Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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

We have detailed our reasons for believing that there could be some upside to expectations for earnings on Nintendo’s mobile games such as Mario Kart Tour and other games which could implement subscription style monetisation methods. Given DeNA’s positioning as Nintendo’s partner for those games we had considered the company to be a leveraged play on the potential for success in this area. After examining the company in more detail, we have changed that view slightly. Details below.

We have detailed our reasons for believing that there could be some upside to expectations for earnings on Nintendo’s mobile games such as Mario Kart Tour and other games which could implement subscription style monetisation methods. Given DeNA’s positioning as Nintendo’s partner for those games we had considered the company to be a leveraged play on the potential for success in this area. After examining the company in more detail, we have changed that view slightly. Details below.

DeNA – Buyback Protects Downside but Net Cash and Investments Dilute Upside Potential

With Shigeru Miyamoto himself declaring that he has Micky Mouse in his sights, Nintendo appears to be increasingly comfortable with its shift towards being more IP-focused rather than game-focused. This is of course, more a matter of degree as the company has always had stellar IP generation ability and will continue to be a console/handheld developer yet, but we sense an increasing confidence to their mobile and IP strategy which the sellside does not seem to truly appreciate, and we discuss this concept below.

With Shigeru Miyamoto himself declaring that he has Micky Mouse in his sights, Nintendo appears to be increasingly comfortable with its shift towards being more IP-focused rather than game-focused. This is of course, more a matter of degree as the company has always had stellar IP generation ability and will continue to be a console/handheld developer yet, but we sense an increasing confidence to their mobile and IP strategy which the sellside does not seem to truly appreciate, and we discuss this concept below.

Nintendo – “Switching” to an IP-Focused Business Model

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/452/original/2019-11-17_11-54-09.png?1573959284" class="editor-image img-responsive" data-smartkarma-image-id="106452"></figure><div class="content-caption">Source: Japan Analytics</div>4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/458/original/2019-11-17_12-49-55.png?1573962614" class="editor-image img-responsive" data-smartkarma-image-id="106458"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/106/459/original/2019-11-17_13-10-47.png?1573963867" class="editor-image img-responsive" data-smartkarma-image-id="106459"></figure><div class="content-caption">Source: Japan Analytics</div>THE EARNINGS CYCLE HAS YET TO BOTTOM -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.<div class="content-highlight">WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.</div>In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.

Source: Japan Analytics4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the market and, to loosely paraphrase the under-rated Jesse Winchester's second album title, this is the fourth straight 'down' quarter with the prospect a few more to come. Operating Income has declined by 7.8% and Net Income by 18.8%, taking margins to 6.9% and 4.6%, respectively - declines of 84bps and 122bps. The market has celebrated these new two-year lows by rising to new two-year highs, leaving some to wonder what they are missing, other than yet more central bank liquidity. The trailing-twelve-month (TTM) price-earnings ratio is now 17 times, the highest since 5th February 2018, ten trading days after the long-term market peak.Source: Japan AnalyticsTHE EARNINGS CYCLE HAS YET TO BOTTOM -  Our Results &amp; Forecast/Revision Score data series cover the last sixteen years of quarterly earnings and eleven years of forecasts and revisions and measure both results and forecasts but also their momentum, providing a better correlation with the market direction than past earnings.   The Forecast/Revision Score leads the Results Score by several months, and the market leads or lags depending on monetary and liquidity conditions. Although both Scores recovered in the last five days of results announcements, the Forecast/Revision Score of 0.45 reached on 8th November is the lowest such score in ten years and is suggesting that earnings have yet to bottom.WISHFUL THINKING? - The 'gap' between market expectations and actual and forecast earnings momentum is now wider than at any time since late 2014, shortly before the market peak of May 2015. Is this foresight or just wishful thinking? We tend to the latter interpretation.In the DETAIL section below, we shall provide a full breakdown of the results and revisions announcements by Sector, Peer Group and company and offer brief comments on several recommended buys and sells.

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cyberagent-inc" target="_blank" data-smartkarma-citation="entities:8197:1" rel="noopener">Cyberagent Inc (4751 JP)</a> reported its FY09/19 full-year financial results last week. Consolidated revenue and OP were ¥454 (+8.1% YoY) and ¥31bn (+2.2% YoY) respectively for FY09/19.  Cyberagent's OP beat consensus by 3.7%, mainly due to a surprise reduction in losses from AbemaTV and lower advertisement spend in the Game business, but revenue fell below consensus by 0.6%. Both revenue and OP were on par with our estimates (see our previous note: <a href="https://www.smartkarma.com/insights/cyberagent-revises-the-op-guidance-upwards-by-5-share-price-up-14" target="_blank" data-smartkarma-citation="insights:31374" rel="noopener">CyberAgent Revises the OP Guidance Upwards by 5%; Share Price Up 14%</a>). </li>
<li>The market reaction for the results was mostly negative as Cyberagent's share price was down 14% last week (closing at ¥3,455 on Friday) since the release of the results. We believe this negative reaction would have been sparked by rather mediocre results of Internet Advertisement and Game businesses coupled with scepticism over whether AbemaTV could deliver its promised results. However, despite these concerns, we still remain bullish on the stock.</li>
</ul>



Cyberagent Inc (4751 JP) reported its FY09/19 full-year financial results last week. Consolidated revenue and OP were ¥454 (+8.1% YoY) and ¥31bn (+2.2% YoY) respectively for FY09/19.  Cyberagent's OP beat consensus by 3.7%, mainly due to a surprise reduction in losses from AbemaTV and lower advertisement spend in the Game business, but revenue fell below consensus by 0.6%. Both revenue and OP were on par with our estimates (see our previous note: CyberAgent Revises the OP Guidance Upwards by 5%; Share Price Up 14%). 
The market reaction for the results was mostly negative as Cyberagent's share price was down 14% last week (closing at ¥3,455 on Friday) since the release of the results. We believe this negative reaction would have been sparked by rather mediocre results of Internet Advertisement and Game businesses coupled with scepticism over whether AbemaTV could deliver its promised results. However, despite these concerns, we still remain bullish on the stock.


Initial revenue generation by Mario Kart Tour has disappointed and DeNA is down 9% since its launch while Nintendo is down 13% (partly due to disappointment over Switch Lite as well).With almost five weeks playing time under our belt, we examine the title’s “gatcha” mechanics below and explain why we believe it could have staying power and should not be ignored.

Initial revenue generation by Mario Kart Tour has disappointed and DeNA is down 9% since its launch while Nintendo is down 13% (partly due to disappointment over Switch Lite as well).With almost five weeks playing time under our belt, we examine the title’s “gatcha” mechanics below and explain why we believe it could have staying power and should not be ignored. 

Nintendo - Too Early to Give up on Mario Kart Tour and Its Gatcha Mechanics

Japan

DeNA Co., Ltd. operates social media site, auction and shopping web site such as Mobage-town and Bidders.  DeNA also provides mobile-related services such as mobile game and community site.

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DeNA (2432 JP)

DeNA – Buyback Protects Downside but Net Cash and Investments Dilute Upside Potential

We have detailed our reasons for believing that there could be some upside to expectations for earnings on Nintendo’s mobile games such as Mario...

Mio Kato

Nintendo – “Switching” to an IP-Focused Business Model

With Shigeru Miyamoto himself declaring that he has Micky Mouse in his sights, Nintendo appears to be increasingly comfortable with its shift...

Mio Kato

🇯🇵 Japan • Results & Revisions Review - Wishful Thinking

4TH DOWN AND A FEW MORE TO GO - The latest quarterly results are now, with the exception of three large insurance companies are currently in the...

Campbell Gunn

CyberAgent (4751 JP): Buy the Dip?

Cyberagent Inc (4751 JP) reported its FY09/19 full-year financial results last week. Consolidated revenue and OP were ¥454 (+8.1% YoY) and ¥31bn...

Supun Walpola

Nintendo - Too Early to Give up on Mario Kart Tour and Its Gatcha Mechanics

Initial revenue generation by Mario Kart Tour has disappointed and DeNA is down 9% since its launch while Nintendo is down 13% (partly due to...

Mio Kato

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