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

<p>Rakuten’s 3Q FY20 financial results did not carry any major surprises. We continue to prefer Rakuten among other Japanese e-commerce names, as we believe its strategy of improving monetisation of its existing users and increasing penetration into untapped markets through logistics expansion, better suits the maturing Japanese e-commerce market.</p><p>We believe Rakuten, excluding its mobile and logistics businesses, is undervalued, however, we do not see any short term catalysts that would drive Rakuten’s share price up, especially as we expect Rakuten to continue making operating losses in the next two years as the company continues to invest heavily on its mobile and logistics operations. However, we like Rakuten for its long-term potential and expect further upside once investments in mobile and logistics operations start making meaningful contributions.  </p>

Rakuten’s 3Q FY20 financial results did not carry any major surprises. We continue to prefer Rakuten among other Japanese e-commerce names, as we believe its strategy of improving monetisation of its existing users and increasing penetration into untapped markets through logistics expansion, better suits the maturing Japanese e-commerce market.We believe Rakuten, excluding its mobile and logistics businesses, is undervalued, however, we do not see any short term catalysts that would drive Rakuten’s share price up, especially as we expect Rakuten to continue making operating losses in the next two years as the company continues to invest heavily on its mobile and logistics operations. However, we like Rakuten for its long-term potential and expect further upside once investments in mobile and logistics operations start making meaningful contributions.  

Rakuten: E-Commerce Monetisation Is Improving, Logistics and Mobile Losses Aside

Telco/Internet specialist

Kirk Boodry

Redex Research

<p>Rakuten posted Q3 results that missed on profitability as the company ramped up spending on mobile to expand network coverage. With surveys of existing mobile users that show high marks for cost performance and simplicity but much less enthusiasm for network quality, this is what Rakuten needs to do to be competitive. Management said they are confident on progress towards profitability but this month’s monetization of its stake in Lyft and the sale of subordinated bonds indicate losses are going to continue for now. Results from the core eCommerce and Fintech segments were steady but not surprising as growth in the former moderated as Japan returned to normal whilst robust online trading boosted the latter as it did last quarter.  </p>

Rakuten posted Q3 results that missed on profitability as the company ramped up spending on mobile to expand network coverage. With surveys of existing mobile users that show high marks for cost performance and simplicity but much less enthusiasm for network quality, this is what Rakuten needs to do to be competitive. Management said they are confident on progress towards profitability but this month’s monetization of its stake in Lyft and the sale of subordinated bonds indicate losses are going to continue for now. Results from the core eCommerce and Fintech segments were steady but not surprising as growth in the former moderated as Japan returned to normal whilst robust online trading boosted the latter as it did last quarter.  

Rakuten - Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon

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.

<p style="text-align: justify;"><strong>Softbank Corp. posted a solid Q2 helped by Internet upside, a one-time gain from how it accounts for handset instalment plans and solid upside in enterprise sales as telework/WFH trends boost sales. The company kept FY guidance intact despite H1 outperformance as there could be headwinds from mobile pricing changes and higher spending at Z Holdings but management confidence on the analyst call was high.  Importantly, the company also provided reassurance on the dividend and reduced regulatory exposure. </strong></p>

Softbank Corp. posted a solid Q2 helped by Internet upside, a one-time gain from how it accounts for handset instalment plans and solid upside in enterprise sales as telework/WFH trends boost sales. The company kept FY guidance intact despite H1 outperformance as there could be headwinds from mobile pricing changes and higher spending at Z Holdings but management confidence on the analyst call was high.  Importantly, the company also provided reassurance on the dividend and reduced regulatory exposure. 

Softbank Corp - Q2 20 Results: Positive Financial Report and Dividend Reassurance

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

<ul>
<li>High-growth, High-return Kakaku.com Inc is a perfect example to demonstrate the case of quality growth;</li>
<li>Meanwhile, Tabelog, one of the company's core businesses, adds to the predictable near-term growth momentum.</li>
</ul>


High-growth, High-return Kakaku.com Inc is a perfect example to demonstrate the case of quality growth;
Meanwhile, Tabelog, one of the company's core businesses, adds to the predictable near-term growth momentum.


Two Things That We Like About Kakaku.com Inc

Japan

LY Corporation operates as an internet search engine "Yahoo! JAPAN". The Company provides electronic commerce and settlement finance services for small medium enterprises and individuals. LY also operates media business including search linked advertising and display advertising services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

LY (4689 JP)

Rakuten: E-Commerce Monetisation Is Improving, Logistics and Mobile Losses Aside

We like Rakuten for its long-term potential and expect further upside once investments in mobile and logistics operations start making meaningful...

Supun Walpola

Rakuten - Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon

Rakuten ramped up mobile investment in Q3 leading to higher than expected operating losses. Recent moves to raise cash indicate higher investment...

Kirk Boodry

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

Softbank Corp - Q2 20 Results: Positive Financial Report and Dividend Reassurance

For Q2 20, Softbank beat financial expectations, reassured on the dividend and highlighted how diversification has lowered regulatory exposure.

Kirk Boodry

Two Things That We Like About Kakaku.com Inc

We see Kakaku.com Inc as a superior-quality grower with predictable near-term momentum regarding one of its core product lines.

Steven Chen

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)