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.

Event-Driven

<ul>
<li>Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent. </li>
<li>The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company. </li>
<li>This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.</li>
</ul>


Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent. 
The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company. 
This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.


Kadokawa – Investments From Sony and Tencent

<ul>
<li>Sony held the first of their two investor days yesterday presenting on the Game &amp; Network Services, Music and Pictures segments. </li>
<li>While there was nothing especially new for those paying attention to the broad flow of news conditions for the content businesses remain strong. </li>
<li>What was interesting to us was the degree of collaboration with Kadokawa.</li>
</ul>


Sony held the first of their two investor days yesterday presenting on the Game &amp; Network Services, Music and Pictures segments. 
While there was nothing especially new for those paying attention to the broad flow of news conditions for the content businesses remain strong. 
What was interesting to us was the degree of collaboration with Kadokawa.


Equity Bottom-Up

<ul>
<li>Kadokawa earnings were strong with 4Q OP 56% above consensus despite a meagre 1.5% beat at the revenue line. </li>
<li>Margin guidance was nonsensically conservative however as despite revenue guidance being in line with consensus the company guided for OP to miss by 25% and actually decline by 3.9% YoY. </li>
<li>That prompted a 16.3% decline the day after earnings but the stock has rebounded and now sits just 2.1% below its pre-earnings level.</li>
</ul>


Kadokawa earnings were strong with 4Q OP 56% above consensus despite a meagre 1.5% beat at the revenue line. 
Margin guidance was nonsensically conservative however as despite revenue guidance being in line with consensus the company guided for OP to miss by 25% and actually decline by 3.9% YoY. 
That prompted a 16.3% decline the day after earnings but the stock has rebounded and now sits just 2.1% below its pre-earnings level.


Kadokawa – How Much Upside Potential Does Elden Ring Offer?

<ul>
<li>As widely expected From Software’s Elden Ring title has proved a smash success selling 12m units within its first 17 days. </li>
<li>That puts the game in rare territory and establishes the Kadokawa subsidiary as one of the premier global developers. </li>
<li>There is also some potential for live services here which could add to the appeal for Sony.</li>
</ul>


As widely expected From Software’s Elden Ring title has proved a smash success selling 12m units within its first 17 days. 
That puts the game in rare territory and establishes the Kadokawa subsidiary as one of the premier global developers. 
There is also some potential for live services here which could add to the appeal for Sony.


Kadokawa – 12m Unit Sales and the Prospect of Live Service

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>Major global indices have relegated Russia to the "standalone" and "unclassified" market status. Talk of significant flows into major non-Russia EM markets such as China, Taiwan, Korea, etc is misguided. </li>
<li>Even if OLX and VK Group are written down to zero, the fall in <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>'s implied stub has overshot the mark</li>
<li>The founder and former chairman and CEO of <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a> has passed away. The estate may wish to sell Nexon shares, or its entire stake, at some point near-term.</li>
</ul>


Major global indices have relegated Russia to the "standalone" and "unclassified" market status. Talk of significant flows into major non-Russia EM markets such as China, Taiwan, Korea, etc is misguided. 
Even if OLX and VK Group are written down to zero, the fall in Prosus (PRX NA)'s implied stub has overshot the mark
The founder and former chairman and CEO of Nexon (3659 JP) has passed away. The estate may wish to sell Nexon shares, or its entire stake, at some point near-term.


Last Week in Event SPACE: Russia/Indices, Prosus, Virtus, Crown, Nexon, Hitachi Metals

Japan

KADOKAWA DWANGO CORP is a holding company established through the merger of DWAN GO and KADOKAWA. The company publishes a variety of books and magazines as well as produces movies and videos.  KADOKAWA DWANGO CORP also develops and makes int ernet communication tools for cellular phones.

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Kadokawa Dwango (9468 JP)

Kadokawa – Investments From Sony and Tencent

Investment in From Software by both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat...

Mio Kato

Sony – IR Day One and Kadokawa

Sony's first IR day covered its content businesses painting a picture of steady future growth, but what we found most interesting was just how much...

Mio Kato

Kadokawa – How Much Upside Potential Does Elden Ring Offer?

Kadokawa stock has rebounded after a sharp 16.3% decline after earnings when guidance was nonsensically conservative. The question is how upside...

Mio Kato

Kadokawa – 12m Unit Sales and the Prospect of Live Service

As widely expected From Software’s Elden Ring title has proved a smash success establishing the Kadokawa subsidiary as one of the premier global...

Mio Kato

Last Week in Event SPACE: Russia/Indices, Prosus, Virtus, Crown, Nexon, Hitachi Metals

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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