”Businesses That Are Currently Growing as Seen in TSE Mothers Stocks”

29th October, 2020

There is growing interest in the strong price movements in the TSE Mothers Index. Since September, the Democratic Party, which has pledged a large package comprising tax increases and fiscal spending in relation to the US presidential and parliamentary elections, has had a strong showing. As a result, we are seeing a shift in US stocks from large IT-related stocks with strong growth expectations, such as GAFA stocks, to economy-sensitive stocks. On the other hand, contrary to US stocks, Japanese stocks are increasingly shifting towards IT-related stocks with strong growth expectations. However, this trend does not pertain to the main stocks on the First Section of the TSE, but is instead mainly seen through the actions of retail investors in the TSE Mothers market, where price movements are light.

Stocks on TSE Mothers are traded mainly based on expectations and are therefore difficult to deal with as their share prices tend to be overvalued compared to their performance. Under such circumstances, we think it would be useful to understand which stocks of different business lines are being sought after, and use this information to invest in stocks mainly in the First Section of the TSE. It is also conceivable that in the future, major players could move into markets developed by start-ups and steal the leading role from them as latecomers.

The following is a list of the businesses of the top 10 stocks with the highest volatility between 19/3, when the index closed at its lowest this year, and 14/10. ①BASE (4477) operates an e-commerce platform for individuals and small businesses. ②SuRaLa Net (3998) provides online learning materials to cram schools, schools and individuals. ③Logly (6579) operates a native advertising platform. ④CareNet (2150) supports pharmaceutical sales through medical information sites. ⑤Property Data Bank (4389) provides property management cloud services. ⑥VEGA Corp (3542) operates a furniture and general merchandise e-commerce company. ⑦Writeup (6580) helps companies implement IT tools to improve their productivity. ⑧Bplats (4381) provides various functions required for a flat-rate subscription service as a foundation. ⑨Hope (6195) specializes in providing services to local governments with a focus on electricity
and gas sales. ⑩J-Stream (4308) provides infrastructure for live online video broadcasts and on-demand broadcasting.

As the time spent accessing the Internet increases along with the time spent at home by “nesters” in the wake of the Covid-19 pandemic, we are beginning to see changes in business trends, including responding to the increased use of e-commerce and the associated sales support for e-commerce sites, addressing online distance learning needs, and shifting to cloud services. As PM Suga advocates the digitization of various services such as administrative procedures as a major policy, the time may soon come when the interest on overvalued stocks on the Mothers section of the TSE may shift to IT stocks on the First Section of the TSE, where they may play a leading role in trading.

In the 19/10 issue, we will be covering Tri-Stage (2178), House Do (3457), Furukawa Battery (6937), and PASCO (9232).

 

 

  •  Tri-Stage Inc (2178)     456 yen (16/10closing price)

・Established in 2006. Offers companies in the direct marketing business media-based sales of products and services, support for attracting customers, and various solutions for processes leading to customer management.
・For 1H (Mar-Aug) results of FY2021/2 announced on 12/10, net sales decreased by 7.6% to 24.192 billion yen compared to the same period the previous year, and operating income increased 7.8 times to 858 million yen. Sales declined due to the selection and concentration of direct marketing businesses related to media such as TV and WEB. Operating income by segment was up 77.9% YoY to 671 million yen for the Direct Marketing business, while the Direct Mail and Overseas businesses both returned to profitability.
・Company revised its full-year forecast for net sales downwards, but revised its forecast for operating income upwards. Net sales is expected to decrease by 1.8% to 49.549 billion yen compared to the previous year (original plan 52.64 billion yen), and operating income to increase by 99.8% to 1.255 billion yen (original plan 1.141 billion yen). Launched in December last year, “Tri-DDM”, a data-mining platform, appears to be contributing to the value added of the company’s one-stop service, which includes providing program broadcast slots, planning, production and ordering.

 

  • HOUSE DO Co., Ltd (3457)    1,276 yen (16/10closing price)

・Established in 2009. Main businesses include real estate buying and selling, and leasing franchise businesses. Special feature is the “House Leaseback” business, which allows one to sell one’s house while living in it. Started “Rent Do!”, a new real estate leasing franchise, in 2018.
・For FY2020/6 results announced on 12/8, net sales increased by 4.2% to 32.878 billion yen compared to the previous year, and operating income decreased by 40.0% to 1.893 billion yen. Performance was boosted by an increase in new franchisees and the reverse mortgage guarantee business through alliances with financial institutions. Delays in real estate sales/purchases and deliveries and remodeling due to the Covid-19 pandemic had hurt profits.
・For FY2021/6 plan, net sales is expected to increase by 3.3-14.2% to 33.976-37.532 billion yen compared to the previous year, and operating income to increase by 43.3-85.5% to 2.713-3.512 billion yen. Subsidiary Financial Do expanded its reverse mortgage guarantee business through partnerships with regional financial institutions, with 145 deals completed in FY2020/6. Contributing to the expansion of regional financial functions and addressing the needs of an aging society are in line with PM Suga’s policy of strengthening regional finance by restructuring regional banks.

 

  •  The Furukawa Battery Co., Ltd (6937)         1,026 yen (16/10closing price)

・Established in 1950 by taking over the battery manufacturing business of its parent company, Furukawa Electric (5801). Mainly engaged in the manufacture and sale of lead-acid batteries, alkaline batteries, rectifiers and other power supply equipment, as well as other related businesses.
・For 1Q (Apr-Jun) results of FY2021/3 announced on 6/8, net sales decreased by 11.6% to 12.314 billion yen compared to the same period the previous year, and operating income turned positive from minus 400.0 billion yen in the same period of the previous year to 282 million yen. Sales in Japan and overseas were down due to the impact of the Covid-19 pandemic, but a one-time charge at the Indonesian subsidiary in the same period the previous year had contributed to the increase in profits.
・For its full year plan, net sales is expected to decrease by 13.2% to 56.0 billion yen compared to the previous year, and operating income to decrease by 30.2% times to 2.3 billion yen. On 13/10, METI Minister Kajiyama announced his intention to make solar, wind and other renewable energies a higher-ranked main source of power compared to other power sources, and to allocate a generous amount of the budget to the development of high-performance storage batteries and offshore wind power that will form the basis for their spread. Company’s storage battery technology is therefore expected to contribute to the spread of clean energy.

 

  • PASCO Corp (9232)          1,398 yen (16/10closing price)

・Established in 1953. Provides geospatial information services (collection, processing and analysis of geospatial information and information services using ICT). Consists of the “domestic sector” (domestic public sector and domestic private sector) and the “overseas sector”.
・For 1Q (Apr-Jun) results of FY2021/3 announced on 11/8, net sales increased by 2.9% to 10.204 billion yen compared to the same period the previous year, and operating income turned positive from minus 724 million yen in the same period of the previous year to 77.0 million yen. Orders received in the previous fiscal year for work related to national resilience and aging infrastructure projects had contributed to the increase in sales, and overseas business reorganization, including the sale of shares in a European subsidiary, had contributed to earnings.
・For its full year plan, net sales is expected to decrease by 1.6% to 53.3 billion yen compared to the previous year, and operating income to decrease by 15.4% times to 3.0 billion yen. It was reported on 13/10 that PM Suga will order the formulation of additional economic measures in November. Public works projects such as disaster prevention and mitigation are being considered, and it is highly likely that the third supplementary budget proposal will be submitted to the regular Diet session. A recovery in orders from local governments, which were delayed due to the Covid-19 pandemic, can therefore be expected.

 

【Disclaimer and Notes relating to this report】

Issuer of this report:  Phillip Securities Japan, Ltd.    4-2 Nihonbashi Kabutocho, Chuo-ku, Tokyo 103-0026

TEL: 03-3666-2101 URL: http://www.phillip.co.jp/

 

Authors of this report:

Phillip Securities Research Department 

Kazuhiro Sasaki, Certified International Investment Analyst(CIIA®), Chartered Member of The Securities Analysts Association of Japan (CMA®)

 

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