Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

Consolidated sales were up 23.9% year-on-year in the three months to March (1Q of FY Dec-17), operating profit was up 27.5% and net profit up 41.9%. All these growth rates are above management's guidance for 1H (+21.4%, +19.6% and +23.8%) and FY Dec-17 as a whole (+21.0%, +22.2% and +24.6%), as well as our own more conservative projections. The gross margin rose to 31.1% from 30.9% a year earlier, the operating margin to 13.0% from 12.7% and the net margin to 9.5% from 8.3%. The number of new…

Consolidated sales were up 23.9% year-on-year in the three months to March (1Q of FY Dec-17), operating profit was up 27.5% and net profit up 41.9%. All these growth rates are above management's guidance for 1H (+21.4%, +19.6% and +23.8%) and FY Dec-17 as a whole (+21.0%, +22.2% and +24.6%), as well as our own more conservative projections. The gross margin rose to 31.1% from 30.9% a year earlier, the operating margin to 13.0% from 12.7% and the net margin to 9.5% from 8.3%. The number of new…

MonotaRO (3064 JP) : Off to a Good Start in 1Q

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back from last year's sell-off as double-digit sales and profit growth continue. The price/sales ratio drops to 3.5x over the next three years on our forecast, suggesting upside potential of more than 40% based on recent history valuation ranges. MonotaRO is the only pure-play e-commerce MRO investment in the Japanese stock market. With over 10,000 SKUs (stock keeping units - i.e., individual items, including gloves, hand and power tools, hardware, painting supplies, etc.) for sale to construction companies, manufacturers, the auto repair shops and other customers, the company is well-positioned to benefit from the convenience and economic efficiency that e-commerce brings to the B2B MRO market. Sales, which were up 21% to ¥69.6b in FY Dec-16, should exceed ¥110b within three years while operating profit, which was up 34% to ¥9.5b , should reach ¥17b.  ROE should remain above 30%. The greatest risk may be over-optimism. The customer base has expanded at an annual rate of 23% - 27% for the past seven years, resulting in larger absolute increases each year, which is not sustainable. Our forecast, which we believe is reasonably conservative, assumes that the customer growth rate will drop to 17% by 2019. That implies a 68% increase from 2.2 million to 3.7 million registered accounts over the next three years.That having been said, management is targeting further growth in customer acquisition this year, Japanese e-commerce appears to be far from mature, and consolidated subsidiaries in South Korea and Indonesia give MonotaRO the potential for meaningful expansion outside Japan.

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back from last year's sell-off as double-digit sales and profit growth continue. The price/sales ratio drops to 3.5x over the next three years on our forecast, suggesting upside potential of more than 40% based on recent history valuation ranges. MonotaRO is the only pure-play e-commerce MRO investment in the Japanese stock market. With over 10,000 SKUs (stock keeping units - i.e., individual items, including gloves, hand and power tools, hardware, painting supplies, etc.) for sale to construction companies, manufacturers, the auto repair shops and other customers, the company is well-positioned to benefit from the convenience and economic efficiency that e-commerce brings to the B2B MRO market. Sales, which were up 21% to ¥69.6b in FY Dec-16, should exceed ¥110b within three years while operating profit, which was up 34% to ¥9.5b , should reach ¥17b.  ROE should remain above 30%. The greatest risk may be over-optimism. The customer base has expanded at an annual rate of 23% - 27% for the past seven years, resulting in larger absolute increases each year, which is not sustainable. Our forecast, which we believe is reasonably conservative, assumes that the customer growth rate will drop to 17% by 2019. That implies a 68% increase from 2.2 million to 3.7 million registered accounts over the next three years.That having been said, management is targeting further growth in customer acquisition this year, Japanese e-commerce appears to be far from mature, and consolidated subsidiaries in South Korea and Indonesia give MonotaRO the potential for meaningful expansion outside Japan.

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Thematic (Sector/Industry)

On the 4th of February the Nikkei <a href="http://asia.nikkei.com/Business/Deals/Toyota-near-tie-up-with-Suzuki-on-development-procurement" target="_blank">reported</a> that <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor Corp (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/732" target="_blank" data-smartkarma-citation="entities:732:1">Suzuki Motor Corp (7269 JP)</a> were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. <a href="https://www.smartkarma.com/entities/20528" target="_blank" data-smartkarma-citation="entities:20528:1">Mazda Motor Corp (7261 JP)</a> may feel particularly pressured…

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an alliance on development and procurement. This was confirmed by the companies today with the statement that the broad terms of the deal have been agreed upon. The move continues a series of tie-ups conducted by Toyota in recent years and could place pressure on other players to seek similar tie-ups. Mazda Motor Corp (7261 JP) may feel particularly pressured…

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

Japan

MonotaRO Co., Ltd. mainly sells machine tools, engine parts, and factory consumable goods on the web site.

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MonotaRO Co Ltd (3064 JP)

MonotaRO (3064 JP) : Off to a Good Start in 1Q

Consolidated sales were up 23.9% year-on-year in the three months to March (1Q of FY Dec-17), operating profit was up 27.5% and net profit up...

Scott Foster

MonotaRO: Japan's "Amazon of Tools"

The share price of MonotaRO (3064 JP) - the Japanese e-commerce supplier of Maintenance, Repair and Operation (MRO) products - is bouncing back...

Scott Foster

Could Trump Add to Consolidation Pressure on Japan's Auto Industry

On the 4th of February the Nikkei reported that Toyota Motor Corp (7203 JP) and Suzuki Motor Corp (7269 JP) were in discussions regarding an...

Mio Kato

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