In today’s briefing:
- Akatsuki Inc (TYO 3932): A $188M Net Net Japanese Game Developer
- Yahoo Still Falling Further Behind Amazon and Rakuten
- Increasing Profitability to Gain Support from Overseas Investors Is a Condition for Higher Valuation
- JTEC Corp (3446) – Facing Some Challenges over Lead Times
Akatsuki Inc (TYO 3932): A $188M Net Net Japanese Game Developer
- Akatsuki Inc (TYO 3932) is a net-net Japanese video game developer with 10 years of profitability.
- They’re undergoing a big transformation in an effort to better compete globally by investing enormous amounts into their core development capabilities and increasing their average budget per game 3-6x.
- They recently formed a capital alliance with Sony (6758) and Koei Tecmo (TYO 3635) with each taking a 10% and 8% stake respectively.
Yahoo Still Falling Further Behind Amazon and Rakuten
- LY (4689 JP)‘s Yahoo Shopping looks to be in trouble after five straight quarters of negative growth while Amazon and Rakuten move ahead.
- Despite a revenue increase in 4Q2023, Yahoo Shopping continues to struggle with merchant fraud and a lack of a clear USP.
- If effective integration between the many parts of LY is not forthcoming soon, the company may eventually attract demands for better synergies, as well as a stick-wielding Softbank.
Increasing Profitability to Gain Support from Overseas Investors Is a Condition for Higher Valuation
- Even after the TSE’s request for a P/B increase, it is not possible to raise valuations simply on the expectation of a P/B increase without improving profitability.
- Most companies have cash allocation challenges. Companies with higher profitability will accumulate even more cash on hand, so higher level of shareholder return will further positively impact ROE and ROA.
- Some of the companies that have reduced valuations include those with relatively high ROE and ROA, so there are small-cap stocks with reduced valuations and increased investment opportunities.
JTEC Corp (3446) – Facing Some Challenges over Lead Times
- Lengthening order lead times impacting revenue recognition – Q1-3 FY6/24 results were behind expectations in our view, with sales declining 27.6% YoY.
- Whilst a negative optic, the reason stems from lengthening lead times for shipment, given customer demands for more high-end and exacting technical requirements for custom-made products requiring more time for delivery.
- We believe this highlights the value-added technical expertise of the company and delays in revenue recognition.
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