freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts, I talked about the company’s background and analysed its past performance.

Freee K. K. Pre-IPO - The Battle Is Far from Over, I look at what peers have been doing and how Freee stacks up against its peers.

Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End, I ran the deal through our ECM framework and commented on valuations.

In this note, I'll look at the deal dynamics and provide a table with implied valuation at different share price levels.


Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At

<p>Freee offers cloud-based online accounting and HR/Payroll software to small and medium businesses (SMBs) in Japan. The company operates a subscription-based revenue model and the adoption of cloud-based accounting and HR software among SMBs is still at a nascent stage compared to other Western markets. According to the company, it is the market leader in accounting/HR software for SMBs in Japan and the growing Japanese market offers the company the potential togrow its top-line significantly over the years.</p><p>The company has been very profitable at the gross profit line with gross margin reaching almost 80% in 1QFY06/2020. However, the company has not yet begun making operating profits and we believe the operating losses are mainly due to increased spending on sales and marketing to acquire customers. Freee’s paying user base has increased over the years alongside a steady rise in ARPU resulting in rapid expansion in the company’s top-line. Our quantamental analysis on the company reveals that it will start generating profits over the next two years with sales and marketing expenses declining as a percentage of revenue over the next 1-2 years.</p><p>Freee has filed for an IPO onthe TSE to raise funds of US$307m at the midpoint of the company’s indicative IPO price range of JPY1,800-2,000 per share. We believe the company is fairly valued including at the high-end of the IPO price range.</p>

Freee offers cloud-based online accounting and HR/Payroll software to small and medium businesses (SMBs) in Japan. The company operates a subscription-based revenue model and the adoption of cloud-based accounting and HR software among SMBs is still at a nascent stage compared to other Western markets. According to the company, it is the market leader in accounting/HR software for SMBs in Japan and the growing Japanese market offers the company the potential togrow its top-line significantly over the years.The company has been very profitable at the gross profit line with gross margin reaching almost 80% in 1QFY06/2020. However, the company has not yet begun making operating profits and we believe the operating losses are mainly due to increased spending on sales and marketing to acquire customers. Freee’s paying user base has increased over the years alongside a steady rise in ARPU resulting in rapid expansion in the company’s top-line. Our quantamental analysis on the company reveals that it will start generating profits over the next two years with sales and marketing expenses declining as a percentage of revenue over the next 1-2 years.Freee has filed for an IPO onthe TSE to raise funds of US$307m at the midpoint of the company’s indicative IPO price range of JPY1,800-2,000 per share. We believe the company is fairly valued including at the high-end of the IPO price range.

Freee K.K. IPO: The King of Cloud Accounting in Japan Seems Reasonably Valued (Incl. Quantamental)

Japan

Money Forward, Inc. develops mobile application software. The Company produces automatic household account book softwares, household account book application softwares, and other products. Money Forward also provides personal financial management, cloud based accounting solutions, and other services.

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Money Forward (3994 JP)

🇯🇵 JAPAN • Revisions & Results 14th April - Peak Anxiety

PEAK ANXIETY - As Japan's COVID-19 case-count (8,006) and fatalities (151) continue to rise, public anxiety, as exemplified by symptom search on...

Campbell Gunn

Money Forward: The New Price Plan Might Not Be As Successful As It Seems

Money Forward (3994 JP) (MF)’s share price has increased by c.46% since we turned bullish on the company in July last year (2019). A big part of...

Supun Walpola

Freee’s First Post-IPO Results: Revenues and Paid Customers Increase

Freee, the Japanese cloud-based accounting and HR/Payroll software to small and medium businesses reported its 2QFY06/2020 results today which are...

Shifara Samsudeen, ACMA, CGMA

Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At

Freee (4478 JP) (freee) raised US$322m in its mothers listing in Japan. Freee was founded by an ex-Google employee and counts Recruit Holdings...

Sumeet Singh

Freee K.K. IPO: The King of Cloud Accounting in Japan Seems Reasonably Valued (Incl. Quantamental)

Freee offers cloud-based online accounting and HR/Payroll software to small and medium businesses (SMBs) in Japan. The company operates a...

Shifara Samsudeen, ACMA, CGMA

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