12 July 2016 Asia Pacific/Japan Equity Research Internet
CyberAgent (4751 / 4751 JP) Rating OUTPERFORM* Price (11 Jul 16, ¥) 6,420 INITIATION
Target price (¥) 8,000¹ Chg to TP (%) 24.6 Market cap. (¥ bn) 403.27 (US$ 3.96) Initiate at OUTPERFORM; downside risk near term, Enterprise value (¥ bn) 467.13 Number of shares (mn) 62.81 but growth potential in existing, new businesses Free float (%) 70.0 52-week price range 6,570 - 4,235 ■ Action: We initiate coverage of CyberAgent with an OUTPERFORM rating *Stock ratings are relative to the coverage universe in each and a ¥8,000 target price (potential return 24.6%). Despite the risk of a analyst's or each team's respective sector. ¹Target price is for 12 months. share-price dip in 2H from seasonality and other factors, we see significant potential for earnings growth over the medium term. Research Analysts Keiichi Yoneshima ■ Investment case: CyberAgent's online ad agency business is growing 81 3 4550 9740 faster than the online ad market. Its game business, which develops and [email protected] hosts some of Japan's most popular game apps, looks strong. In the media business, AbemaTV, which is in a cost-intensive startup phase, will likely contribute to future earnings. Near term, we flag downside share-price risk from a 2H FY9/16 earnings slowdown due to seasonality and up-front expenses. Over the medium term, however, we look for valuation gains driven by earnings growth from existing and new businesses and therefore assign an OUTPERFORM rating. ■ Catalysts/risks: Catalysts include: (1) sales contributions from new game titles (2) the AbemaTV business's earnings contribution. Risks include: (1) a slowdown in the Internet ad market and business growth, (2) contraction in existing game titles' sales, and (3) a greater-than-expected increase in up- front investment in the AbemaTV business. ■ Valuation: We calculate our target price with a DCF model, using a forecast horizon of FY9/20, an assumed WACC of 8.45% and, an EV/EBITDA of 7.5x (to calculate terminal value from FY9/21) applied to our FY9/20 estimates.
Share price performance Financial and valuation metrics
Year 9/15A 9/16E 9/17E 9/18E Price (LHS) Rebased Rel (RHS) Sales (¥ bn) 254.4 304.2 340.9 369.9 8000 180 Operating profit (¥ bn) 32.7 32.2 32.8 35.1 6000 Recurring profit (¥ bn) 32.3 30.7 31.2 33.5 130 4000 Net income (¥ bn) 14.8 14.3 15.5 17.0 EPS (¥) 235.5 228.4 246.7 270.1 2000 80 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Change from previous EPS (%) n.a. IBES Consensus EPS (¥) n.a. 270.2 311.7 349.2 The price relative chart measures performance against the EPS growth (%) 54.8 -3.0 8.0 9.5 TOPIX which closed at 1255.79 on 11/07/16 P/E (x) 19.8 28.1 26.0 23.8 On 11/07/16 the spot exchange rate was ¥101.76/US$1 Dividend yield (%) 1.1 0.8 0.8 0.8 EV/EBITDA(x) 10.1 10.3 9.6 8.8 Performance over 1M 3M 12M P/B (x) 3.8 4.5 3.9 3.4 Absolute (%) 12.2 22.5 17.6 ROE(%) 24.4 20.1 19.0 18.1 Relative (%) 17.9 25.9 38.3 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access
12 July 2016 Table of contents
Key charts 3 Investment opinion 4 Initiate at OUTPERFORM with ¥8,000 TP 4 Maintain OUTPERFORM; set for medium-term profit growth 4 (1) Near-term downside risk due to weak 2H earnings 4 (2) AbemaTV, a potential earnings driver; watch its progress 4 (3) Steady growth in online ads, poor visibility for game earnings 4 Views on CyberAgent's earnings outlook 5 Rationale behind our OUTPERFORM rating 5 Valuation 7 Risks 8 Company profile 9 Corporate history 9 Executives 10 Shareholders 11 Corporate group 11 Business segments 12 Reporting segments changed; media likely to grow 12 Internet ads: Lion's share of domestic market (52% of sales) 13 Games: One of the few providers of smartphone games in Japan (32% of sales) 14 Media: Upfront investment in video business (8% of sales) 15 Outlook 16 Earnings trends: likely to flatten in FY9/16–17 16 Media: Opening up video business via AbemaTV 17 Expecting major titles to keep game business stable 18 Focus on shedding image as Internet ad agency 18 Shareholder returns 20 Earnings forecasts 21
CyberAgent (4751 / 4751 JP) 2 12 July 2016 Key charts
Figure 1: Quarterly OP trends Figure 2: Annual OP trends
OP OP
14,000 45,000 42,781 12,535 12,986 40,631 40,000 12,000 11,253 35,114 9,955 35,000 32,747 32,224 32,819 10,000 8,652 8,390 8,194 30,000 8,000 7,346 6,550 6,254 5,764 5,823 25,000 22,220
(JPYmn) 6,000 4,535 4,263 (JPYmn) 20,000 3,628 4,061 4,000 3,500 3,449 15,000 1,543 1,647 10,318 2,000 10,000
0 5,000
6/13 9/13 3/14 6/14 9/14 3/15 6/15 9/15 3/16
3/13 0
12/12 12/13 12/14 12/15
6/16E 9/16E 3/17E 6/17E 9/17E 12/16E FY9/13 FY9/14 FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E Note: FY12/14 OP includes ¥4.8bn profit from investment Source: Company data, Credit Suisse estimates development Source: Company data, Credit Suisse estimate
Figure 3: Game business sales trends
Game business
160,000 141,000 142,000 142,000 140,000 135,000 117,421 120,000
100,000 87,109
80,000 (JPYmn) 60,000
40,000
20,000
0 FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E
Source: Company data, Credit Suisse estimates
Figure 4: Video ads market by device Figure 5: AbemaTV: sales PC SP AbemaTV sales 250 30
200.9 25 24.0 200 171.8 20.5 20 139.7 150 114.9
109.3 93.6 15 (JPYbn) (JPYbn) 100 76.6 60.1 10 9.0 50.6 80.0 50 31.7 23.4 78.2 86.0 5 8.6 40.3 49.2 63.1 2.5 23.1 27.2 0 9.7 0 0 CY2014 CY2015 CY2016E CY2017E CY2018E CY2019E CY2020E FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E Source: CyberAgent press release (estimates), Credit Suisse Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 3 12 July 2016 Investment opinion Initiate at OUTPERFORM with ¥8,000 TP
Figure 6: CyberAgent (4751) – Earnings summary CyberAgent (4751) Earnings Summary EV 11-Jul-16 Sales Operating profit Recurring profit Net profit EPS P/E /EBITDA ¥6,420 ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) (x) (x) Consolidated FY Sep-15 A 254,380 23.9% 32,747 47.4% 32,314 45.6% 14,792 54.8% 235.5 54.8% 10.1 19.8 Sep-16 CS E (new) 304,223 19.6% 32,224 -1.6% 30,718 -4.9% 14,345 -3.0% 228.4 -3.0% 10.3 28.1 CoE 300,000 17.9% 28,000 -14.5% 27,400 -15.2% 14,000 -5.4% 222.9 -5.4% NA 28.8 IBES E 300,162 18.0% 36,157 10.4% 35,133 8.7% 16,969 14.7% 270.2 14.7% 8.3 23.8 Sep-17 CS E (new) 340,913 12.1% 32,819 1.8% 31,212 1.6% 15,496 8.0% 246.7 8.0% 9.6 26.0 IBES E 326,692 8.8% 38,653 6.9% 38,062 8.3% 19,336 13.9% 311.7 15.4% 7.8 20.6 Sep-18 CS E (new) 369,861 8.5% 35,114 7.0% 33,513 7.4% 16,969 9.5% 270.1 9.5% 8.8 23.8 IBES E 350,237 7.2% 42,936 11.1% 42,324 11.2% 21,810 12.8% 349.2 12.0% 7.2 18.4 Source: Company data, I/B/E/S, Credit Suisse estimates Maintain OUTPERFORM; set for medium-term profit growth CyberAgent operates a number of Internet-related businesses. It is distinguished by having built all of its businesses from scratch without relying on M&A. It aggressively pursues new business opportunities and has amassed a track record of both successes and failures with various new businesses. Through this process, it has been expanding its operations. We are bullish not only on CyberAgent's earnings performance but also its corporate culture, HR policies/practices, and strategic flexibility. We flag downside risk for CyberAgent shares due to profit deterioration in 2H FY9/16, but we see comparatively strong upside given the company's medium-term potential for earnings growth. We thus assign an OUTPERFORM rating. We note the following focal points for CyberAgent stock. (1) Near-term downside risk due to weak 2H earnings CyberAgent's earnings tend to weaken in 2H (Apr–Sep). The games sector usually does well in Oct–Dec and Jan–Mar due to seasonality, while Jan–Mar is also a busy period for online ads. However, higher personnel costs in April due to new graduate recruitment and the Jul–Sep quiet period along with employee incentive payments (bonuses) often lead to a profit slowdown. In addition, the company began to invest in AbemaTV in FY9/16, meaning profit could slump more than usual this year. While we recommend the company as a longer-term holding, the timing of investment needs to take into account such issues. (2) AbemaTV, a potential earnings driver; watch its progress AbemaTV, launched in April 2016, is an Internet TV/video streaming service that CyberAgent aims to monetize through ad revenue. We currently expect losses initially due to investments to improve content and increase downloads, monthly active users (MAU), and usage time. We believe CyberAgent must differentiate its offering if it is to survive in the video streaming business, given competition in paid and free content. We see potential in this business, but the scale and timing of monetization need close scrutiny. (3) Steady growth in online ads, poor visibility for game earnings We expect steady growth in CyberAgent's online ad business, given the company's competitive advantage due to its top market share, and the growth potential of the overall market However, we caution that as this advertising business grows, so will the knock-on effects from changes in overall business conditions. On the other hand, the game business has thus far turned out a steady stream of hit titles, enabling it to maintain high growth rates, although we note that this dependence on hit titles makes it difficult to forecast longer-term earnings growth. The game business has a clear competitive
CyberAgent (4751 / 4751 JP) 4 12 July 2016 advantage given its financial health, resources, and performance to date. It should therefore be able to maintain a fair amount of momentum. Views on CyberAgent's earnings outlook We forecast FY9/16 consolidated sales growth of 20% YoY (slightly above guidance) and a slight drop in OP to ¥32.2bn, which would nevertheless beat the company target (¥28bn). We expect above-target profits because of the strong, better-than-expected 1H performance of the games business. We forecast roughly flat profit growth in FY9/17 because although we look for growth in the online-ad and game businesses, we assume a full-year cost burden from forward- looking investment in AbemaTV in FY9/17, versus six-months in FY9/16. From FY9/18, we envision flat growth in games business, while steady expansion in online ads and monetization of AbemaTV drive profit. Rationale behind our OUTPERFORM rating
■ We think CyberAgent's online advertising agency business is the domestic market share leader and has a competitive advantage. In the increasingly complex online advertising services market, CyberAgent has a formidable advantage in its ability to accommodate diverse media, technologies, and clients. Its ad business will likely grow faster than the average growth rate of online advertising. (Positive)
■ In the game business, the volatility of individual title sales poses a risk, but a portfolio of several hit titles should ensure comparatively stable earnings. New hit titles would therefore be a source of earnings upside. (Positive)
■ In game app rankings, Shadowverse, a new CyberAgent title, is the top-ranked one by sales and should boost the game business' sales. (Positive)
■ While the recently launched AbemaTV business's up-front costs will be an earnings drag in 2H FY9/16, the market is already well aware of this risk. We believe it is largely priced into CyberAgent's shares. (from Negative to Neutral)
■ However, profits have a seasonal tendency to dip in fiscal 2H (due to decreased advertising revenues and increased expenses), and CyberAgent's share price tends to drop likewise. The stock's near-term price trend consequently warrants vigilance. In 2H FY9/16 in particular, be advised that video (AbemaTV) business' startup costs could well weigh on earnings. (Negative)
CyberAgent (4751 / 4751 JP) 5 12 July 2016
Figure 7: CyberAgent's share price vs. TOPIX
¥8,000 3.5 CYBERAGENT ¥7,000 3.0 TOPIX relative(RHS) ¥6,000 2.5 ¥5,000 2.0 ¥4,000 1.5 ¥3,000 1.0 ¥2,000
¥1,000 0.5
¥0 0.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: Thomson Reuters, Credit Suisse
Figure 8: FY2 forward EV/EBITDA Figure 9: FY2 forward P/E YAHOO JAPAN RAKUTEN YAHOO JAPAN RAKUTEN RECRUIT HOLDINGS CYBERAGENT RECRUIT HOLDINGS CYBERAGENT 40 x KAKAKU.COM GURUNAVI KAKAKU.COM GURUNAVI 20 x GMO INTERNET GMO INTERNET 35 x 18 x 16 x 30 x 27.9 x 14 x 14.4 x 26.3 x 12 x 25 x 24.8 x 11.2 x 10 x PER 20.1 x 8.1 x 20 x 18.4 x 8 x 8.0 x 17.2 x EV/EBITDA 7.1 x 6 x 6.1 x 15 x 14.4 x 4 x 4.2 x 10 x 2 x
0 x 5 x
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
May-10 May-11 May-12 May-13 May-14 May-15 May-16
May-11 May-12 May-13 May-14 May-15 May-16 May-10 Source: Thomson Reuters, Credit Suisse Source: Thomson Reuters, Credit Suisse
CyberAgent (4751 / 4751 JP) 6 12 July 2016 Valuation We calculated our target price using a DCF model. We set our model's equity risk premium and risk-free rate assumptions at 6.5% and 0.0%, respectively. Assuming a beta of 1.3 and debt-free capital structure, the latter of which reflects the tendency of Internet businesses to generate copious cash flows, we arrive at an assumed WACC of 8.45%. We have forecast earnings out to FY9/20 and calculated CyberAgent's enterprise value from FY9/21 onward at 7.5x FY9/20E EBITDA. While CyberAgent's core business is online advertising, it is pursuing various other businesses including mobile games, Internet media, and video streaming (AbemaTV). Given the possibility of increased short-term earnings volatility, we used the 9x average two-year forward EV/EBITDA for the 22 domestic Internet companies—including Yahoo Japan (4689), Rakuten (4755) and Recruit (6098)—and applied a discount of about 15%, resulting in two-year-forward EV/EBITDA of 7.5x. Using this multiple, we calculate CyberAgent's fair value at ¥7,963 and set our target price at ¥8,000, which equates to 34.8x FY9/16E EPS, 32.2x FY9/17E EPS, and 29.4x FY9/18E EPS, all based on our EPS forecasts.
Figure 10: DCF analysis DCF Analysis EBITDA Growth 7%
(JPY mn) Assumptions FCF estimates # of shares 62,814,900 9/16E 9/17E 9/18E 9/19E 9/20E Net Debt(15/9A) - 17,207 OP(ex-incubation business) 32,224 32,819 35,114 40,631 42,781 Exit EV/EBITDA Multiple 7.5x Tax rate 35% 35% 35% 35% 35% EBIAT 20,945 21,332 22,824 26,410 27,808 WACC Calculation Depreciation & Amortization 7,278 9,574 10,897 11,825 12,476 Risk free rate 0.00% Other non-cash cost 117 - - - - Beta 1.30 EBITDA 39,618 42,393 46,012 52,456 55,257 Mkt. Risk Premium 6.50% Net working capital 3,719 -172 -108 1,575 628 Cost of Equity 8.45% CAPEX -14,880 -14,000 -14,000 -14,000 -14,000 Interest rate 1.0% FCF 17,179 16,734 19,614 25,810 26,911 Cost of Liability after tax 0.65% Year 1.00 1.00 1.00 1.00 1.00 D/E ratio(15/9A) 0.00x Discount rate 0.92 0.92 0.92 0.92 0.92 WACC 8.45% Present Value 15,841 15,430 18,086 23,799 24,814
(a) Present Value Current - 9/20E 97,970 (b) Terminal Value 385,021 (c) Enterprise Value (a) + (b) 482,991 (d) Net Debt (15/9A) -17,207 (e) Market Value (c) - (d) 500,198 (f) Estimated Fair Price (JPY) (e) / # of shares 7,963 Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 7 12 July 2016 Risks Risks include: (1) slower growth in the Internet advertising market and CyberAgent’s Internet advertising business, (2) a swift decline in earnings from existing game titles, (3) tougher regulations governing online gaming, (4) pressure on consolidated earnings from losses at newly launched AbemaTV (video business) continuing longer than expected, and (5) guidance being well below expectations (e.g., a substantial YoY profit decrease).
CyberAgent (4751 / 4751 JP) 8 12 July 2016 Company profile Corporate history CyberAgent was established in 1998 by Susumu Fujita, its current president and CEO. After being listed on TSE Mothers in 2000, the company moved to the TSE First Section in 2014. The company's original main business was Internet advertising. It subsequently entered the content business including Ameba (a blogging service) and the game business. Recently, the company has been expanding its Internet business by investing in AbemaTV (a video streaming site) and has also generated capital gains via investments in Internet-related businesses.
Figure 11: Corporate history C orporate history 1998 M ar Established in M inato W ard, Tokyo 2000 M ar Listed on the Tokyo Stock Exchange in M others 2000 M ay Establishes m obile-related business com pany CA M obile 2004 Sep Starts Am eba 2007 Jul Establishes M icroAd advertising technology business via com pany split 2009 Apr Establishes CyberZ, which does advertising business specializing in sm artphone ads 2009 M ay Establishes Sum zap, fully enters gam e business 2010 Jul Establishes gam e business com pany Applibot 2011 M ay Establishes Cygam es to strengthen gam e business 2012 Jun Starts Am eba for sm artphones 2013 Jan Sells all shares in CyberAgent FX (now YJ FX) and pulls out of FX business 2013 M ay Establishes CA Tech Kids, which provides program m ing courses for elem entary school pupils 2014 Feb Launches live chat App 755 (Nana-G o-G o) for sm artphones in 7gogo, Inc. 2014 Sep Listed in the First Section of the Tokyo Stock Exchange 2014 N ov Establishes equity m ethod affiliate AW A to provide m usic distribution service via joint investm ent with Avex Digital 2015 Apr Renew s corporate and Am eba brand logos 2015 Apr Establishes Am eba TV, which does video stream ing platform business, via joint investm ent with TV Asahi 2015 M ay Starts AW A subscription-based m usic stream ing service Source: Company data, Credit Suisse
CyberAgent (4751 / 4751 JP) 9 12 July 2016
Executives In 2008, the company introduced CA8, its unique director replacement system. Under the system, the company has eight directors, and two must be replaced every two years. The aim is to create a strong corporate structure by combining its business strategy with substantial corporate resources.
Figure 12: List of executives Representative Director and CEO 1997 Joined Intelligence, Ltd. Susumu Fujita 1998 Established CyberAgent, Inc.; Appointed Representative Director and CEO (current position)
Director, Executive Vice President 1997 Joined Intelligence, Ltd. Yusuke Hidaka 1998 Cofounded CyberAgent, Inc.; Appointed Executive Director 2009 Appointed Director of Sumzap, Inc. (current position) 2010 Appointed Executive Vice President and Director of CyberAgent, Inc. (current position) 2011 Appointed Director of Cygames, Inc. (current position)
Executive Managing Director 2000 Joined CyberAgent, Inc. Yasuo Okamoto 2014 Appointed Senior Managing Director
Managing Director 1998 Joined Sumitomo Corp. Go Nakayama 1999 Joined CyberAgent, Inc. 2006 Appointed Managing Director of CyberAgent, Inc. (current position) 2014 Appointed Director of CyberAgent Ventures, Inc.
Managing Director 2001 Joined CyberAgent, Inc. Masahide Koike 2014 Appointed Managing Director of CyberAgent, Inc. (current position)
Director 2009 Appointed Representative Director of CyberZ, Inc. (current position) Takahiro Yamauchi 2012 Appointed Director of CyberAgent, Inc. (current position) 2012 Appointed Director of CA Reward, Inc. (current position) 2013 Appointed Director of AMoAd, Inc. (current position)
Director 2004 Joined CyberAgent, Inc. So Miyazaki 2014 Appointed Director of CyberAgent, Inc. (current position) 2015 Appointed Representative Director and President of 7gogo, Inc. (current position)
Director 2010 Joined CyberAgent, Inc. Hiroki Urabe 2014 Appointed Head of the Entertainment Division (current position) 2014 Appointed Director of CyberAgent, Inc. (current position)
Standing Corporate Auditor April 1996 Joined Japan Airlines Co., Ltd. Toko Shiotsuki July 2000 Appointed Corporate Auditor (current position)
Corporate Auditor April 1992 Joined Nippon Investment & Finance Co., Ltd. (now Daiwa Corporate Investment Co., Ltd.) Masao Horiuchi March 1998 Appointed Corporate Auditor (current position) December 2010 Appointed Director and Head of Administration Department of U-NEXT Co., Ltd. (current position)
Corporate Auditor April 1988 Joined Daiwa Securities Co., Ltd. (now Daiwa Securities Group, Inc.) Isao Numata July 2000 Appointed Representative Director of Five Eyes Networks Co., Ltd. (current position) December 2000 Appointed Corporate Auditor of CyberAgent, Inc. (current position) Note: Koichi Namakura, formerly of Recruit, was appointed as a corporate advisor effective 1 July in preparation for nomination as an outside director. Source: Company data, Credit Suisse
CyberAgent (4751 / 4751 JP) 10 12 July 2016
Shareholders
Figure 13: Main shareholders (as of March 2016) C ontribution to the Com pany S hareholder nam e N o. of shares S hareholding ratio (％) Susum u Fujita 12,954,800 20.49% Japan Trustees Services Bank, Ltd. (Trust Account) 3,275,600 5.18% N O RTH ERN TRU ST CO . (AVFC ) SU B A/C NO N TREATY 2,284,093 3.61% TAIYO FU N D , L.P. 2 ,277,300 3.60% JP MORGAN CH ASE BANK 385632 2,066,868 3.27% The Master Trust Bank of Japan, Ltd. (Trust Account) 2,013,900 3.19% TH E BANK OF NEW YORK 133524 954,600 1.51% JP MORGAN CH ASE BANK 380055 880,941 1.39% BN P PARIBAS SECURITIES SERVICES LUXEM BO URG /JASD EC SECURITIES/UCITS ASSETS 869,900 1.38% BBH FOR OPPENH EIMER GLOBAL OPPORTUNITIES FUND 800,000 1.27% Source: Company data, Credit Suisse Corporate group CyberAgent's business portfolio is composed largely of Internet advertising, game, and media businesses. Each segment has numerous subsidiaries, totaling 76 consolidated subsidiaries and five equity-method affiliates as of 30 September 2015. Although there are overlaps between the parent and subsidiaries and among subsidiaries, we expect the company's strategy to function effectively in the rapidly changing Internet field. In the investment development segment, the company has invested in Internet-related businesses such as Mixi (2121) and Kakao talk and has earned capital gains in doing so. However, it does not use M&A activity for developing business, opting instead to set up the businesses directly. Accordingly, despite the time and effort in getting new businesses off the ground, this approach makes the management team, staff, and the company more experienced and has created a corporate culture of getting businesses up and running from the ground up.
CyberAgent (4751 / 4751 JP) 11 12 July 2016 Business segments Reporting segments changed; media likely to grow CyberAgent has changed its reporting segments starting with FY9/16. The new segments are Internet ads, game, media (Ameba), others, and investment development. The media segment has changed significantly as the company has excluded game businesses from the former Ameba business and added new businesses such as video streaming and 755. The media segment currently comprises such media businesses such as video streaming and Ameba. In the revised structure, the new AbemaTV business (live broadcasting) is also included in the media segment.
Figure 14: New segments (FY2016)
Media Business Other Internet Ad Business Game Business VC (Ameba) Business
Former Segment (FY2015)
New media Exsisting Game Media Business Business Internet Ad Business Game Business VC Ameba Media and Other Business Businesses
Source: Company data, Credit Suisse
Figure 15: CyberAgent's FY9/15 sales breakdown Incubation Media business Others 2.6% 8.4% 6.1%
Game 31.4% Internet Ad Agency 51.5%
Note: Does not include currency translation adjustments Source: Company data, Credit Suisse
CyberAgent (4751 / 4751 JP) 12 12 July 2016
Internet ads: Lion's share of domestic market (52% of sales) According to Dentsu Communication Institute, Internet advertising spending in 2015 totaled ¥1,159bn for the sector (media ¥919bn, advertising production ¥240bn). CyberAgent posted Jan–Dec 2015 Internet advertising segment sales of ¥149bn. Taking this as the company's net ad transaction value, we estimate a domestic market share of 13%, the largest among net ad industry agents. The company has focused its resources on smartphones, whose weighting has increased also in the Internet ad business. Smartphone ads already account for two thirds of its total ad business. With PC ads sluggish, the quick switch to smartphones has resulted in a growth rate far higher than the Internet ad market growth rate. We think growth in the mid-single-digit to double-digit range at the ad business will likely continue due to greater opportunities for using the Internet as a result of the proliferation of smartphones and growing Internet usage due to the popularity of SNS and video services. Major growth in usage rates at the ad business looks unlikely to us due in part to commercial practices. However, with Internet advertising becoming increasingly complex, margins at major Internet ad agents have started to stabilize within a range between upper single-digit to 10%.
Figure 16: Internet ad sales
SP PC Others (incl. FP) SP ratio
50 66% 70% 64% 65% 65% 61% 62% 62% 45 42.3 58% 60% 38.8 39.2 40 51% 35.5 47% 35.1 35 46% 33.3 13.9 50% 42% 30.9 29.9 12.7 13.1 30 39% 28.5 36% 13.1 12.4 40% 24.4 12.1 22.8 25 30% 11.7 JPYbn) 20.7 18.9 19.6 19.9 14.4 11.8 （ 30% 20 17.5 16.8 16.8 17.8 17 16 16 22% 12.5 20% 12 17% 15 12 11.2 28 20% 11.9 25.3 25.6 12% 12.5 22.7 20.7 21.7 10 12.1 12.8 12.1 18.9 12 15.1 16.4 12.9 13.6 12.25% 10% 10.5 11.5 5 2% 8.1 8.3 1% 5.6 7 2.9 3.5 3.7 0 0.1 0.4 0.8 2 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q FY11/9 FY12/9 FY13/9 FY14/9 FY15/9 FY16/9
Source: Company data, Credit Suisse
Figure 17: In-feed ad sales Figure 18: Video ad sales
In-feed ads In-feed ads 9000 9000 8000 7,660 8000 7,660 7000 7000 5,800 6,080 5,800 6,080 6000 6000
5000 5000 JPYmn) JPYmn) 3,480 3,480
4000 3,130 4000 3,130 （ （ 2,690 2,690 3000 3000 1,930 1,930 2000 1,370 2000 1,370 970 1,080 970 1,080 610 610 1000 180 260 360 1000 180 260 360 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q FY13/9 FY14/9 FY15/9 FY16/9 FY13/9 FY14/9 FY15/9 FY16/9 Source: Company data, Credit Suisse Source: Company data, Credit Suisse
CyberAgent (4751 / 4751 JP) 13 12 July 2016
Games: One of the few providers of smartphone games in Japan (32% of sales) Subsidiary Cygames, whose own Rage of Bahamut was a major hit, is among the top performers in the group's game segment. The current hit title is Granblue Fantasy, and Shadowverse made a strong debut in June, entering the top sales rankings. The company has also had success with titles created in collaboration with Bandai Namco (7832) and a team consisting of Square Enix (9684) and other partners. Subsidiaries such as Applibot and GCREST have also created hit titles, being among the few hitmakers in the smartphone game sector. Domestic business accounts for the bulk of earnings and we think there are currently no plans for overseas development. Annual sales at the game business are around ¥100bn. As the company receives a share of the revenues from publishers Bandai Namco and Square Enix for collaborative titles The Idol Master: Cinderella Girls Starlight Stage and Dragon Quest Monsters Super Light, earnings are booked on a net basis. However, the company books gross earnings from original titles such as Granblue Fantasy and Sengoku Enbu -KIZNA-. It treats Google and Apple's take of commissions from the gross amounts as expenses. We think the OPM will change due to advertising costs and the earnings mix, but as we also think the company's portfolio of hit titles will stay balanced, we expect the OPM will likely remain within 20–30%.
Figure 19: Game business segment sales and OP Game Business
Sales OP OP ratio (RHS) 29,754 30000 27,667 40% 26,049 25000 30% 30% 20,872 30% 25% 19,74820,440 25% 24% 23% 20000 22% 23% 19% 18% 18% 17% 13,700 24% 18% 20% 15000 12,70012,700 12,90012,600 14%11,700 11,300 11,400 11% 11,100 17% 12% (JPYmn) 10000 7,700 6,400 7% 7% 10% 8,836 5000 3,300 1,700 1,700 1,700 1,800 6,070 6,939 290 190 620 1,940 1,060 810 910 2,110 2,800 2,690 2,050 2,300 1,470 2,990 4,777 4,607 3,660 0% 0 -6% -7% (100) (120) -5000 -10% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q FY11/9 FY12/9 FY13/9 FY14/9 FY15/9 FY16/9
Source: Company data, Credit Suisse
■ Cygames: The Idolmaster: Cinderella Girls Starlight Stage (with Bandai Namco), Dragon Quest Monsters Super Light (with Square Enix and others), Granblue Fantasy, Shadowverse
■ Sumzap: Sengoku enbu -KIZNA-
■ Applibot: Joker Gang Road
■ GCREST: 100 sleeping princes & the kingdom of dreams
CyberAgent (4751 / 4751 JP) 14 12 July 2016
Media: Upfront investment in video business (8% of sales) Earnings at this segment derive mostly from ads and charges in the Ameba blog service and earnings from non-game applications. They also include revenues from applications such as talk app 755. Ameba is in a stable phase, and we do not expect any major changes in ad or fee revenue in the near term. Although various convenient apps have emerged, blogs are effective tools for irregular transmission of detailed information, and we think Access will also achieve a certain level of earnings. Among the company's media operations, we think the video business is also worth watching. Joint venture AbemaTV (CyberAgent 60%, TV Asahi 40%) started Internet TV broadcasting in April 2016. The format closely resembles a TV channel with streaming broadcasts as the main operation, and the earnings model is based on advertising and subscription fee revenues. The company is putting more effort initially into expanding the number of viewers than in boosting earnings. It is unclear when the video business will turn fully profitable. Due to the launch of AbemaTV in April, CyberAgent should incur content procurement costs and promotional costs to win customers. The company guides for upfront investment of around ¥9bn in FY9/16. Since it spent less than ¥1bn in 1H (October 2015 to March 2016) we expect the bulk of the spending to be in 2H (April to September 2016). AbemaTV:
■ Number of channels: More than 20. Video streaming is the main operation
■ Content: Varied, including news, anime, variety, original content, etc.
■ Distribution platforms: PC, Google Play, App Store
■ Started: 11 April 2016
■ Number of downloads: Exceeded 5mn mark on 11 July 2016
CyberAgent (4751 / 4751 JP) 15 12 July 2016 Outlook AbemaTV, launched in April 2016, has substantial upfront costs, and we think profits will likely deteriorate from 2H FY9/16. Profits will likely weaken in FY9/17 as content procurement costs and production costs at the video business will arise over the full year. However, since the service launched, the number of programs has steadily increased and the number of downloads has also risen rapidly, suggesting that the earnings base is expanding. The company has the lion's share of the market at its Internet advertising segment and profits are steadily growing. At the game business, profits are relatively stable as the company has several hit titles and constantly launches new games. In addition to existing businesses, we see AbemaTV as a key medium-term performance catalyst. As the company has already announced upfront investment in AbemaTV, we do not think weaker profits need to be viewed negatively. In our view, the near-term issues are how far the company can expand its customer base and provide appealing content by investing in AbemaTV Earnings trends: likely to flatten in FY9/16–17 We think the company beat its initial 1H FY9/16 guidance due to strong performances by the ad business and leading titles in the games business. From 2H FY9/16, however, we think the company will have to bear upfront costs due to the April 2016 launch of video business AbemaTV. These will consist not only of promotional spending to secure AbemaTV customers, but also sizable video content procurement costs. As AbemaTV is striving to follow an ad model, the company aims to maximize media value and will likely focus on expanding downloads and the number of daily active users. Accordingly, while advance costs will arise, the earnings contribution will be modest. We should be able to at least assess the viability of the business a year or two in. Whether the video business is a success will likely become clear in FY9/18. We expect the business to incur annual fixed costs of around ¥16bn. If the business is successful, we think earnings growth will accelerate. If not, the company will likely pull out of video streaming business, and thereby seek to cut expenses to keep profit at a certain level. Much depends on when this video streaming business turns a profit, but we think FY9/16– 17 is likely to be a period of flat profits.
Figure 20: OP trends
OP
45,000 42,781 40,631 40,000 35,114 35,000 32,747 32,224 32,819
30,000
25,000 22,220
(JPYmn) 20,000
15,000 10,318 10,000
5,000
0 FY9/13 FY9/14 FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E
Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 16 12 July 2016
Media: Opening up video business via AbemaTV The company launched AbemaTV on 11 April 2016. It sees 2016 as the founding year of its video business, in which it started the service and invested heavily in it. AbemaTV, a joint venture with TV Asahi, is distinctive in its aim to follow a TV-like business model. While many video sites follow the on-demand and fee-based model adopted by dTV, Netflix, Hulu, and others, AbemaTV is free and has a limited number of channels, broadcasting via streaming. This means that although customers can choose channels, they receive content as they do via TV. For comparison, among domestic video distribution models, niconico, provided by Kadokawa (9468), had 2.56mn premium subscribers as of 31 March, while the number of monthly average users (MAU) was 8.70mn (average in Jan–Mar 2016). The portal business segment, which includes niconico video, posted FY3/16 sales of ¥21.0bn, and OP of ¥2.1bn. Meanwhile, dTV, which is provided jointly by AVEX (7860) and NTT Docomo, had 4.99mn paying subscribers as of 31 March. The video distribution segment, which includes dTV, reported FY3/16 sales of ¥32.1bn, and gross profit of ¥4.0bn. Both services follow a business model based on viewing fees, but share with AbemaTV the fact that they are video distribution businesses. If sales are on par with niconico (¥20bn), we think a move into profit will look likely. In our view, an MAU approaching 10mn would indicate a customer base large enough to make a significant earnings contribution.
Figure 21: Video ad market by device Figure 22: Video ad market by product
PC SP in-stream in-feed in-banner Others
250 250
200.9 200.9 200 200 171.8 171.8 20.4 10.5 17.2 139.7 139.7 33.5 150 114.9 150 9 13.3 28.5 109.3 93.6 109.2 7.5
(JPYbn) 10.2 22.5 (JPYbn) 100 76.6 100 80 6 16.8 60.1 8.3 50.6 5 136.5 50.6 80.0 10 117.1 50 31.7 50 31.6 96.4 23.4 78.2 86.0 76.2 40.3 63.1 56.7 8.6 49.2 35.4 23.1 27.2 23.1 0 9.7 0 CY2014 CY2015 CY2016E CY2017E CY2018E CY2019E CY2020E CY2014 CY2015 CY2016E CY2017E CY2018E CY2019E CY2020E Source: CyberAgent’s press release (estimates), Credit Suisse Source: CyberAgent’s press release (estimates), Credit Suisse estimates estimates
Figure 23: AbemaTV sales Figure 24: Media business sales
AbemaTV sales Media business 30 50,000 45,200 45,000 41,700 25 24.0 40,000 20.5 35,000 20 30,200 30,000 23,330 23,700
15 25,000 21,723 (JPYbn) (JPYmn) 20,000 9.0 10 15,000 10,000 5 2.5 5,000 0 0 0 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 17 12 July 2016
Expecting major titles to keep game business stable CyberAgent's game business has relatively stable growth driven by several hit titles. One such hit was Rage of Bahamut. Today, not one but several hit titles are supporting earnings. From the viewpoint of title diversification, the company's game business resembles Colopl (3668) rather than Mixi or GungHo (3765). The game business has many volatile elements, such as seasonality, the timing of game events, the launch of new titles, and the scrapping of unprofitable titles. However, as CyberAgent's title portfolio is diversified, we think the business will remain relatively stable. Recently in the game industry, the upper levels of game rankings have become fixed. We understand that rather than starting small and growing into a major product, it is now key to launch games that feature high-quality content from the start. Risk-per-title has increased, and it has become hard for game companies with fragile financial bases to survive. We think game companies with human resources and firm finances will survive, and that CyberAgent's game companies have an edge in this regard.
Figure 25: Game business sales
Game business
160,000 141,000 142,000 142,000 140,000 135,000 117,421 120,000
100,000 87,109
80,000 (JPYmn) 60,000
40,000
20,000
0 FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E
Source: Company data, Credit Suisse estimates Focus on shedding image as Internet ad agency The group's Internet ad transaction value as an Internet advertising agency is around ¥148.8bn (Jan–Dec 2015), far higher than Dentsu's (4324) ¥85.0bn (interactive media) and Septeni's (4293) ¥65.5bn (net marketing). The Internet advertising industry has changed substantially due to the advent of the smartphone. Although it had the lion's share, without fearing change the company swiftly grappled with advertising for smartphones, including operational advertising, ad technology, and social media. Amid these major changes the company's share of transaction value in net ad business increased. However, we expect growth to slow slightly as smartphone proliferation goes through a lull. Nevertheless, we see further major opportunities if advertising business models in Internet TV, such as AbemaTV are successful. According to Dentsu Communication Institute, advertising via TV totaled ¥1.93tn in 2015 whereas Internet advertising costs came to only ¥1.15tn. Advertising currently done via TV broadcasting could thus well migrate to the Internet. Given the current state of TV media, we see ample scope for growth in Internet advertising via video ads.
CyberAgent (4751 / 4751 JP) 18 12 July 2016
In other words, whereas Internet ads were once used to promote sales, the proliferation of video could cause them to eat into branding ad budgets. On 23 May, CyberAgent announced the establishment of a next-generation brand strategy office that will support brand ad company marketing. While little attention was paid to the announcement we think it has growth potential.
Figure 26: Internet advertisement business trends
Internet advertisement business
300,000
248,100 250,000 228,500 208,900 200,000 189,300 168,676 142,886
150,000 (JPYmn)
100,000
50,000
0 FY9/15 FY9/16E FY9/17E FY9/18E FY9/19E FY9/20E
Source: Company data, Credit Suisse estimates
Figure 27: Japan's advertising expenditures in 2015 (JPYbn) 2012 2013 2014 2015 Total 5891.3 5976.2 6152.2 6171.0 Major Media 2880.9 2893.5 2939.3 2869.9 Newspapers 624.2 617.0 605.7 567.9 Magazine 255.1 249.9 250.0 244.3 Radio 124.6 124.3 127.2 125.4 Television 1877.0 1902.3 1956.4 1932.3 Terrestrial Television 1775.7 1791.3 1834.7 1808.8 Satelite Media-related 101.3 111.0 121.7 123.5 Internet ad 868.0 938.1 1051.9 1159.4 Media 662.9 720.3 824.5 919.4 Ad Production 205.1 217.8 227.4 240.0 Sales Promotion 2142.4 2144.6 2161.0 2141.7 Outdoor 299.5 307.1 317.1 318.8 Transit 197.5 200.4 205.4 204.4 Flyers 516.5 510.3 492.0 468.7 Direct Mail 396.0 389.3 392.3 382.9 Free Paper magazine 236.7 228.9 231.6 230.3 POP 184.2 195.3 196.5 197.0 Tele. Directories 51.4 45.3 41.7 33.4 Ex./Screen Display 260.6 268.0 284.4 306.2 Source: Dentsu" Advertising Expenditures in Japan for 2015", Credit Suisse
CyberAgent (4751 / 4751 JP) 19 12 July 2016
Figure 28: Breakdown of spending on Internet advertising Internet Advertising M edium Costs N ew Category Categories used from 2005 to 2011 Internet from 2012 Internet Advertising P erformance- Advertising Expenditures D isplay S earch Engine M obile B ased Production Costs A dvertising, etc. A dvertising A dvertising A dvertising’s S hare of Total
CY JPYbn YoY JPYbn YoY JPYbn YoY JPYbn YoY JPYbn YoY JPYbn YoY JPYbn YoY 2005 3,777 148% 2,808 155% 1,930 - 590 - 288 - - - 969 - 2006 4,826 128% 3,630 129% 2,310 120% 930 158% 390 135% - - 1,196 123% 2007 6,003 124% 4,591 126% 2,688 116% 1,282 138% 621 159% - - 1,412 118% 2008 6,983 116% 5,373 117% 2,885 107% 1,575 123% 913 147% - - 1,610 114% 2009 7,069 101% 5,448 101% 2,707 94% 1,710 109% 1,031 113% - - 1,621 101% 2010 7,747 110% 6,077 112% 2,841 105% 2,035 119% 1,201 116% 2,460 - 1,670 103% 2011 8,062 104% 6,189 102% 2,827 100% 2,194 108% 1,168 97% 2,853 116% 1,873 112% 2012 8,680 108% 6,629 107% ------3,391 119% 2,051 110% 2013 9,381 108% 7,203 109% ------4,122 122% 2,178 106% 2014 10,519 112% 8,245 114% ------5,106 124% 2,274 104% 2015 11,594 110% 9,194 112% ------6,226 122% 2,400 106% Source: Dentsu" Advertising Expenditures in Japan for 2015", Credit Suisse Shareholder returns The company previously disclosed clear rules for setting shareholder returns. However, it now merely says it aims to boost the value of its shares and sustain dividend payments. We gather that although it does not have a shareholder returns policy that spells out clear figures, the company is aware of its share price, implementing share buybacks when it has surplus funds and the share price has been on a downward trend for a while. While we do not think shareholder returns will drive the share price, we do think it will support it. CyberAgent has started media and game businesses in response to industry changes, with Internet advertising agency business as its mainstay. We expect the company to be a serial investor in new businesses while monitoring changes in the business climate. Thus, while we think the company will continue to pay a steady dividend, we think it will focus on retaining earnings and implement shareholder returns if and when necessary.
CyberAgent (4751 / 4751 JP) 20 12 July 2016 Earnings forecasts
Figure 29: CyberAgent (4751) – Income statement Income Statement (JPY mn) 9/13 9/14 9/15 9/16E 9/17E 9/18E 9/19E 9/20E Revenues Media business 23,330 21,723 23,700 30,200 41,700 45,200 %yoy -6.9% 9.1% 27.4% 38.1% 8.4% Fee charge 6,400 6,800 6,800 6,800 6,800 6,800 Advertisement 10,400 10,600 10,400 10,400 10,400 10,400 Others 6,000 4,000 4,000 4,000 4,000 4,000 AbemaTV 0 0 2,500 9,000 20,500 24,000 Game 87,109 117,421 135,000 141,000 142,000 142,000 %yoy 34.8% 15.0% 4.4% 0.7% 0.0% Internet Ad Agency 142,886 168,676 189,300 208,900 228,500 248,100 %yoy 18.0% 12.2% 10.4% 9.4% 8.6% PC 51,637 56,800 61,300 64,900 68,500 72,100 Smartphone 90,510 111,600 128,000 144,000 160,000 176,000 Others 16,794 16,432 16,400 16,400 16,400 16,400 Incubation 7,209 1,246 1,200 1,200 1,200 1,200 Adjustment -22,910 -21,278 -24,687 -27,839 -30,086 -31,703 Internet advertising business 80,485 113,864 141,627 168,425 182,322 197,298 0 0 Agency Net business Game and other media businesses 60,040 65,599 83,201 97,120 101,611 105,851 0 0 SAP 36,940 50,798 64,537 77,300 80,800 84,000 0 0 Others 23,100 15,190 18,664 19,820 20,811 21,851 0 0 FX 2,916 0 0 0 0 0 0 0 Ameba 24,500 34,009 34,304 30,620 31,100 31,900 0 0 Advertisement 6,100 9,000 10,700 11,900 12,900 13,700 0 0 item charge 18,400 24,700 23,300 18,720 18,200 18,200 0 0 Incubation 1,801 4,346 6,827 400 400 400 0 0 Adjustment -7,259 -12,584 -16,981 -20,760 -22,080 -23,481 0 0 Total Net Revenues 162,493 205,234 254,380 304,223 340,913 369,861 399,714 421,197 %yoy 15.2% 26.3% 23.9% 19.6% 12.1% 8.5% 8.1% 5.4% Gross Profit 57,585 71,342 92,221 110,350 120,692 129,991 138,290 143,239 %margin 35.4% 34.8% 36.3% 36.3% 35.4% 35.1% 34.6% 34.0% SG&A 47,266 49,122 59,473 77,645 87,873 94,877 97,659 100,458 % of Revenue 29.1% 23.9% 23.4% 25.5% 25.8% 25.7% 24.4% 23.9% Sales cost 6,584 4,760 5,000 5,333 5,867 6,239 6,372 6,508 Advertising 11,477 10,500 13,300 17,338 17,963 19,102 19,509 19,923 Personnel 15,122 17,500 20,000 22,161 24,078 28,323 29,917 31,510 Office 3,433 3,720 4,300 4,983 5,297 5,614 5,931 6,248 Others 9,700 10,000 12,500 23,832 30,668 31,598 31,931 32,269 Earnings Incentives 790 2,000 3,400 4,000 4,000 4,000 4,000 4,000 Operating Income 10,318 22,220 32,747 32,224 32,819 35,114 40,631 42,781 %yoy -41.0% 115.4% 47.4% -1.6% 1.8% 7.0% 15.7% 5.3% % of Revenue 6.3% 10.8% 12.9% 10.6% 9.6% 9.5% 10.2% 10.2% Operating Income(ex-Investment Income) 10,318 22,220 32,747 32,224 32,819 35,114 40,631 42,781 % of Revenue(ex-Investment Income) 6.3% 10.8% 12.9% 10.6% 9.6% 9.5% 10.2% 10.2% Recurring Profit 10,570 22,188 32,314 30,718 31,212 33,513 39,038 41,198 % of Revenue 6.5% 10.8% 12.7% 10.1% 9.2% 9.1% 9.8% 9.8% Income Tax, adjusted 9,608 8,074 13,059 10,814 10,516 11,345 13,334 14,111 Minority Interests 860 846 2,868 3,341 3,200 3,200 3,200 3,200 Extraoridnary Profits/Loss 10,403 - 3,711 - 1,594 - 2,216 - 2,000 - 2,000 - 2,000 - 2,000 Net Income 10,504 9,556 14,792 14,345 15,496 16,969 20,505 21,887
EBITDA 15,012 27,065 39,033 39,618 42,393 46,012 52,456 55,257 % of Revenue 9% 13% 15% 13% 12% 12% 13% 13% EPS (JPY) 167.2 152.1 235.5 228.4 246.7 270.1 326.4 348.4 Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 21 12 July 2016
Figure 30: CyberAgent (4751) – Balance sheet Balance Sheet (JPY mn) 9/13 9/14 9/15 9/16E 9/17E 9/18E 9/19E 9/20E Current Assets 60,916 73,605 93,532 98,874 111,774 127,552 147,826 169,188 Cash & Securities 28,455 31,446 38,723 43,681 54,066 67,313 86,707 107,173 Working Capital 32,461 42,159 54,809 55,194 57,708 60,239 61,119 62,014 Fixed Assets 20,509 26,939 37,654 42,018 46,410 49,478 51,618 53,121 Tangibles 4,346 5,989 7,616 8,640 9,272 9,715 10,026 10,244 Intangibles 10,417 14,339 17,955 19,260 23,054 25,713 27,577 28,884 Others 5,744 6,609 12,083 14,118 14,085 14,050 14,015 13,993
Total Assets 81,425 100,545 131,188 140,892 158,184 177,031 199,444 222,308 Current Liabilities 29,861 36,329 52,013 50,469 52,811 55,235 57,690 59,213 Short-term Debt - 30 20 593 593 593 593 593 Other 29,861 36,299 51,993 49,876 52,218 54,642 57,097 58,620 Long-term Liabilities 976 1,040 1,472 1,766 1,766 1,766 1,766 1,766 Long-term Debt 47 - 130 149 149 149 149 149 Others 929 1,040 1,342 1,617 1,617 1,617 1,617 1,617 Total Liabilities 30,837 37,369 53,486 52,235 54,577 57,001 59,456 60,979 Minority Interest 4,840 8,439 10,761 13,162 16,362 19,562 22,762 25,962 Shareholders' Equity 45,591 54,535 66,938 75,489 87,239 100,462 117,221 135,362
Liabilities & Shareholder Equity 81,425 100,545 131,188 140,892 158,184 177,031 199,444 222,308 Source: Company data, Credit Suisse estimates
CyberAgent (4751 / 4751 JP) 22 12 July 2016
Companies Mentioned (Price as of 11-Jul-2016) Apple Inc (AAPL.OQ, $96.98) Avex Group Holdings Inc. (7860.T, ¥1,155) BANDAI NAMCO Holdings Inc. (7832.T, ¥2,746) COLOPL Inc (3668.T, ¥2,070) CyberAgent (4751.T, ¥6,420, OUTPERFORM, TP ¥8,000) Dentsu (4324.T, ¥4,670) Google (GOOAV.OQ, $568.67) GungHo Online (3765.T, ¥290) Kadokawa Corp (9477.T, ¥2,627) Kakao Corp (Unlisted) Mixi (2121.T, ¥4,280) NTT DoCoMo (9437.T, ¥2,841) Rakuten (4755.T, ¥1,105) Recruit Holdings (6098.T, ¥3,855) Septeni Holdings (4293.T, ¥3,700) Square Enix Holdings (9684.T, ¥3,380) TV Asahi Hldg (9409.T, ¥1,645) Yahoo Japan (4689.T, ¥459) Please see Figures 11, 12 and 13 for other companies mentioned
Disclosure Appendix Important Global Disclosures I, Keiichi Yoneshima, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for CyberAgent (4751.T)
4751.T Closing Price Target Price Date (¥) (¥) Rating 18-Jul-13 2,230 2,000 N 15-Jan-14 4,350 3,900 26-Aug-14 3,385 4,300 O 03-Apr-15 6,790 NR * Asterisk signifies initiation or assumption of coverage.
NEUTRAL OUTPERFORM NOT COVERED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
CyberAgent (4751 / 4751 JP) 23 12 July 2016
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Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 55% (42% banking clients) Neutral/Hold* 35% (17% banking clients) Underperform/Sell* 10% (40% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for CyberAgent (4751.T)
Method: We base our ¥8,000 target price for CyberAgent on a DCF model with a forecast horizon through FY9/20. To calculate enterprise value for FY9/21 onward we take projected FY9/20 EBITDA and apply an EV/EBITDA of 7.5x. This represents a discount of some 15% from the 9x (the I/B/E/S average two-year forward EV/EBITDA for domestic Internet 22 companies including Yahoo Japan, Rakuten and Recruit), as we expect diversity in the company's operations—including new businesses and gaming—to keep earnings highly volatile. We assume WACC of 8.45%, from RFR of 0.0%, ERP of 6.5%, beta of 1.3x and D/E = 0. While in the near term we see a risk that seasonal factors and upfront spending will weigh on the share price, we think valuations will rise over the medium term as growth in existing businesses and moves into profit at new businesses restore earnings momentum. We assign an OUTPERFORM rating, based on the 12-month forward potential return and comparison with our coverage universe.
Risk: Risks include: (1) slower growth in the Internet advertising market and CyberAgent's Internet advertising business, (2) a swift decline in earnings from existing game titles, (3) tougher regulations governing online gaming, (4) pressure on consolidated earnings from losses at newly launched AbemaTV (video business) continuing longer than expected, and (5) guidance being well below expectations (e.g., a substantial YoY profit decrease).
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
CyberAgent (4751 / 4751 JP) 24 12 July 2016
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CyberAgent (4751 / 4751 JP) 25 12 July 2016
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4751_071216_CyberAgent_E.do CyberAgent (4751 / 4751 JP) 26c