Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

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

<ul>
<li>Shift offers outsourced software testing services and is the market leader in Japan. Software testing market is estimated at JPY5.5trn in Japan but only 1% of the market is outsourced.</li>
<li>The company has been rebranding itself from software testing provider to digital transformation (DX) and business services provider and this expansion has further potential to drive growth in the long-term.</li>
<li>Though Shift’s valuation multiples look expensive, we think there is further upside given the strong growth in top line alongside further improvement in margins.</li>
</ul>


Shift offers outsourced software testing services and is the market leader in Japan. Software testing market is estimated at JPY5.5trn in Japan but only 1% of the market is outsourced.
The company has been rebranding itself from software testing provider to digital transformation (DX) and business services provider and this expansion has further potential to drive growth in the long-term.
Though Shift’s valuation multiples look expensive, we think there is further upside given the strong growth in top line alongside further improvement in margins.


2023 High Conviction: Shift’s Growth Strategy Starting to Deliver Results

Japan Specialist

Mark Chadwick

Thematic (Sector/Industry)

<ul>
<li>The Nikkei was up 0.6% last week (-2.1% YTD) while the yen weakened 1.2% to 135/$ </li>
<li>Prime Minister Kishida met with US House Speaker Nancy Pelosi. China cancelled a meeting between the Foreign Ministers of Japan and China.  </li>
<li>Record high temperatures of 40c, record high Covid cases, 575k people evacuated due to torrential rain &amp; flooding.....keep calm and carry on.</li>
</ul>


The Nikkei was up 0.6% last week (-2.1% YTD) while the yen weakened 1.2% to 135/$ 
Prime Minister Kishida met with US House Speaker Nancy Pelosi. China cancelled a meeting between the Foreign Ministers of Japan and China.  
Record high temperatures of 40c, record high Covid cases, 575k people evacuated due to torrential rain &amp; flooding.....keep calm and carry on.


Japan Stocks on the Move | Money Forward, Monotaro, CyberAgent

<ul>
<li>MonotaRo is well placed to monetise the shift of enterprise MRO spending as it moves increasingly online</li>
<li>The company's new distribution centre will enable the company to increase capacity, speed up deliveries, and offer improved services to enterprise clients</li>
<li>Structural growth stories are few and far between in Japan. MonotaRo is one of them and appears expensive on most valuation metrics. Our LT DCF model suggests 30% upside</li>
</ul>


MonotaRo is well placed to monetise the shift of enterprise MRO spending as it moves increasingly online
The company's new distribution centre will enable the company to increase capacity, speed up deliveries, and offer improved services to enterprise clients
Structural growth stories are few and far between in Japan. MonotaRo is one of them and appears expensive on most valuation metrics. Our LT DCF model suggests 30% upside


MonotaRO (3064) | Another Decade of Secular Growth

Research from Mita Securities, Mita Securities

Mita Securities

Research from Mita Securities

Mita Securities provides a full scale diversified investment banking and financial services. A comprehensive investment banking department, specializes in rights offerings advisory, take-over bids agents, M&A etc. Including a proprietary trading desk, and wealth management department that offers brokerage, custody, real estate, and full proxy services.

<ul><li>Parent company sales in May were 16.401bn yen (+20.9% YoY), above the company’s monthly target</li><li>The number of business days was 19, one day more than in May 2021. The sales growth rate per business day was +14.5% YoY (+23.4% for April)</li><li>The negative impact of the Shanghai lockdown appears to be limited so far.</li></ul>

Parent company sales in May were 16.401bn yen (+20.9% YoY), above the company’s monthly targetThe number of business days was 19, one day more than in May 2021. The sales growth rate per business day was +14.5% YoY (+23.4% for April)The negative impact of the Shanghai lockdown appears to be limited so far.

MonotaRO (3064): Positive Impression on May Sales

<ul>
<li>Topix inclusion could generate some solid domestic passive buying interest, but we think the fundamentals remain Bearish</li>
<li>Mercari's GMV growth in Japan is slowing sharply. We see higher promotional costs impacting margins as competition with PayPay Flea market heats up</li>
<li>We think that street estimates are too high and we don't see a reason why the stock should be trading at substantial premium to Z Holdings</li>
</ul>


Topix inclusion could generate some solid domestic passive buying interest, but we think the fundamentals remain Bearish
Mercari's GMV growth in Japan is slowing sharply. We see higher promotional costs impacting margins as competition with PayPay Flea market heats up
We think that street estimates are too high and we don't see a reason why the stock should be trading at substantial premium to Z Holdings


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)

2023 High Conviction: Shift’s Growth Strategy Starting to Deliver Results

Being the market leader and having created a barrier in the enterprise software testing segment, Shift is well positioned to benefit from strong...

Shifara Samsudeen, ACMA, CGMA

Japan Stocks on the Move | Money Forward, Monotaro, CyberAgent

The Nikkei eked out a small gain last week despite negative macro conditions. 3 stocks in particular performed very well - MoneyForward, Monotaro,...

Mark Chadwick

MonotaRO (3064) | Another Decade of Secular Growth

MonotaRo is well placed to monetise the shift of enterprise MRO spending as it moves increasingly online. The company is lifting capacity and...

Mark Chadwick

MonotaRO (3064): Positive Impression on May Sales

Parent company sales in May were 16.401bn yen (+20.9% YoY), above the company’s monthly target. The number of business days was 19, one day more...

Mita Securities

Mercari (4385 JP) | Time to Flee

We are bearish on the outlook for Mercari's Japan business. Promotion costs are rising and margins are likely to come under further pressure. We...

Mark Chadwick

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