The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. -- Ed.
Focus on online shopping market growth and product/service category expansion
Enjoying increased traffic at its open market platform, Danawa is to benefit from online market growth. In addition, the firm’s commission revenue is to rise on expanding demand for PCs for telecommuting and online education purposes. And, its price competitiveness is to translate into product/service category expansion.
To benefit from higher PC demand and online shopping growth
With demand for telecommuting and online education services rising sharply, Danawa’s PC and laptop sales have been booming. Moving ahead, the firm’s commission income is to increase in line with greater traffic at both its open market platform (Shop Danawa) and price comparison platform (Danawa).
Sales at Shop Danawa are estimated to have upped 30% y-y in February and 40% y-y in March. Sales volume growth is being propelled by demand for home PCs. Although home PCs carry a lower price per unit than gaming PCs, the sharp upsurge in sales volume is pushing up overall top-line growth.
Accounting for about 40% of its sales on a separate basis, the firm’s price comparison service business (Danawa receives a commission when traffic at its online price comparison platform transfers to other shopping platforms) is expected to continue expanding alongside online shopping market growth. Of note, Danawa’s business model is based on a cost per sales (CPS) model. In addition to PCs, sales of the company’s home appliances (separate basis sales portion: 40%) and general merchandise (25%) are also now climbing. Given these developments, ongoing online shopping market growth should translate into further earnings benefits for the firm, going forward.
We also draw attention to the business model similarities between Danawa and Japan’s Kakaku.com. Kakaku has successfully expanded its product categories out from PCs to encompass various services (including financial products and telecommunications services). Given such, we positively view Danawa’s recent initiatives to widen its product/service categories, believing that it possesses sufficient platform competitiveness to support these efforts.
Boasts operating leverage as platform player and valuation merit
On a consolidated basis, Danawa should show 2020 sales of W109.8bn (-34.2% y-y) and OP of W30.1bn (+5.5% y-y). Although high-base effect is to be in play (on one-off sales booked in 4Q19), the firm’s OP is primed to strengthen y-y in keeping with leverage effects at its core business. Even under conservative earnings assumptions for its advertising business, the firm’s non-consolidated sales should climb 6.8% y-y this year. Currently, trading at a 2020E P/E of 14x, Danawa’s shares appear undervalued compared to those of other Internet platform operators (Kakaku, Interpark).