PSA Enterprise Software: SRE Holdings Corp (2980 JT): Disappointing IPO Provides Entry Point

Spun out of Sony (6758 JT) and turned into a joint venture with Z Holdings (4689 JT), SRE Holdings Corp [SRE] (2980 JT) is one of a cluster of AI-based enterprise support stocks to come to the market in 2019. Two businesses, real estate broking and “smart condo” sales, are currently driving revenues and profits. In this initiation report, Pelham Smithers and Lindsay Whipp introduce SRE, explaining the company’s AI-based USP, its range of AI products it is deploying to drive its business; SRE uses AI and an internet sales platform and revenue from these are rising, demonstrating proof of concept. The platform needs to scale up, and its presence on the Yahoo Japan web site should help with that. We are interested in SRE’s collateral valuation system and note that the firm doesn’t see itself as merely as an AI-for-the-property-market business. Management sees its AI development skills as transferrable to other industries. For instance, it believes its real estate inventory control AI can be morphed into an electricity supply and demand model for the power industry. Based on our forecasts, we have SRE trading on 24x FY21 EV/OP. Although this looks expensive, it isn’t by the AI sector standards.