Brief Japan: Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA and more

In this briefing:

1. Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA
2. Yahoo Japan’s JV with OYO Could Be Big, If Tokyo Is Ready to “Co-Live”
3. 🇯🇵 Japan • Winter Large Cap Results & Revision Scores – Contrarian Buys & Sells/​Peak & Ex-Growth

1. Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA

Procurri Corporation (PROC SP) released FY18 results which showed the company growing revenues to 220M SGD (+21% vs FY17), EBITDA to 19.7M SGD (+185% vs FY17), PBT to 10.1M SGD (vs 2.3M loss in 2017) and a small net profit of 5.3M SGD which was artificially low because of an astronomical 47% tax rate. The high tax rate should reverse in 2H19 which would show the reported profitability of Procurri improve substantially. 

Procurri remains deep value trading at just 4.4x 2018 EV/EBITDA and 0.4x 2018 EV/Sales. If we adjust the FY18 net profit figure(assume 30% tax rate vs 47%) the shares trade at a P/E multiple of just 13x.

The shareholder register of Procurri has seen a dramatic change YTD with multiple announcements on SGX. The most significant development is the entry of Singapore PE fund Novo Tellus acquiring a 29.6% stake on 19/2/19. Consequently this means that the biggest corporate overhang on Procurri (read: the control by Declout Ltd (DLL SP) ) is now almost over with their stake reduced to 17% from 47% previously.

Given the well-publicized track record of Novo Tellus at SGX listed Aem Holdings (AEM SP) the question is if Novo Tellus sees another multi-bagger in the making?

While a “10-bagger” type return like AEM is unlikely at Procurri, doubling the market cap from 90M to 180M SGD would not be impossible as Procurri continues to grow in FY19 and the depressed multiple expands modestly.

2. Yahoo Japan’s JV with OYO Could Be Big, If Tokyo Is Ready to “Co-Live”

• OYO, the largest budget hotel network in India, announced a JV with Yahoo Japan (4689 JP) to expand its co-living rental service, “OYO Living”, to Japan. OYO will own 66.1% while YJ will own the remainder of the JV, named “Oyo Technology & Hospitality Japan”. 

• Rebranded as “OYO Life”, the service would be the first of its kind, in the virtually non-existent co-living market in Japan. In Japan, apartments are usually compact single-occupier units as opposed to shared spaces, which might pose a problem for OYO’s co-living model. 

• Assuming the model is a success and OYO Life could ramp up its capacity to around 150,000 beds in Tokyo, which is around 5% of the total apartment stock in central Tokyo, this would contribute around ¥3bn (2% of net income in FY03/18) to Yahoo Japan’s net income. There is potential for further gains, however, this would depend on how ready Tokyo is to move into a “Co-Living” culture in masses.

3. 🇯🇵 Japan • Winter Large Cap Results & Revision Scores – Contrarian Buys & Sells/​Peak & Ex-Growth

Source: Japan Analytics

LARGE CAP RESULTS & REVISION SCORES – The final instalment of our series of reviews of Japan’s most recent earnings and revisions announcements covers the Results & Revision Scores for Japan’s 785 larger capitalisation companies with a market capitalisation of over ¥100b.

In the DETAIL section below we look at:- 

• The 30 top and bottom-ranked companies by Results & Revision Score as well as the top and bottom thirty ranked by change in score over the last quarter and provide brief comments on companies and topics of note.
• By comparing Results Scores and Forecast/Revision Scores, we sort companies into‘Optimists’, ‘Pessimists’, ‘Increasingly Optimistic’ and ‘Increasingly Pessimistic‘ categories.
• As shown above, the relationship between the Results & Revision Score (RRS) and our Relative Price Score (RPS) for each company and divide the large-cap universe into four ‘quadrants’ – ‘Contrarian Buy’ (Low RRS & Low RPS) , ‘Contrarian Sell’ (High RRS & High RPS), ‘Peak Growth’ (High RRS & Low RPS) and ‘Ex-Growth/Turnaround’  (Low RRS & High RPS), highlighting the outliers in each quadrant.
  • In the two ‘Contrarian‘ quadrants, the market is aligned with the current earnings momentum of the companies suggesting opportunities exist only for those willing or brave enough to take a contrarian view. 
  • For ‘Peak Growth‘, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies.
  • The ‘Ex-Growth‘ quadrant often consists of former ‘Contrarian Sell‘s where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain ‘Turnarounds‘ – formerly ‘Contrarian Buys‘ where the market is correctly anticipating a change in fortunes.   
• Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.