Systematic Ideas - Japan - Long Dena & Pigeon, Short Rakuten - 31 Oct
Long DeNA (2432 JT)
DeNA has over 20% of its market cap in cash on the balance sheet and barely any debt. It also has a strong track record of generating free cash flows (7% FCF yield expected for 2017).
In spite of generating good revenues, strong performance of their existing title Gyakuten Othellonia as well as the collaboration announced with Nintendo to develop Animal Crossing, the stock price hasn’t yet moved much. With more new titles expected to hit the market, investors will sit up and take notice once more information about these new titles is released.
The price chart is already starting to make a move after this 15 month basing pattern that is now breaking to the upside (Fig. 1).
Long Pigeon Corp (7956 JT)
Both Gross as well as net margins have been steadily growing over the last 7-8 years and consensus estimates expect these to improve further in FY 2018/19.
Revenues in Japan and China (their major markets) remain steady and growth from North America is picking up pace. This has been acknowledged by the company in their recent results as they revised revenues as well as operating profits higher for the year. Management has also increased proposed dividend by 3JPY.
The stock is taking a bit of a breather after surging to new all time highs in the last quarter (Fig. 2). This pullback provides a great entry. We recommending going long.
Short Rakuten (4755 JT)
While Rakuten’s sales have been slowly increasing YoY, their gross and net margins have been contracting for a few years now. Margins are expected to decline further in 2018 as the company’s measures to improve gross merchandise sales are yet to show any meaningful impact.
The stock topped out relative to the Topix index in early 2015 and has been treading water ever since. It now looks ready to settle into a downtrend and has potentially a long way to drop as seen in Fig. 3.
In a market where there is a preponderance of long ideas right now, this short can help fund some of those positions. We are long Advantest, Softbank and Sumco and Rakuten could work as a good short against them.
DeNA is engaged in the developing and operation of a wide range of mobile and online services including e-commerce, games and entertainment contents distribution. Co. operates in four business segments. Gaming business is engaged in the developing, operating and marketing mobile games. Co.'s principal "Mobage" social game platform in Japan hosts a wide range of free-to-play mobile games. E-commerce business is engaged in the e-commerce related services including "DeNa SHOPPING." Sports business owns and operates a professional baseball team "Yokohama DeNA BayStars" and operates Yokohama stadium. New business/others business is engaged in the operation of curation platform.
Deydun Markets
Deydun Markets, founded in 2010 and based in London, is a specialist quantamental research boutique. The client base includes institutional equity investors across the spectrum audience primarily from fundamentally driven long term investors to long / short high turnover hedge funds. Deydun covers all global markets through a macro lens as well as bottom up stock picking with the major overlay being the proprietary quantitative models that we have built over the years. The models are rebalanced to suit clients specific needs including quarterly, semi-annual and up to annual rebalance.
Deydun specialises in providing real-time securities recommendations including providing market timing advice and actionable short-only strategies. They use robust quantitative approaches to help isolate alpha for their clients. The systematic models attempt to be:
Right at the right time
- Avoid drawdowns
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The differentiated suite of empirical models that Deydun has developed adapt dynamically to mean reversion and momentum states.
The Deydun service is delivered through notes, “Key Thoughts”, that highlight new stock ideas and track the real-time performance of all the Live Book as well as those in the (unique) Flip Book when they have changed the side of the recommendation. These prove outstanding records of divining alpha in very liquid global equities. The models typically achieve 15% to 35% CAGRs in blind forward and real time proofing over one to two business cycles.
Deydun endeavours to provide each client with independent and relevant ideas and transparently track all their calls. Tier one clients receive a bespoke portfolio service and often share their positions to enhance the impact of the Deydun service.
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