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

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Taiwan Stock Exchange Weighted Index / Technical Analysis

<ul>
<li>The bear market rally that we have discussed since our Sept. 29 Int'l Compass has managed to surpass our price targets, which were YTD downtrends on the ACWX-US and EFA-US.</li>
<li>As a result of these bullish reversals and breakdowns on the US dollar (DXY) and 10-year Treasury yield, we are upgrading our outlook to neutral.</li>
<li>Buy ideas on a pullback in: Consumer Discretionary, Energy, and Technology/Tech Services</li>
</ul>


The bear market rally that we have discussed since our Sept. 29 Int'l Compass has managed to surpass our price targets, which were YTD downtrends on the ACWX-US and EFA-US.
As a result of these bullish reversals and breakdowns on the US dollar (DXY) and 10-year Treasury yield, we are upgrading our outlook to neutral.
Buy ideas on a pullback in: Consumer Discretionary, Energy, and Technology/Tech Services


Bullish Reversals Continue: TAIEX, KOSPI, AEX, Hang Seng, CSI 300. Buy Cyclicals/Growth on Pullbacks

<ul>
<li>
<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 4Q and full-year FY08/2022 results last week. Revenue increased 36.2% YoY to JPY17.9bn while OP increased 17.7% YoY to JPY 1.6bn during 4Q.</li>
<li>Full-Year revenue and OP grew 41% YoY (JPY64.9bn) and 73% YoY (JPY6.9bn) beating its own guidance while both revenue and OP fell slightly below consensus estimates.</li>
<li>Shift’s shares are down 14% YTD as the market excessively reacted to decline in margins which we think is unwarranted.</li>
</ul>



Shift Inc (3697 JP) reported 4Q and full-year FY08/2022 results last week. Revenue increased 36.2% YoY to JPY17.9bn while OP increased 17.7% YoY to JPY 1.6bn during 4Q.
Full-Year revenue and OP grew 41% YoY (JPY64.9bn) and 73% YoY (JPY6.9bn) beating its own guidance while both revenue and OP fell slightly below consensus estimates.
Shift’s shares are down 14% YTD as the market excessively reacted to decline in margins which we think is unwarranted.


Shift: Strong Earnings with Compelling Valuation

<ul>
<li>Shift reported 3QFY08/2022 results yesterday. Revenue grew 36.1% YoY to JPY17.1bn (vs consensus JPY18.3bn) while OP grew 25.7% to JPY1.3bn (vs consensus JPY1.54bn).</li>
<li>Revenue from the largest segment Enterprise market grew 35.3% while enterprise segment grew 47.5% YoY during the quarter.</li>
<li>According to Shift, the application of revenue recognition standard has lowered revenues and OP. The drop in OPM was due to heavy SG&amp;A expenses as a result of hiring.</li>
</ul>


Shift reported 3QFY08/2022 results yesterday. Revenue grew 36.1% YoY to JPY17.1bn (vs consensus JPY18.3bn) while OP grew 25.7% to JPY1.3bn (vs consensus JPY1.54bn).
Revenue from the largest segment Enterprise market grew 35.3% while enterprise segment grew 47.5% YoY during the quarter.
According to Shift, the application of revenue recognition standard has lowered revenues and OP. The drop in OPM was due to heavy SG&amp;A expenses as a result of hiring.


Shift 3Q: Earnings Below Consensus but Heavy Hiring Spend Should Help in the Long Run

<ul>
<li>
<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 2QFY08/2022 results last week. Revenue grew 43.5% YoY to JPY15.6bn (vs consensus JPY15.2bn) while OP 99.2% YoY to JPY1.9bn (vs consensus JPY1.1bn).</li>
<li>Both enterprise and entertainment markets saw strong growth in revenue while GPM of enterprise biz further expanded during the quarter.</li>
<li>Shift’s share price has moved up by about 16% since its results announcement and we think there is further upside.</li>
</ul>



Shift Inc (3697 JP) reported 2QFY08/2022 results last week. Revenue grew 43.5% YoY to JPY15.6bn (vs consensus JPY15.2bn) while OP 99.2% YoY to JPY1.9bn (vs consensus JPY1.1bn).
Both enterprise and entertainment markets saw strong growth in revenue while GPM of enterprise biz further expanded during the quarter.
Shift’s share price has moved up by about 16% since its results announcement and we think there is further upside.


Shift 2Q Results: Earnings Beat with Further Upgrade to Full-Year Guidance

Japan

DTS CORPORATION provides system, operation, and network engineering services for financial and communication-related companies.  The Company also provides product services and support services including system development, maintenance, and management.

TKC Corporation is an consulting firm that provides accounting and tax information with local and overseas clients.  The Company provides database services for judicial precedents in tax and civil law.  TKC develops and sells personal computer and office automation equipment, and also provides nationwide management data-process consulting services.

Net One Systems Co., Ltd. designs, installs, maintains and supports computer network systems.  The company also installs computer security related products and integrated audio visual data communication environment system by applying IP (Internet Protocol) technology.  Net One Systems builds virtualized data center environment as well.

Future Architect, Inc. provides information system and consulting services.  The Company offers a variety of services including system design and development of application software.

Digital Garage, Inc. is a web solution provider and a business incubator.  The Company provides Internet communications and strategy planning, electronic commerce solution tools, web creation and enhancement, and Internet advertising consulting services.

Transcosmos Inc is an independent data processing company that provides software development services. The Company develops and manages electronic commerce systems, and also provides marketing support services.

ZUKEN INC. plans, develops, and sells computer-aided design (CAD), computeraided manufacturing (CAM), and computer-aided engineering (CAE) system services. The Company operates an overseas production subsidiary in England and sales subsidiaries in the US, England, the Netherlands, Germany, Austria, Switzerland, France, Italy, Korea, and Singapore.

ARGO GRAPHICS Inc. develops CAD (Computer Aided Design) software.  The Company also provides consulting and maintenance services.  Argo Graphics also provides CATIA (Computer Graphics Aided Three Dimensional Interactive Application) related software and training program.  The Company provides its services for automobile, electric component, and communication industries.

Change Co., Ltd. provides IT and network security services and solutions. The company also delivers data analytics services and training related solutions.

TECHMATRIX CORPORATION provides system integration and solution services.  The Company's services include networking, security, and software quality assurance solutions.  TECHMATRIX provides consulting services and develops enterprise software for electronic commerce and financial companies.  The Company develops packaged software for hospital system and customer relationship management(CRM).

Chinasoft International Limited develops and provides solutions in China to government authorities and its IT (Information Technology) service providers. The Company also provides IT consulting and training services, IT outsourcing services and standalone software products.

CSG Systems International, Inc. provides customer care and billing solutions for cable television providers, direct broadcast satellite providers, on-line services markets, and telephony providers. The Company offers a suite of processing and related services, as well as software and professional services which automate customer care and billing functions.

PCI-Suntek Technology Co., Ltd. provides customer service solutions for telecommunication service providers, banks, and securities firms.  The Company develops voice service systems, calling center systems, telecommunication operation and maintenance systems, and other value-added service solutions.

Jasmine Telecom Systems PCL provides a wide range of telecommunications services and equipment. The Company leases submarine fiber optic cable network and provides satellite telecommunications,  Internet and satellite-based mobile communications services. Jasmine also supplies, designs, and installs telecommunication and computer networks, including other peripheral equipment.

Iress Limited provides real-time information services to businesses that specialize in the equity, equity options and future information markets in Australia and New Zealand. The Group supplies a range of pricing data, charting, news and equity and equity derivatives and also offers real-time trading tools, including a domestic order routing product and financial

MoneyGram International, Inc. provides payment services to consumers and businesses through a network of agents and its financial institution customers. The Company enables consumers to make payments and to transfer money around the world.

eClerx Services Limited provides data analytics and solutions to global enterprise clients in the financial services, retail and manufacturing industries. The Company offers data analytics, operations management, data audits, metrics management and reporting services.

Digital China Information Service Company Ltd is principally engaged in systems integration, technical services, application software development and finance special equipment related businesses.

Digital China Information Service (000555 CH)

Sabre Corporation provides technology solutions to the global travel and tourism industry. The Company offers tours and travel services, as well as, online reservations for airlines, hotels, cruises, car rental companies, and vacation packages.

Taiji Computer Corporation Limited develops, designs, manufactures, sells and repair computer, integrated circuit, software and communication equipment. The Company's services include industry-specific solution, IT consulting, value-added services, and IT infrastructure services.

SHIFT Inc. offers information technology outsourcing services. The Company provides outsourcing software testing services to corporations and individual clients. SHIFT also provides software solutions and consulting services, as well as educational classes and programs.

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Shift Inc (3697 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

Bullish Reversals Continue: TAIEX, KOSPI, AEX, Hang Seng, CSI 300. Buy Cyclicals/Growth on Pullbacks

Bullish reversals: Taiwan $TAIEX, Korea $KOSPI, Netherlands' $AEX reversing YTD downtrends, while Hang Seng $HSI and China's CSI 300 are reversing...

Vermilion Research

Shift: Strong Earnings with Compelling Valuation

Shift reported 4Q and full-year FY08/2022 results. Margins fell slightly below consensus due to less profitable projects. Market has been...

Shifara Samsudeen, ACMA, CGMA

Shift 3Q: Earnings Below Consensus but Heavy Hiring Spend Should Help in the Long Run

Shift's 3Q earnings fell short of consensus due to the application of revenue recognition standards and heavy spend on hiring. Shift's revenue...

Shifara Samsudeen, ACMA, CGMA

Shift 2Q Results: Earnings Beat with Further Upgrade to Full-Year Guidance

Shift reported 2QFY08/2022 results last week. Revenue grew 43.5% YoY to JPY15.6bn (vs consensus JPY15.2bn) while OP 99.2% YoY to JPY1.9bn (vs...

Shifara Samsudeen, ACMA, CGMA

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