Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

A chartered management accountant with more than 10 years of rich experience in investment research and financial analysis. Worked as an equity analyst for one of the world's largest asset managers with USD2.5trn in AUM covering numerous sectors including chemicals, retail, tech, autos, telco, real-estate and banks, globally. Experienced in fundamental equity research, industry research, commodity studies, forensic accounting, and due diligence reviews.

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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

<a href="https://www.smartkarma.com/entities/gmo-internet-inc/insights" target="_blank">GMO Internet, Inc. (9449 JP)</a> announced its consolidated financial results for its full-year FY12/18 yesterday (12th February). Despite heavy losses incurred in the cryptocurrency mining business in FY12/18, GMO managed to achieve a solid year with 20% YoY growth in top-line alongside a 23.5% YoY growth in operating profits. Excluding the crypto losses, the operating profit increased 35.7% YoY, with an OPM of 13.2% compared to 11.4% reported a year ago. For the full-year, the company has reported a net loss of JPY20.7bn as opposed to a net profit of JPY8bn in FY12/17, blaming the crypto losses for the decline. For FY12/18, the management has proposed a dividend of JPY29.5 per share (compared to JPY23 paid in FY12/17) in spite of reporting net losses for the fiscal year. Further, the company has also allocated JPY1.36bn (equivalent to 0.7% of outstanding shares at the current price) for share repurchases in FY2019.
<div style="text-align: center;" class="content-caption">Excluding the Crypto Segment, GMO’s Net Profit Grew 4.1% YoY in FY12/18</div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 74px;">
JPY (bn)
</td>
<td style="text-align: center; width: 52px;">
FY12/17
</td>
<td style="text-align: center; width: 52px;">
FY12/18
</td>
<td style="text-align: center; width: 54px;">
YoY Change
</td>
<td style="text-align: center; width: 104px;">
FY12/18 Excluding Crypto
</td>
<td style="text-align: center; width: 124px;">
FY12/18 Excl. Crypto Vs. FY12/17
</td>
<td style="text-align: center; width: 96px;">
Consensus
</td>
<td style="text-align: center; width: 101px;">
Company Vs. Consensus
</td>
</tr>
<tr>
<td style="width: 74px;">
Revenue
</td>
<td style="text-align: center; width: 52px;">
154.3
</td>
<td style="text-align: center; width: 52px;">
185.2
</td>
<td style="text-align: center; width: 54px;">
20.1%
</td>
<td style="text-align: center; width: 104px;">
180.9
</td>
<td style="text-align: center; width: 124px;">
17.3%
</td>
<td style="text-align: center; width: 96px;">
183.3
</td>
<td style="text-align: center; width: 101px;">
1.0%
</td>
</tr>
<tr>
<td style="width: 74px;">
Operating Profit
</td>
<td style="text-align: center; width: 52px;">
17.6
</td>
<td style="text-align: center; width: 52px;">
21.8
</td>
<td style="text-align: center; width: 54px;">
23.5%
</td>
<td style="text-align: center; width: 104px;">
23.9
</td>
<td style="text-align: center; width: 124px;">
35.7%
</td>
<td style="text-align: center; width: 96px;">
22.8
</td>
<td style="text-align: center; width: 101px;">
-4.5%
</td>
</tr>
<tr>
<td style="width: 74px;">
OPM
</td>
<td style="text-align: center; width: 52px;">
11.4%
</td>
<td style="text-align: center; width: 52px;">
11.8%
</td>
<td style="text-align: center; width: 54px;">
 
</td>
<td style="text-align: center; width: 104px;">
13.2%
</td>
<td style="text-align: center; width: 124px;"></td>
<td style="text-align: center; width: 96px;">
12.4%
</td>
<td style="text-align: center; width: 101px;">
 
</td>
</tr>
<tr>
<td style="width: 74px;">
Net Profit
</td>
<td style="text-align: center; width: 52px;">
8.0
</td>
<td style="text-align: center; width: 52px;">
-20.7
</td>
<td style="text-align: center; width: 54px;">
-357.9%
</td>
<td style="text-align: center; width: 104px;">
8.4
</td>
<td style="text-align: center; width: 124px;">
4.1%
</td>
<td style="text-align: center; width: 96px;">
 
</td>
<td style="text-align: center; width: 101px;">
 
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: Company Disclosures, Capital IQ</div>
GMO is currently trading at JPY1,741 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries. The company share price has lost more than 40% since it peaked in June last year due to the negativity surrounding its cryptocurrency and mining segment. However, we believe further downside is limited as the company has closed down a majority of its mining related business which weighs very little on the consolidated performance of the company. Further, the company’s key businesses, Internet Infrastructure, Online Advertising &amp; Media and Internet Finance generate solid recurring revenues, which should help the company achieve strong growth. Following its earnings announcement, the share price gained 5.6% from the previous days close.

GMO Internet, Inc. (9449 JP) announced its consolidated financial results for its full-year FY12/18 yesterday (12th February). Despite heavy losses incurred in the cryptocurrency mining business in FY12/18, GMO managed to achieve a solid year with 20% YoY growth in top-line alongside a 23.5% YoY growth in operating profits. Excluding the crypto losses, the operating profit increased 35.7% YoY, with an OPM of 13.2% compared to 11.4% reported a year ago. For the full-year, the company has reported a net loss of JPY20.7bn as opposed to a net profit of JPY8bn in FY12/17, blaming the crypto losses for the decline. For FY12/18, the management has proposed a dividend of JPY29.5 per share (compared to JPY23 paid in FY12/17) in spite of reporting net losses for the fiscal year. Further, the company has also allocated JPY1.36bn (equivalent to 0.7% of outstanding shares at the current price) for share repurchases in FY2019.
Excluding the Crypto Segment, GMO’s Net Profit Grew 4.1% YoY in FY12/18




JPY (bn)


FY12/17


FY12/18


YoY Change


FY12/18 Excluding Crypto


FY12/18 Excl. Crypto Vs. FY12/17


Consensus


Company Vs. Consensus




Revenue


154.3


185.2


20.1%


180.9


17.3%


183.3


1.0%




Operating Profit


17.6


21.8


23.5%


23.9


35.7%


22.8


-4.5%




OPM


11.4%


11.8%


 


13.2%



12.4%


 




Net Profit


8.0


-20.7


-357.9%


8.4


4.1%


 


 




Source: Company Disclosures, Capital IQ
GMO is currently trading at JPY1,741 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries. The company share price has lost more than 40% since it peaked in June last year due to the negativity surrounding its cryptocurrency and mining segment. However, we believe further downside is limited as the company has closed down a majority of its mining related business which weighs very little on the consolidated performance of the company. Further, the company’s key businesses, Internet Infrastructure, Online Advertising &amp; Media and Internet Finance generate solid recurring revenues, which should help the company achieve strong growth. Following its earnings announcement, the share price gained 5.6% from the previous days close.

GMO Internet Reports Solid FY12/18 Despite Heavy Losses Incurred in Crypto Mining Business

GMO Internet Group

GMO Internet Reports Solid FY12/18 Despite Heavy Losses Incurred in Crypto Mining Business