Daily Japan: ZOZO – Buying a Stairway to Heaven and more

In this briefing:

1. ZOZO – Buying a Stairway to Heaven
2. GER Upcoming EVENTS Calendar
3. Are Chip Oligopolies Real?
4. Global Banks: Some New Year Pointers
5. Extraordinary Fiscal and Monetary Policies Have Disrupted the Global Economy

1. ZOZO – Buying a Stairway to Heaven

ZOZO (3092 JP)

ONWARD AND OUT – ZOZO (3092 JP), formerly Start Today, has been the sixth-most-traded large capitalisation stock over the last ten trading days after Benefit One (2412 JP), Rizap (2928 JP), Takeda Pharmaceutical (4502 JP), Hoshizaki (6465 JP), and Workman Co Ltd (7564 JP). According to Nikkei XTECH, on 25th December apparel maker Onward (8016 JP) suspended selling of its products on ZOZOTOWN and will leave the platform altogether. Although Onward products are estimated to account for less than 3% of total transactions on the site, there are concerns that other apparel makers will follow suit as a result of the emerging direct competition on the site from ZOZO’s private label. Since reaching our 4.0 ‘Overbought’ threshold on 9th July 2018, ZOZO shares have corrected by 57% – the worst performance of any large cap from that date – as concerns mounted over the private brand strategy and the behaviour of CEO Yusaku Maezawa.  Since bottoming on 4th January, the shares have risen by 18% following positive comments from the CEO about sales over the New Year holiday period.    

PRIVATE-LABEL STRETCH GOALS– The ‘teething problems’ of ZOZO entering the private-label apparel business have been well-documented by Michael Causton in a recent Insight on Smartkarma. Michael rightly questions the feasibility of the company scaling a ¥200b apparel business within the next three years while targeting an additional incremental ¥400b in e-commerce revenue, particularly as it has taken ZOZO twenty years to reach the first ¥100b in annual revenues. In the DETAIL section below, we shall examine ZOZO’s current and possible future financial condition as it strives to become one of the top-ten global fashion retailers. 

‘ZOSO’ & THE STAIRWAY TO HEAVEN – In addition to some notable purchases of modern art at record-breaking prices, CEO Maezawa also last year booked himself on Space X’s first flight to the moon. With apologies, the lyrics of the peerless song from Led Zeppelin’s untitled fourth album – known by fans as ‘Zoso’ after the symbol designed by Jimmy Page for the inner sleeve – come to mind:- 

There’s a lad(y) who’s sure
All that glitters is gold
And (s)he’s buying a stairway to heaven
When(s)he gets there (s)he knows
If the stores are all closed
With a word (s)he can get what (s)he came for.

2. GER Upcoming EVENTS Calendar

We have received requests to provide a calendar of upcoming catalysts for near-term M&A, stubs and erstwhile event-driven names. Below is a list of catalysts over the near-term for such names as below. If you are interested in importing this directly into Outlook or have any further requests, please let us know. 

Kind regards, Rickin Arun and Venkat

3. Are Chip Oligopolies Real?

In the semiconductor industry, particularly in the DRAM sector, there has been significant consolidation leading some to hypothesize that there’s now an oligopoly that will cause prices to normalize and thus end the business’ notorious revenue cycles.  Here we will take a critical look at this argument to explain its fallacy.

4. Global Banks: Some New Year Pointers

Here is a look at how regions fare regarding key indicators.

• PH Score = value-quality (10 variables)
• FV=Franchise Valuation
• RSI
• TRR= Dividend-adjusted PEG factor
• ROE
• EY=Earnings Yield

We have created a model that incorporates these components into a system that covers>1500 banks.

5. Extraordinary Fiscal and Monetary Policies Have Disrupted the Global Economy

In their public presentations, central banks seem to be contemplating the use of neutral interest rates (r*) in addition to unemployment/inflation theories. R* has the advantage of appearing to be subject to mathematical precision, yet it’s unobservable, and so unfalsifiable. Thus, it permits central banks to present any policy conclusion they want without fear of verifiable contradiction. R* is the policy rate that would equate the future supply of and demand for loans. It rises and falls as an economy strengthens and weakens. Long-term observation during the non-inflationary gold standard, period indicated that r* in an average economy was 2% plus, which would become 4% plus with today’s 2% inflation target. The Fed may soon end this tightening cycle with the fed funds rate at or near 2¾%, which would be r* if the rate of lending and borrowing in America remained stable thereafter. Rising (falling) lending would indicate a higher (lower) r*.