Demae-can / 2484 COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2021.06.25 Shared Research Inc. has produced this report by request from the company discussed herein. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, neutral analysis. To highlight any biases, we clearly attribute our data and findings. We always present opinions from company management as such. The views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. Research Coverage Report by Shared Research Inc. Demae-can / 2484 RCoverage LAST UPDATE: 2021.06.25 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the Trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the later Business section. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 8 Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 8 Company forecast for FY08/21 ------------------------------------------------------------------------------------------------------------------------------ 15 Historical forecast accuracy ---------------------------------------------------------------------------------------------------------------------------------- 17 Medium-term business plan (out October 15, 2020) ----------------------------------------------------------------------------------------------- 18 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 23 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 23 Demae-can business -------------------------------------------------------------------------------------------------------------------------------------------- 25 Mail Order business -------------------------------------------------------------------------------------------------------------------------------------------- 32 Market overview ------------------------------------------------------------------------------------------------------------------------------------- 34 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 37 Historical performance and financial statements ------------------------------------------------------------------------------------------ 39 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 39 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 41 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 43 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 44 Other information ---------------------------------------------------------------------------------------------------------------------------------- 61 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 61 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 61 Corporate governance and top management --------------------------------------------------------------------------------------------------------- 63 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 63 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 64 Major shareholders (as of August 31, 2020) ----------------------------------------------------------------------------------------------------------- 65 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 65 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 66 02/67 Demae-can / 2484 RCoverage LAST UPDATE: 2021.06.25 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Executive summary Business overview ◤ Demae-can business: The company operates Demae-can, a food delivery website for restaurants. Under its Demae-can business, the company operates a dedicated online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. The company offers an outsourced delivery platform, Sharing Delivery, for restaurants without their own delivery infrastructure. Since Q3 FY08/20, amid a tough climate for the restaurant industry due to the COVID-19 outbreak, the company has grown revenue sharply by responding to demand for delivery from restaurants and consumers. 1H FY08/21 revenue was JPY10.5bn (+173.3% YoY). The company posted an operating loss of JPY8.4bn in 1H (versus loss of JPY989mn in 1H FY08/20) due to upfront spending such as the expense of setting up delivery bases (Sharing Delivery bases) and advertising. The Demae-can business accounted for roughly 98% of revenue in 1H FY08/21. The company only operates in Japan. ◤ Outsourced delivery platform (Sharing Delivery): The company is moving forward with a hybrid system in which it secures delivery infrastructure by establishing delivery bases (Sharing Delivery bases) while outsourcing deliveries to companies and individuals during peak hours to suppress fixed costs. The company manages its Sharing Delivery bases directly and in partnership with other companies. It distinguishes itself with efficient, quality delivery services that set it apart from its main competitor Uber Technologies, Inc. (NYSE: UBER). The company said it covered 39% of households as of Q2 FY08/21, and about 30% of gross merchandise volume (GMV) was from Sharing Delivery services (70% was from affiliates’ own deliveries). The company thinks that Sharing Delivery services will account for over 50% of GMV in FY08/23. ◤ Key Performance Indicators: The company discloses several key performance indicators that it watches closely: gross merchandise volume (GMV: JPY71.0bn in 1H FY08/21, +68.2% YoY), number of orders (26.3mn, +72.2% YoY), number of affiliated restaurants (59,000, +175.1% YoY), and number of active users (5.82mn, +81.9% YoY), defined as users who have made an order within the past year. Key indicators that the company watches closely but does not disclose include its order conversion rate (the percent of website viewers that place orders), order unit price (calculable from disclosed KPIs; Shared Research estimates about JPY2,700 in 1H FY08/21), and repeat order rate (Shared Research estimates 2.8x in Q2 FY08/21; equivalent to 11.2x p.a.) The company expects that the order unit price will gradually decline as it makes food delivery an everyday occurrence. This is because prices for frequent customers tend to decline and the company also intends to boost its efforts to tap into those living alone as well as the family demographic. It also expects the repeat order rate to increase. ◤ Revenue structure: As of March 2021, in principle, pay-for-use charges for affiliated restaurants were 10% of order cost as Demae-can service fees (before tax, including points cost); 25% of order cost as delivery commissions (before tax; no charge when affiliated restaurants handle delivery); and maximum of 3% of order value as payment processing fees. In addition, delivery commissions include the portion shouldered by users. The main costs in delivery services include outsourcing costs (cost of revenue), a variable cost that moves in line with the number of outsourced deliveries, part-time personnel expenses incurred on a fixed hourly basis (SG&A expenses), and rent (SG&A expenses). GPM is in a downtrend as the cost of revenue is growing along with delivery commissions. GPM declined from 70.7% in