Japan Fintech Tracker: Valuations for online payment assets
Valuations for payment assets have become increasingly important as LY Corp (PayPay IPO) and Rakuten (fintech restructuring) look to public markets for eventual validation. Kirk Boodry thinks both are worth more than ¥1,000bn, although he gives a slight edge to PayPay on better visibility. Whilst there has been talk of a PayPay IPO for years, Rakuten will probably be the first to move as it has set a Jan deadline for its fintech restructuring. Meanwhile, online banks have been market darlings with SBI +87% YTD and Rakuten Bank +45% even with the uncertainty over a deal with the parent company.
Edition: 195
- 20 September, 2024
Technology
Galliano's Financials Research
Rakuten Bank is positioned to benefit from rising interest rates in Japan, with its low LDR, high cash balances, growing loan book and healthy capital ratio. The proposed FinTech reorganisation of the group around the bank should drive further potential shareholder benefits; higher ROE, lower customer acquisition costs, increased active account penetration and lower operating costs. Victor Galliano believe that there will be effective governance checks and balances in place to ensure fair valuations of the FinTech segments pre-reorganisation.
Edition: 188
- 14 June, 2024
Telecoms: Valuation upgrades
Communications
FY23 has so far been a goldilocks scenario for Japanese telcos. Incumbents are moving closer to a recovery in high-margin, mobile service revenue growth with little competitive trouble from Rakuten Mobile despite it managing to grow subs by tapping under-served corporate users. While Kirk Boodry expects competitive intensity to step up in FY24, there are limits to how aggressive Rakuten can be and his positive outlook on the sector has not changed. IIJ is his top overall pick. He also moves KDDI ahead of NTT as his preferred large-cap telco.
Edition: 183
- 05 April, 2024
Financials
Galliano's Financials Research
The shares have re-rated but remain attractive given Rakuten Bank's strong balance sheet and low-cost base with undemanding valuations compared to its Asian digital banking peers. The bank is well positioned to benefit from the negative interest rate policy exit in Japan, with its low LDR, high cash balances, growing loan book and healthy capital ratio. It continues to leverage off the Rakuten Group eco-system, as a low-cost source of new customers; nearly a third of clients use Rakuten Bank as their primary Japanese bank.
Edition: 183
- 05 April, 2024
Key stories from Japan's retail and consumer markets
The latest edition of JapanConsuming includes commentary on 1) the proposal to bring Welcia and Tsuruha together to form a new FMCG mega-retailer. Although both are designated drugstores, their expansion into food and general FMCG means the creation of what will be Japan’s single largest retail chain by sales, sending shockwaves across the entire industry. 2) KDDI acquiring 50% of Lawson, making it a partner to Mitsubishi Shoji in running the third largest convenience store chain. It’s a big deal, but no one really knows what KDDI’s aims are. Some more imaginative analysts suggest this could be just the first step towards KDDI merging with Rakuten in order to beat Amazon.
Edition: 181
- 08 March, 2024
Consumer Discretionary
Having suffered an 80% loss in value over the last 8 years, Oshadhi Kumarasiri believes Rakuten has emerged as an enticing prospect for value investors. His analysis shows that the combined fair value of Rakuten's Cards, Bank and Mobile businesses now surpasses 100% of the company's M/Cap. Furthermore, Rakuten Ichiba (Japan's leading e-commerce business) also appears significantly undervalued. Oshadhi sees upside potential of up to 130% for the stock in the short to medium term.
Edition: 165
- 21 July, 2023
Key stories from Japan's retail & consumer markets
Consumer Discretionary / Staples
Highlights from this month’s issue of JapanConsuming include: 1) The great divide: Isetan & Hankyu break records as regional stores close. 2) Rakuten’s Seiyu sell off will boost netsuper business. 3) Authentic Brands to open office in Japan’s “¥3trn brand paradise”. 4) Yaoko: 34 years of record profits. 5) Ecbeing nears ¥1trn in GTVs. 6) Big apparel revival: Onward up again, Sanyo Shokai finally makes a profit. 7) Seven & I CEO survives - just about. 8) Their 'FOCUS' article examines whether today’s ‘normal’ is the same as it was back in 2019: record levels of income, full to bursting savings accounts, alongside subtle signs of a falling propensity to save mean people are out spending again.
Edition: 162
- 09 June, 2023
Financials
Galliano's Financials Research
IPO adds an attractively valued Japanese neobank to the globally listed neobank universe; furthermore, the Rakuten Group ecosystem is a powerful tool for customer acquisition and retention. On efficiency metrics, Victor Galliano shows how Rakuten Bank scores well vs. its key domestic peers as well as global comparables. At the announced issue price of ¥1,400, Rakuten Bank’s PBV ratio implies an attractive 25% discount to its core Japanese peer SBI Sumishin Net Bank, for similar ROE.
Edition: 158
- 14 April, 2023
Consumer Discretionary
Rakuten expanded its Mobile segment disclosure at Q3 which is great for investors but the message is not very positive as roaming costs remain elevated and hopes for a recovery are now being pinned to the receipt of platinum band spectrum but that is years away even if the regulatory outlook is improving. With a continued reliance on KDDI for roaming and the associated costs that come with it which are higher than total service revenue, Rakuten is unlikely to step up its customer acquisition efforts and that is great news for incumbents but market expectations that mobile is value destructive are unlikely to change.
Edition: 150
- 09 December, 2022
Consumer Discretionary
Turning a corner - the share price has fallen 55% over the past 18 months, but is up c.25% from recent lows and has seen higher than usual trading volumes, suggesting plenty of investor interest. With narrowing Mobile losses and outperforming E-commerce and Fintech, Oshadhi Kumarasiri thinks it is unreasonable for Rakuten to trade at a 40% discount to the bottom end of the long-term trend channel and feels an appropriate EV is somewhere around ¥2,000bn. This would put Rakuten on 9.0x consensus FY+2 EBITDA which seems more than fair considering the company’s growth and historical multiples.
Edition: 142
- 19 August, 2022
NTT (9432), KDDI (9433), Rakuten (4755)
Communications
It is now clear that NTT and KDDI have entered a phase of faster growth, which New Street calls "The Golden Age". They expect SoftBank to enter it in 1-2 years. Stocks are not priced for this, nor for the likelihood that Rakuten scales back or exits its MNO business. New Street increases their TP to ¥5,250 for NTT (35% upside) and to ¥6,000 for KDDI (40% upside). For Rakuten, they remain bearish and cut their TP to ¥520 (20% downside).
Edition: 139
- 08 July, 2022