Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Bottom-Up

<p>In our next Smartkarma Webinar, we welcome back Insight Provider <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato</a>, who will walk us through his "ten-bagger" call in <a href="https://www.smartkarma.com/entities/mercari-inc" target="_blank" data-smartkarma-citation="entities:27149:1" rel="noopener">Mercari Inc (4385 JP)</a> , as outlined in his Insights including <a href="https://www.smartkarma.com/insights/mercari-our-ten-bagger-call-is-actually-starting-to-look-somewhat-sane" target="_blank" data-smartkarma-citation="insights:41946" rel="noopener">Mercari – Our Ten Bagger Call Is Actually Starting to Look Somewhat Sane</a> and <a href="https://www.smartkarma.com/insights/mercari-a-primer-to-refresh-our-top-conviction-call" target="_blank" data-smartkarma-citation="insights:41311" rel="noopener">Mercari – A Primer to Refresh Our Top Conviction Call</a> - a conviction that now seems justified after the ecommerce firm's latest results.</p>
<h3>The webinar was hosted on Wednesday, 2/September/2020, 5.00pm SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=87949345356" target="_blank" rel="noopener"></a>
</h3>
<p>Watch the session here:</p>
<p><iframe src="https://www.youtube.com/embed/eUeqH_G-l7I" width="560" height="315" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></p>
<p>Or subscribe to listen on the go:</p>
<p><iframe src="https://open.spotify.com/embed-podcast/episode/56bHljBgsSHM0iz3Bdhtat" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe></p>
<p>Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors such as Gaming, Factory Automation and Autos. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.</p>

In our next Smartkarma Webinar, we welcome back Insight Provider Mio Kato, who will walk us through his "ten-bagger" call in Mercari Inc (4385 JP) , as outlined in his Insights including Mercari – Our Ten Bagger Call Is Actually Starting to Look Somewhat Sane and Mercari – A Primer to Refresh Our Top Conviction Call - a conviction that now seems justified after the ecommerce firm's latest results.
The webinar was hosted on Wednesday, 2/September/2020, 5.00pm SGT/HKT.

Watch the session here:

Or subscribe to listen on the go:

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors such as Gaming, Factory Automation and Autos. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.

Smartkarma Webinar | Mercari: The Ten-Bagger Investment Thesis

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/689/original/2020-08-20_08-32-43.png?1597879991" class="editor-image img-responsive" data-smartkarma-image-id="153689"></figure><div class="content-caption">All charts sourced from Japan Analytics.</div><p><strong>BRUTAL</strong> - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit decline, the pace is more moderate than in the previous quarter. Japanese corporates are starting to engage in aggressive cost controls. As a result, an with no signs of virus abating or a vaccine being readily available, earnings will continue to decline in the current quarter. We have yet to reach a low point in this earnings cycle. Many companies delayed making initial forecasts for the current year. As that deficiency is gradually remedied, earnings forecasts are leading trailing results to the downside. The 'gap' for operating profits is ¥5.7 trillion, or 13%. A similar percentage fall applies to net income. Operating income is forecast to be 41% below the peak level of 2019; for net income, the decline is 57%. The aggregate forecast operating margin of 4.8%% is 294 bps lower than the peak, while the forecast net margin is 318 bps lower at 2.67%. If achieved, this outcome will exceed that of the 2008/9 financial crisis when the aggregate was negative. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/694/original/2020-08-20_09-02-34.png?1597881766" class="editor-image img-responsive" data-smartkarma-image-id="153694"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/695/original/2020-08-20_09-03-07.png?1597881801" class="editor-image img-responsive" data-smartkarma-image-id="153695"></figure><p><strong>TTM RESULTS &amp; FORECASTS</strong> - Using trailing-twelve-month data to smooth out the seasonality in earnings, TTM operating income is 29% lower year-on-year on a 6% decline in sales. Running the same comparison using published forecasts, operating profit expectations are 40% lower than a year ago and revenues 10% lower.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/727/original/2020-08-20_10-57-21.png?1597888653" class="editor-image img-responsive" data-smartkarma-image-id="153727"></figure><p><strong>DAMN THE TORPEDOES</strong> - Our scoring methodology tracks all quarterly results since 2003 and every annual and interim forecast made since 2013. The lines above represent the cap-weighted aggregates of those scores overlayed with the daily series for TOPIX. Other than the three years before the advent of 'Abenomics' and the last six months, the directional correlation is clear.  Mr Market, supported by the BoJ and Federal Reserve, is 'banking' on a sharp and sustained recovery over the next two quarters. </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. We shall also review our Results and Revision Scoring for the market, Sectors and Companies.</p></div>

All charts sourced from Japan Analytics.BRUTAL - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit decline, the pace is more moderate than in the previous quarter. Japanese corporates are starting to engage in aggressive cost controls. As a result, an with no signs of virus abating or a vaccine being readily available, earnings will continue to decline in the current quarter. We have yet to reach a low point in this earnings cycle. Many companies delayed making initial forecasts for the current year. As that deficiency is gradually remedied, earnings forecasts are leading trailing results to the downside. The 'gap' for operating profits is ¥5.7 trillion, or 13%. A similar percentage fall applies to net income. Operating income is forecast to be 41% below the peak level of 2019; for net income, the decline is 57%. The aggregate forecast operating margin of 4.8%% is 294 bps lower than the peak, while the forecast net margin is 318 bps lower at 2.67%. If achieved, this outcome will exceed that of the 2008/9 financial crisis when the aggregate was negative. TTM RESULTS &amp; FORECASTS - Using trailing-twelve-month data to smooth out the seasonality in earnings, TTM operating income is 29% lower year-on-year on a 6% decline in sales. Running the same comparison using published forecasts, operating profit expectations are 40% lower than a year ago and revenues 10% lower.DAMN THE TORPEDOES - Our scoring methodology tracks all quarterly results since 2003 and every annual and interim forecast made since 2013. The lines above represent the cap-weighted aggregates of those scores overlayed with the daily series for TOPIX. Other than the three years before the advent of 'Abenomics' and the last six months, the directional correlation is clear.  Mr Market, supported by the BoJ and Federal Reserve, is 'banking' on a sharp and sustained recovery over the next two quarters. In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. We shall also review our Results and Revision Scoring for the market, Sectors and Companies.

🇯🇵 JAPAN • IT’S A WRAP - Summer 2020 Results & Revisions Review

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<p>This is what Mercari just did:</p><ul>
<li>Delivered a consolidated operating profit in 4Q (¥984m vs. consensus -¥3,477m)</li>
<li>Hit their USD100m GMV a month target in the US which everyone, including us (and we like to think of ourselves as the biggest bulls on Mercari) had completely given up on.</li>
<li>Delivered 40% YoY GMV growth in Japan while cutting promotion costs by one third QoQ.</li>
<li>Proposed to change their board structure from 6 inside directors and 2 outside directors to 2 inside directors and 3 outside directors, including one female outside director.</li>
<li>Unveiled a new data business which we have been excitedly touting for some time.</li>
</ul><p>Yes, they benefitted from a COVID tailwind in both Japan and the US, but Mercari’s results outshine domestic EC-type competitors and their success in the US is eye-opening for a Japanese internet company. We are feeling very happy about this being our top conviction call for the year.</p>

This is what Mercari just did:
Delivered a consolidated operating profit in 4Q (¥984m vs. consensus -¥3,477m)
Hit their USD100m GMV a month target in the US which everyone, including us (and we like to think of ourselves as the biggest bulls on Mercari) had completely given up on.
Delivered 40% YoY GMV growth in Japan while cutting promotion costs by one third QoQ.
Proposed to change their board structure from 6 inside directors and 2 outside directors to 2 inside directors and 3 outside directors, including one female outside director.
Unveiled a new data business which we have been excitedly touting for some time.
Yes, they benefitted from a COVID tailwind in both Japan and the US, but Mercari’s results outshine domestic EC-type competitors and their success in the US is eye-opening for a Japanese internet company. We are feeling very happy about this being our top conviction call for the year.

Mercari – Our Ten Bagger Call Is Actually Starting to Look Somewhat Sane

<p>Zozo reported strong results with revenue up 19.4% to ¥33.7bn (consensus ¥32.1bn) and OP of ¥10.4bn (consensus ¥8.4bn). While results were strong, much of the OP beat was a result of restrained promotional spending and our analysis of the nature of growth suggests this is just the ecommerce bump from COVID and there is little evidence that the company has solved its saturation issue. Quite the opposite in fact as its new initiatives all appear to be mediocre or failing.</p>

Zozo reported strong results with revenue up 19.4% to ¥33.7bn (consensus ¥32.1bn) and OP of ¥10.4bn (consensus ¥8.4bn). While results were strong, much of the OP beat was a result of restrained promotional spending and our analysis of the nature of growth suggests this is just the ecommerce bump from COVID and there is little evidence that the company has solved its saturation issue. Quite the opposite in fact as its new initiatives all appear to be mediocre or failing.

Zozo – Nice Results but It’s Just a COVID Bump

<p>With Mercari up 85% for the year, we review the company’s business model and the factors we consider attractive for investors who may be new to the stock. Below we examine its three main businesses, Mercari Japan, Merpay and Mercari US.</p>

With Mercari up 85% for the year, we review the company’s business model and the factors we consider attractive for investors who may be new to the stock. Below we examine its three main businesses, Mercari Japan, Merpay and Mercari US.

Mercari – A Primer to Refresh Our Top Conviction Call

Japan

Mercari, Inc. operates as an electronic commercial company. The Company offers electronic commercial software, operation management, marketing planning, and other marketplace services. Mercari serves customers worldwide.

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Mercari (4385 JP)

Smartkarma Webinar | Mercari: The Ten-Bagger Investment Thesis

In our next Smartkarma Webinar, we welcome back Insight Provider Mio Kato, who will walk us through his "ten-bagger" call in Mercari Inc (4385 JP)...

Smartkarma Research

🇯🇵 JAPAN • IT’S A WRAP - Summer 2020 Results & Revisions Review

BRUTAL - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit...

Campbell Gunn

Mercari – Our Ten Bagger Call Is Actually Starting to Look Somewhat Sane

This is what Mercari just did: Delivered a consolidated operating profit in 4Q (¥984m vs. consensus -¥3,477m) Hit their USD100m GMV a month target...

Mio Kato

Zozo – Nice Results but It’s Just a COVID Bump

Zozo reported strong results with revenue up 19.4% to ¥33.7bn (consensus ¥32.1bn) and OP of ¥10.4bn (consensus ¥8.4bn). While results were strong,...

Mio Kato

Mercari – A Primer to Refresh Our Top Conviction Call

With Mercari up 85% for the year, we review the company’s business model and the factors we consider attractive for investors who may be new to the...

Mio Kato

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