Brief Consumer: Zozo: Looks Like There’s a Dead Cat in This Bouncy Zozosuit and more

In this briefing:

1. Zozo: Looks Like There’s a Dead Cat in This Bouncy Zozosuit
2. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team
3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
4. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

1. Zozo: Looks Like There’s a Dead Cat in This Bouncy Zozosuit

ZOZO Inc (3092 JP) is up almost 30% since its mid February low and roughly flat compared to the date of Michael Causton and our recent collaborative in-depth look (Zozo: A Shooting Star Shooting Itself in the Foot) at the company’s structural problems.

We believe this presents an excellent opportunity to look at the stock on the short side again.

We would also refer readers to an article from Livedoor news which delves into the company’s issues from a local industry insider’s perspective. The article is in Japanese and the google translated version is almost unintelligible but we summarise the salient points and our perspective below.

2. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.

Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.

CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.

3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth

Dongzheng Automotive Finance (2718 HK) is looking to raise approximately US$300 – 500m in its upcoming IPO. 

DAF is a fast growing auto finance company which acquires customers through a network of dealership around China. Its net interest income grew by 66% CAGR from FY2016 to FY2018 while net fees/comms income and profit grew by 39.6% and 61% CAGR over the same period.

However, most of its growth originated from ZhengTong dealers and joint promotion arrangement. Excluding loans from joint promotion arrangement, gross outstanding loan had only grown by 12% CAGR.

In this insight, we will look at the company’s business, analyze the competitive landscape, provide thoughts on valuation, and some questions for management.

4. Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either

Up Fintech (TIGR US) plans to raise up to US$91m in its US listing. The company counts Xiaomi Corp (1810 HK) and Interactive Brokers Group, Inc (IBKR US) as its main investors.

In my earlier insights, I commented about Tiger’s reliance on IBKR and compared its operations with Futu Holdings Ltd (FHL US):

• Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I’ll run the deal through our framework and comment on valuations.