Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

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

The share price of <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit Holdings (6098 JP)</a> has fallen by around 30% over the past three months from an all-time high of JPY3,826 (on 1st October 2018) to JPY2,705 on 24th December 2018. Prior to this, Recruit’s share price saw a strong upward rally during May-September following the company’s announcement that it would acquire Glassdoor Inc. (the company which operates the employment information website glassdoor.com).We expect Recruit’s consolidated revenue to grow 7.7% and 6.5% YoY in FY03/19E and FY03/20E respectively, driven by the acquisition of Glassdoor and steady growth in Japanese staffing operations, partially offset by a likely slowdown in global labour market activity. We also expect Recruit’s consolidated EBITDA margin to improve by around 50bps due to higher margin from Glassdoor.Despite the recent dip in share price and steady topline and bottom line growth over the forecast period, at a FY2 EV/EBITDA multiple of 14.0x, Recruit doesn’t look particularly attractive to us. Recruit’s internet advertising business and employment business peers, <a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> and <a href="https://www.smartkarma.com/entities/1428" target="_blank" data-smartkarma-citation="entities:1428:1">Persol Holdings (2181 JP)</a> are trading at FY2 EV/EBITDAs of 7.7x and 9.6x respectively.<div class="content-caption">Key Financials FY03/18-20E</div><table class="table table-striped"><tbody>
<tr>
<td> </td>
<td>FY03/18</td>
<td>FY03/19E</td>
<td>FY03/20E</td>
</tr>
<tr>
<td>Consolidated Revenue (JPYbn)</td>
<td style="text-align: right;">2,171</td>
<td style="text-align: right;">2,338</td>
<td style="text-align: right;">2,490</td>
</tr>
<tr>
<td>YoY Growth %</td>
<td style="text-align: right;">11.9%</td>
<td style="text-align: right;">7.7%</td>
<td style="text-align: right;">6.5%</td>
</tr>
<tr>
<td>Consolidated EBITDA (JPYbn)</td>
<td style="text-align: right;">258</td>
<td style="text-align: right;">288</td>
<td style="text-align: right;">312</td>
</tr>
<tr>
<td>EBITDA Margin %</td>
<td style="text-align: right;">11.9%</td>
<td style="text-align: right;">12.3%</td>
<td style="text-align: right;">12.5%</td>
</tr>
</tbody></table><div class="content-remarks">Source: Company Disclosures/LSR Estimates</div>

The share price of Recruit Holdings (6098 JP) has fallen by around 30% over the past three months from an all-time high of JPY3,826 (on 1st October 2018) to JPY2,705 on 24th December 2018. Prior to this, Recruit’s share price saw a strong upward rally during May-September following the company’s announcement that it would acquire Glassdoor Inc. (the company which operates the employment information website glassdoor.com).We expect Recruit’s consolidated revenue to grow 7.7% and 6.5% YoY in FY03/19E and FY03/20E respectively, driven by the acquisition of Glassdoor and steady growth in Japanese staffing operations, partially offset by a likely slowdown in global labour market activity. We also expect Recruit’s consolidated EBITDA margin to improve by around 50bps due to higher margin from Glassdoor.Despite the recent dip in share price and steady topline and bottom line growth over the forecast period, at a FY2 EV/EBITDA multiple of 14.0x, Recruit doesn’t look particularly attractive to us. Recruit’s internet advertising business and employment business peers, Yahoo Japan (4689 JP) and Persol Holdings (2181 JP) are trading at FY2 EV/EBITDAs of 7.7x and 9.6x respectively.Key Financials FY03/18-20E

 
FY03/18
FY03/19E
FY03/20E


Consolidated Revenue (JPYbn)
2,171
2,338
2,490


YoY Growth %
11.9%
7.7%
6.5%


Consolidated EBITDA (JPYbn)
258
288
312


EBITDA Margin %
11.9%
12.3%
12.5%

Source: Company Disclosures/LSR Estimates

Recruit Holdings Down 30% From October; Still Not Cheap