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

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<a href="https://www.smartkarma.com/entities/kakaku-com-inc" target="_blank" data-smartkarma-citation="entities:7408:1" rel="noopener">Kakaku.Com Inc (2371 JP)</a> (Kakaku)’s share price has fallen by around 33% since last February (since the company’s last financial results presentation). We believe that the stock is now in oversold territory. </li></ul><ul><li>The traditional price comparison service’s growth is dying, but Tabelog continues to impress, eating into the market share of its high-profile counterparts like Hot Pepper and Gurunavi.</li></ul>


Kakaku.Com Inc (2371 JP) (Kakaku)’s share price has fallen by around 33% since last February (since the company’s last financial results presentation). We believe that the stock is now in oversold territory. The traditional price comparison service’s growth is dying, but Tabelog continues to impress, eating into the market share of its high-profile counterparts like Hot Pepper and Gurunavi.

Kakaku.com: In Oversold Territory; Tabelog Continues to Impress

<ul><li>
<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>’s 3Q FY03/20 results show early signs of the risks that we highlighted in our previous notes materialising. In our note, <a href="https://www.smartkarma.com/insights/global-labour-markets-are-starting-to-slow-down-time-to-lay-off-recruit" target="_blank" data-smartkarma-citation="insights:35473" rel="noopener">Global Labour Markets Are Starting to Slow Down – Time To "Lay Off" Recruit</a>, we suggested that Recruit’s exposure to the Japanese and global labour markets is 84% and 71% of its consolidated revenue and EBITDA, hence, with global labour markets starting to slow down, and hiring stalls, Recruit’s growth could be hampered in the medium term. Recruit’s Staffing and HR Solutions revenue decreased by 3.3% YoY and 2.8% YoY respectively in FY03/20 (cf. +1.9% YoY and +7.7% YoY respectively in FY03/19). </li></ul><ul><li>In our note, <a href="https://www.smartkarma.com/insights/recruit-holdings-alternative-data-should-the-slowdown-in-indeed-warrant-a-discount" target="_blank" data-smartkarma-citation="insights:36574" rel="noopener">Recruit Holdings [Alternative Data]: Should the Slowdown in Indeed Warrant a Discount?</a>, we suggested that revenue growth of the HR Technology segment, which operates indeed.com (Indeed) and glassdoor.com (Glassdoor), would fall below 30% YoY (22%-28% YoY) for the first time in 3Q FY03/20. HR Technology segment revenue increased by c.28% in 3Q FY03/20. We believe most of this growth is due to better monetisation efforts at Glassdoor which could be maxing out soon, hence, HR Technology revenue growth is likely to be even lower over the next few quarters. 
</li></ul><ul><li>We didn’t find anything exciting to look forward to on the long side from Recruit’s 3Q FY03/20 results. We believe that the market would start discounting Recruit over the next few quarters as risks (that we have highlighted above) would become more obvious. Thus, with its valuation also at an all-time high, we believe it is a good time to short Recruit.  </li></ul>


Recruit Holdings (6098 JP)’s 3Q FY03/20 results show early signs of the risks that we highlighted in our previous notes materialising. In our note, Global Labour Markets Are Starting to Slow Down – Time To "Lay Off" Recruit, we suggested that Recruit’s exposure to the Japanese and global labour markets is 84% and 71% of its consolidated revenue and EBITDA, hence, with global labour markets starting to slow down, and hiring stalls, Recruit’s growth could be hampered in the medium term. Recruit’s Staffing and HR Solutions revenue decreased by 3.3% YoY and 2.8% YoY respectively in FY03/20 (cf. +1.9% YoY and +7.7% YoY respectively in FY03/19). In our note, Recruit Holdings [Alternative Data]: Should the Slowdown in Indeed Warrant a Discount?, we suggested that revenue growth of the HR Technology segment, which operates indeed.com (Indeed) and glassdoor.com (Glassdoor), would fall below 30% YoY (22%-28% YoY) for the first time in 3Q FY03/20. HR Technology segment revenue increased by c.28% in 3Q FY03/20. We believe most of this growth is due to better monetisation efforts at Glassdoor which could be maxing out soon, hence, HR Technology revenue growth is likely to be even lower over the next few quarters. 
We didn’t find anything exciting to look forward to on the long side from Recruit’s 3Q FY03/20 results. We believe that the market would start discounting Recruit over the next few quarters as risks (that we have highlighted above) would become more obvious. Thus, with its valuation also at an all-time high, we believe it is a good time to short Recruit.  

Recruit Holdings 3Q Update: Risks Have Started to Materialise

A slowdown in the HR Technology business, which operates two popular employment websites, indeed.com (Indeed) and glassdoor.com (Glassdoor), is one of many risks for <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> (Recruit) that we have highlighted in our previous notes. Our traffic analysis of Indeed and Glassdoor for 3Q FY03/20 show that HR Technology business revenue growth is likely to fall below 30% YoY for the first time.Both Indeed and Glassdoor are a big part of Recruit’s bull thesis and we believe they account for c.44% of the company’s total EV. The implied EV/Revenue multiple for the HR Technology business is currently 7x and is broadly on par with both Indeed’s and Glassdoor’s acquisition multiples. However, we doubt whether the market should continue to value the HR Technology at the same multiple now that growth has more than halved compared to the historical 5-year CAGR of c.69%.

A slowdown in the HR Technology business, which operates two popular employment websites, indeed.com (Indeed) and glassdoor.com (Glassdoor), is one of many risks for Recruit Holdings (6098 JP) (Recruit) that we have highlighted in our previous notes. Our traffic analysis of Indeed and Glassdoor for 3Q FY03/20 show that HR Technology business revenue growth is likely to fall below 30% YoY for the first time.Both Indeed and Glassdoor are a big part of Recruit’s bull thesis and we believe they account for c.44% of the company’s total EV. The implied EV/Revenue multiple for the HR Technology business is currently 7x and is broadly on par with both Indeed’s and Glassdoor’s acquisition multiples. However, we doubt whether the market should continue to value the HR Technology at the same multiple now that growth has more than halved compared to the historical 5-year CAGR of c.69%.

Recruit Holdings [Alternative Data]: Should the Slowdown in Indeed Warrant a Discount?

'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/000/116/367/original/2020-02-05_03-43-39.png?1580847984" class="editor-image img-responsive" data-smartkarma-image-id="116367"></figure><div class="content-caption">Source • Japan Analytics</div>4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new three-year low, although the Score is still positive. The Forecast/REvision Score added 13bps helped by <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> and <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao (4452 JP)</a> although the latter's forecast is optimistic as we discuss in the DETAIL below.<hr>• SECTOR TIMELINE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/368/original/2020-02-05_03-47-58.png?1580848469" class="editor-image img-responsive" data-smartkarma-image-id="116368"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - <a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya (7741 JP)</a>'s results were the largest factor in the decline in the Other Commerical Products Sector. <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> helped Healthcare tick up, while <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> fuelled the strong recovery in the Banks Sector.  <a href="https://www.smartkarma.com/entities/systena-corp" target="_blank" data-smartkarma-citation="entities:20438:1" rel="noopener">Systena (2317 JP)</a> and <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data (9613 JP)</a> added to the erosion of the Information Technology Sector's lead, although partially offset by <a href="https://www.smartkarma.com/entities/itochu-techno-solutions-corp" target="_blank" data-smartkarma-citation="entities:2431:1" rel="noopener">Itochu Techno Solutions (4739 JP)</a>.  <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui (8031 JP)</a> 21% yoy decline in Q3 Net Income continued to downtrend in the Wholesale Sector's Score.

Source • Japan Analytics4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new three-year low, although the Score is still positive. The Forecast/REvision Score added 13bps helped by Takeda Pharmaceutical (4502 JP) and Kao (4452 JP) although the latter's forecast is optimistic as we discuss in the DETAIL below.• SECTOR TIMELINE •Source • Japan AnalyticsSECTOR TIMELINE - Hoya (7741 JP)'s results were the largest factor in the decline in the Other Commerical Products Sector. Takeda Pharmaceutical (4502 JP) helped Healthcare tick up, while Mitsubishi UFJ Financial (MUFG) (8306 JP) fuelled the strong recovery in the Banks Sector.  Systena (2317 JP) and NTT Data (9613 JP) added to the erosion of the Information Technology Sector's lead, although partially offset by Itochu Techno Solutions (4739 JP).  Mitsui (8031 JP) 21% yoy decline in Q3 Net Income continued to downtrend in the Wholesale Sector's Score.   

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 4th February ▲2371 4502 4739 ▼7741 4452 2317

<ul><li>
<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>’s revenue exposure to the Japanese and global labour markets is around 84% which makes it cyclical and susceptible to macro trends. </li></ul><ul><li>Recruit’s share price has increased by nearly 4x over the past five years, putting the company’s valuation at a premium, both historically and against its peers. </li></ul><ul><li>This was on the back of a strong 5-year revenue CAGR of 14.2%, underpinned by both Japanese and global unemployment reaching historical lows. </li></ul><ul><li>However, with global labour markets starting to slow down, and hiring stalls, we believe Recruit’s growth will be hampered in the medium term. Our base case for Recruit assumes a 3-year revenue CAGR of 6.5% over FY03/19-22E. </li></ul><ul><li>Our NTM target price for Recruit is ¥3,235, which is 20% downside from the current market price of JPY 4,049 (as of 20th December 2019). </li></ul><ul><li>Upside risks to our thesis are limited. Global unemployment levels have already bottomed out. Hence, even if current tensions do wear-off, and global economies start heating up, we see only a little upside in labour/employment markets. Our bull case for Recruit is at ¥4,260 – an upside of only 5%. </li></ul><ul><li>Global labour markets are giving mixed signals; unemployment has bottomed out, but job growth is stalled. Should global economic tensions hold, we could see unemployment rates gradually start rising from next year onwards.</li></ul>


Recruit Holdings (6098 JP)’s revenue exposure to the Japanese and global labour markets is around 84% which makes it cyclical and susceptible to macro trends. Recruit’s share price has increased by nearly 4x over the past five years, putting the company’s valuation at a premium, both historically and against its peers. This was on the back of a strong 5-year revenue CAGR of 14.2%, underpinned by both Japanese and global unemployment reaching historical lows. However, with global labour markets starting to slow down, and hiring stalls, we believe Recruit’s growth will be hampered in the medium term. Our base case for Recruit assumes a 3-year revenue CAGR of 6.5% over FY03/19-22E. Our NTM target price for Recruit is ¥3,235, which is 20% downside from the current market price of JPY 4,049 (as of 20th December 2019). Upside risks to our thesis are limited. Global unemployment levels have already bottomed out. Hence, even if current tensions do wear-off, and global economies start heating up, we see only a little upside in labour/employment markets. Our bull case for Recruit is at ¥4,260 – an upside of only 5%. Global labour markets are giving mixed signals; unemployment has bottomed out, but job growth is stalled. Should global economic tensions hold, we could see unemployment rates gradually start rising from next year onwards.

Global Labour Markets Are Starting to Slow Down – Time To "Lay Off" Recruit

Japan

Kakaku.com, Inc provides price comparison services and products information through its website.  The Company also provides Internet advertising services.

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Kakaku.com Inc (2371 JP)

Kakaku.com: In Oversold Territory; Tabelog Continues to Impress

Kakaku.Com Inc (2371 JP) (Kakaku)’s share price has fallen by around 33% since last February (since the company’s last financial results...

Supun Walpola

Recruit Holdings 3Q Update: Risks Have Started to Materialise

Recruit Holdings (6098 JP)’s 3Q FY03/20 results show early signs of the risks that we highlighted in our previous notes materialising. In our...

Supun Walpola

Recruit Holdings [Alternative Data]: Should the Slowdown in Indeed Warrant a Discount?

A slowdown in the HR Technology business, which operates two popular employment websites, indeed.com (Indeed) and glassdoor.com (Glassdoor), is one...

Supun Walpola

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 4th February ▲2371 4502 4739 ▼7741 4452 2317

4TH FEBRUARY ROUNDUP - As expected the 121 Results and 41 Forecast/Revision announcements yesterday took our Results Score 16bps lower to a new...

Campbell Gunn

Global Labour Markets Are Starting to Slow Down – Time To "Lay Off" Recruit

Recruit Holdings (6098 JP)’s revenue exposure to the Japanese and global labour markets is around 84% which makes it cyclical and susceptible to...

Supun Walpola

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