Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

<p>The war between <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>/<a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a> and Rakuten for leadership in digital ecosystems has seen Z Holdings acquire new partners and subsidiaries, and take leadership in cashless payments and then messaging through its merger with <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a>.</p><p>Now <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> is fighting back with a truly game changing deal with <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP)</a> that could provide the reach and finance to develop new synergies in e-commerce, logistics, cashless payments and points, banking, insurance and mobile.</p><p><strong>This is a major reset in the rivalry in digital commerce, making Rakuten almost like a state-backed enterprise – with all the benefits that implies. Z Holdings should be worried.</strong></p>

The war between Softbank Corp (9434 JP)/Z Holdings (4689 JP) and Rakuten for leadership in digital ecosystems has seen Z Holdings acquire new partners and subsidiaries, and take leadership in cashless payments and then messaging through its merger with LINE Corp (3938 JP).Now Rakuten Inc (4755 JP) is fighting back with a truly game changing deal with Japan Post Holdings (6178 JP) that could provide the reach and finance to develop new synergies in e-commerce, logistics, cashless payments and points, banking, insurance and mobile.This is a major reset in the rivalry in digital commerce, making Rakuten almost like a state-backed enterprise – with all the benefits that implies. Z Holdings should be worried.

Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

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

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<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) is looking to raise around US$400m via selling a mix of primary and secondary shares. </p>
<p>We had looked at the company at the time of listing, links to our previous notes are below: </p>
</div><div><ul style="list-style-type: disc;">
<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></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></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>, and</li>
<li><a href="https://www.smartkarma.com/insights/freee-ipo-trading-priced-at-par-to-comp-it-now-boils-down-to-how-much-premium-it-can-trade-at" target="_blank" rel="noopener">Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At</a></li>
</ul></div><div><p>In this note, we'll run the deal through our ECM framework and talk about deal dynamics.</p></div>


Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. 
We had looked at the company at the time of listing, links to our previous notes are below: 

freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts,
Freee K. K. Pre-IPO - The Battle Is Far from Over,

Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End, and
Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At
In this note, we'll run the deal through our ECM framework and talk about deal dynamics.

Freee Placement - Needs to Correct by a Whole Lot More

<p>Thanks to Covid-19 and the more long-term shift to digital shopping, the big three e-commerce platforms, Amazon, Rakuten and Z Holdings, plundered the physical retail sector last year, grabbing a significantly increased share of consumption, but the wider battle for digital dominance isn’t over yet.</p><p>Z Holdings is just closing on its deal with <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> and following that up with a proposed ¥500 billion investment programme which includes a focus on e-commerce. </p><p>But <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> has already responded this week with its breakthrough deal with <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP), </a><a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> and <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US).</a></p><p>Meanwhile, despite these efforts by the two domestics giants, <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> remained Japan's largest e-commerce operator in 2020 (by Gross Transaction Values) and doesn't look like giving up its poll position anytime soon.</p><p>ZHD has a lot of advantages and strengths on the customer capture and marketing side. It has one of the biggest and more alluring datasets of Japanese consumers out there, which is not just social media handles and click data but names and addresses and – adding in Zozo data – body and foot size and, as of last month, skin type.</p><p>ZHD needs to work hard to integrate all this and if it does so, will have a shot at leadership in digital ecosystems, but to win in e-commerce it must do something about fulfilment where it remains worryingly weak.</p>

Thanks to Covid-19 and the more long-term shift to digital shopping, the big three e-commerce platforms, Amazon, Rakuten and Z Holdings, plundered the physical retail sector last year, grabbing a significantly increased share of consumption, but the wider battle for digital dominance isn’t over yet.Z Holdings is just closing on its deal with LINE Corp (3938 JP) and following that up with a proposed ¥500 billion investment programme which includes a focus on e-commerce. But Rakuten Inc (4755 JP) has already responded this week with its breakthrough deal with Japan Post Holdings (6178 JP), Tencent Holdings (700 HK) and Walmart (WMT US).Meanwhile, despite these efforts by the two domestics giants, Amazon.com Inc (AMZN US) remained Japan's largest e-commerce operator in 2020 (by Gross Transaction Values) and doesn't look like giving up its poll position anytime soon.ZHD has a lot of advantages and strengths on the customer capture and marketing side. It has one of the biggest and more alluring datasets of Japanese consumers out there, which is not just social media handles and click data but names and addresses and – adding in Zozo data – body and foot size and, as of last month, skin type.ZHD needs to work hard to integrate all this and if it does so, will have a shot at leadership in digital ecosystems, but to win in e-commerce it must do something about fulfilment where it remains worryingly weak.

E-Commerce Wars in Japan: How Z Holdings Is Facing off Against Rakuten and Amazon

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<p>On 29 September 2020, <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> announced it would buy out minorities of <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> in a $40 billion buyout - the biggest Tender Offer Japan had ever seen. </p><p>As it was financed with debt, that constituted the single biggest "stock buyback" that NTT could possibly have executed. Normally, NTT buys back ¥200-350bn of <em>stock</em> per year. With this buyout bought ¥200+bn of <em>net income</em> per year. </p><p>This came on top of previous statements by the CEO of NTT that the company would seek to sell and securitize trillions of yen of assets and return capital to shareholders. </p><p>Shockingly NTT shares fell on the news of the buyout. I could not fathom why. They may have overpaid what they needed to pay to get it done, but it was going to get done. They were going to pay ¥4trln of debt, <em>and zero equity</em>, to get ¥210-250bn in net income and ¥400bn+ of operating cashflow, presumably for a very long time, in exchange for a relatively low interest rate payment.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/695/original/Screenshot%202020-11-06%20at%202.31.50%20PM.png?1604644954" class="editor-image img-responsive" data-smartkarma-image-id="169695"></figure></section><div class="content-highlight">
<p>Several people contacted me when this was announced and asked whether I was worried about NTT being too indebted. </p>
<p>My blunt answer to them was that I was not at all worried. This was, in effect, a MAMMOTH BUYBACK and NTT had real estate assets, tower assets, and any number of other hard assets which could be sold or securitized to pay down debt and there was no chance that NTT was going to issue equity. The simple reason why there would be no equity top up was and is that the NTT Law requires that the government hold one-third* of the shares outstanding of NTT and there is no chance that the government is going to be convinced to buy more shares of NTT to maintain their stake. This was pure leverage and pure net income to NTT shareholders. </p>
</div><div class="content-remarks"><p>* It's a little complicated because there is some weirdness where IPO shares are excluded from the calculation, but it comes VERY close to one-third in practical terms.</p></div><h3>The NEW News</h3><p>On Friday 6 November NTT released Q2 earnings. They will not overwhelm anyone and there wasn't much talk about what the plans are for synergies at NTT Docomo, but I think that has to be expected because the Tender Offer, while a foregone conclusion in terms of rights, is not even over yet.</p><p>However I think people STILL do not look at NTT and its results the right way. What we knew Friday? <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> OP in Q2 was +8.3%yoy. <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data Corp (9613 JP)</a> was up 9.5%yoy. What we did <em>not</em> know was that NTT ex-listed subs OP was up 4.7%yoy. That was better than expected. </p><p>NTT ex-listed subs OP has continued to grow over the years. The rolling 4Q total is the blue bars below (the red bars are the implied quarterly OP based on consensus OP annual estimates (out to March 2023) for NTT, NTT Docomo and NTT Data backing out NTT ex-listed subs).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/726/original/Screenshot%202020-11-06%20at%205.21.56%20PM.png?1604654537" class="editor-image img-responsive" data-smartkarma-image-id="169726"></figure><p>What was clear from the discussion that NTT led on the day of the announcement of the Tender Offer to buy in minorities of NTT Docomo was that they saw synergies, and they saw lower costs compared to what the Street was expecting. For whatever reason, as will be discussed below, Street consensus for forward years of NTT does not include all of NTT Docomo. And it seems to include no synergies.</p></section><h3>The OTHER NEW News - A Buyback</h3><p>Up to 120mm shares spending up to ¥250bn from 11 March to 31 March 2021. </p><p>THAT was unexpected. </p><p>This deserves a discussion.</p>

On 29 September 2020, NTT (Nippon Telegraph &amp; Telephone) (9432 JP) announced it would buy out minorities of NTT Docomo Inc (9437 JP) in a $40 billion buyout - the biggest Tender Offer Japan had ever seen. As it was financed with debt, that constituted the single biggest "stock buyback" that NTT could possibly have executed. Normally, NTT buys back ¥200-350bn of stock per year. With this buyout bought ¥200+bn of net income per year. This came on top of previous statements by the CEO of NTT that the company would seek to sell and securitize trillions of yen of assets and return capital to shareholders. Shockingly NTT shares fell on the news of the buyout. I could not fathom why. They may have overpaid what they needed to pay to get it done, but it was going to get done. They were going to pay ¥4trln of debt, and zero equity, to get ¥210-250bn in net income and ¥400bn+ of operating cashflow, presumably for a very long time, in exchange for a relatively low interest rate payment.
Several people contacted me when this was announced and asked whether I was worried about NTT being too indebted. 
My blunt answer to them was that I was not at all worried. This was, in effect, a MAMMOTH BUYBACK and NTT had real estate assets, tower assets, and any number of other hard assets which could be sold or securitized to pay down debt and there was no chance that NTT was going to issue equity. The simple reason why there would be no equity top up was and is that the NTT Law requires that the government hold one-third* of the shares outstanding of NTT and there is no chance that the government is going to be convinced to buy more shares of NTT to maintain their stake. This was pure leverage and pure net income to NTT shareholders. 
* It's a little complicated because there is some weirdness where IPO shares are excluded from the calculation, but it comes VERY close to one-third in practical terms.The NEW NewsOn Friday 6 November NTT released Q2 earnings. They will not overwhelm anyone and there wasn't much talk about what the plans are for synergies at NTT Docomo, but I think that has to be expected because the Tender Offer, while a foregone conclusion in terms of rights, is not even over yet.However I think people STILL do not look at NTT and its results the right way. What we knew Friday? NTT Docomo Inc (9437 JP) OP in Q2 was +8.3%yoy. NTT Data Corp (9613 JP) was up 9.5%yoy. What we did not know was that NTT ex-listed subs OP was up 4.7%yoy. That was better than expected. NTT ex-listed subs OP has continued to grow over the years. The rolling 4Q total is the blue bars below (the red bars are the implied quarterly OP based on consensus OP annual estimates (out to March 2023) for NTT, NTT Docomo and NTT Data backing out NTT ex-listed subs).What was clear from the discussion that NTT led on the day of the announcement of the Tender Offer to buy in minorities of NTT Docomo was that they saw synergies, and they saw lower costs compared to what the Street was expecting. For whatever reason, as will be discussed below, Street consensus for forward years of NTT does not include all of NTT Docomo. And it seems to include no synergies.The OTHER NEW News - A BuybackUp to 120mm shares spending up to ¥250bn from 11 March to 31 March 2021. THAT was unexpected. This deserves a discussion.

Telco/Internet specialist

Kirk Boodry

Redex Research

<p style="text-align: justify;"><strong>Z Holdings posted Q2 20 results that were modestly ahead of consensus but its first pass at full-year guidance fell well short of analyst expectations. The difference is renewed investment to leverage solid H1 growth in eCommerce/fintech users. That makes sense but it is harder to justify a 57% YTD run in the shares with FY20 operating income growth of only 5%. Operationally, some moderation in merchandise eCommerce and sluggish ad sales was more than offset by a massive rebound in online travel and continued momentum for cashless payments.  </strong></p>

Z Holdings posted Q2 20 results that were modestly ahead of consensus but its first pass at full-year guidance fell well short of analyst expectations. The difference is renewed investment to leverage solid H1 growth in eCommerce/fintech users. That makes sense but it is harder to justify a 57% YTD run in the shares with FY20 operating income growth of only 5%. Operationally, some moderation in merchandise eCommerce and sluggish ad sales was more than offset by a massive rebound in online travel and continued momentum for cashless payments.  

Z Holdings - Q2 20 Results: Travel Business Amazes but Guidance May Be Less Appealing

Japan

A Holdings Corporation develops and operates the LINE application for smartphones. The Company offers games distribution, music distribution, advertisements, and other services. A Holdings serves clients across worldwide.

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A Holdings (3938 JP)

Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

Japan Post's investment in Rakuten is a genuinely seismic shift in the balance of power in digital ecosystems in Japan, bolstering Rakuten where it...

Michael Causton

Freee Placement - Needs to Correct by a Whole Lot More

Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. In this note, we'll run the deal...

Sumeet Singh

E-Commerce Wars in Japan: How Z Holdings Is Facing off Against Rakuten and Amazon

2020 boosted the fortunes of the big 3 e-commerce platforms in Japan but Z Holdings remains far behind Amazon Japan and Rakuten in sales volume and...

Michael Causton

NTT - Go Big Or Go Home

Hot on the heels of announcing a $40bn buyout of Docomo minorities - effectively a giant buyback - NTT announced a buyback of its own stock. It...

Travis Lundy

Z Holdings - Q2 20 Results: Travel Business Amazes but Guidance May Be Less Appealing

Newly issued full-year guidance is well below market expectations and driven by renewed investment to build eCommerce and fintech. That is sensible...

Kirk Boodry

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