Japan Specialist

Mark Chadwick

Equity Bottom-Up

<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


Equity Analyst, LightStream Research

Oshadhi Kumarasiri

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.

<ul>
<li>Monotaro’s 1Q22 topline was broadly in line with expectations but OP overshot consensus and company guidance by ¥355m and ¥396m respectively as SG&amp;A fell short of the plan by ¥435m.</li>
<li>Although the market treated <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO Co Ltd (3064 JP)</a> as a pandemic stock, it has stronger fundamentals than most pandemic winners.</li>
<li>Shares are not cheap enough to be outright bullish but it is still a decent long hedge to short many other low-quality names.</li>
</ul>


Monotaro’s 1Q22 topline was broadly in line with expectations but OP overshot consensus and company guidance by ¥355m and ¥396m respectively as SG&amp;A fell short of the plan by ¥435m.
Although the market treated MonotaRO Co Ltd (3064 JP) as a pandemic stock, it has stronger fundamentals than most pandemic winners.
Shares are not cheap enough to be outright bullish but it is still a decent long hedge to short many other low-quality names.


<ul>
<li>Among many e-commerce names, <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">MonotaRO Co Ltd (3064 JP)</a> is one of the most promising with operating profitability predicted to improve by 200 bps to 14.0% by 2023.</li>
<li>Unlike many e-commerce players, the company doesn’t strain itself financially while pursuing revenue growth through expansion.</li>
<li>At 35.8x OP, MonotaRo is not cheap to be outright bullish. However, it is a reasonable long hedge to allow you to short a lot of other names in e-commerce.</li>
</ul>


Among many e-commerce names, MonotaRO Co Ltd (3064 JP) is one of the most promising with operating profitability predicted to improve by 200 bps to 14.0% by 2023.
Unlike many e-commerce players, the company doesn’t strain itself financially while pursuing revenue growth through expansion.
At 35.8x OP, MonotaRo is not cheap to be outright bullish. However, it is a reasonable long hedge to allow you to short a lot of other names in e-commerce.


Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

<ul>
<li>Results fell short of plan in the nine months to September. It looks like the company will miss FY Dec-21 sales and profit guidance by about 3%. </li>
<li>Sales growth is likely to remain high while margins remain under pressure.</li>
<li>If 20% sales growth can be maintained and margins stabilize, the P/E ratio could drop from more than 60x now to 40x over the next 3 years.</li>
</ul>


Results fell short of plan in the nine months to September. It looks like the company will miss FY Dec-21 sales and profit guidance by about 3%. 
Sales growth is likely to remain high while margins remain under pressure.
If 20% sales growth can be maintained and margins stabilize, the P/E ratio could drop from more than 60x now to 40x over the next 3 years.


MonotaRO (3064 JP): Falling Short of Guidance, Interview Takeaways Mixed

Shifara Samsudeen, ACMA, CGMA

<a href="https://www.smartkarma.com/entities/shift-inc" target="_blank" data-smartkarma-citation="entities:7266:1" rel="noopener">Shift Inc (3697 JP)</a> reported its 4QFY08/2021 and full-year FY08/2021 results on Tuesday (12th October) which saw revenues growing 60.2% YoY to JPY46.0bn from JPY28.7bn in FY08/2020. The operating profit for the year grew 69.8% YoY to JPY4.0bn vs JPY2.4bn in the previous year. Both reported revenue and OP beat Shift’s guidance by 2.2% and 17.5% respectively while revenue and OP beat consensus estimates by 0.4% and 4.5% respectively.The company’s share price rose 10.0% at the end of Wednesday’s close following the company’s strong FY08/2021 earnings.We discuss the details below.

Shift Inc (3697 JP) reported its 4QFY08/2021 and full-year FY08/2021 results on Tuesday (12th October) which saw revenues growing 60.2% YoY to JPY46.0bn from JPY28.7bn in FY08/2020. The operating profit for the year grew 69.8% YoY to JPY4.0bn vs JPY2.4bn in the previous year. Both reported revenue and OP beat Shift’s guidance by 2.2% and 17.5% respectively while revenue and OP beat consensus estimates by 0.4% and 4.5% respectively.The company’s share price rose 10.0% at the end of Wednesday’s close following the company’s strong FY08/2021 earnings.We discuss the details below.

Shift 4Q: Growth Story Is Getting Stronger

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)

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

MonotaRo: Not a Pandemic Stock

With the share price down 51% from the peak at one point, markets discounted MonotaRo alongside the rest of the pandemic stocks, even though the...

Oshadhi Kumarasiri

MonotaRo: A Rare Winner in E-Commerce

While most e-commerce players are fighting each other and the e-commerce arms of traditional businesses, MonotaRo operates in a niche with very...

Oshadhi Kumarasiri

MonotaRO (3064 JP): Falling Short of Guidance, Interview Takeaways Mixed

Falling short of guidance, but has been for two quarters. Sales rising at double-digit rates, but margin expansion unlikely. Not cheap at more than...

Scott Foster

Shift 4Q: Growth Story Is Getting Stronger

Shift reported FY08/2021 results which saw revenues growing 60.2% YoY to JPY46.0bn from JPY28.7bn a year ago. Both revenue and OP beat its own...

Shifara Samsudeen, ACMA, CGMA

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