Merrill Lynch's recent comments and their original analysis from last December. Just a reminder as to why we should be in this stock. Last December I laughed when ML was predicting a move upward to 80,000 yen when Softbank was at 71,000yen. In December, ML was telling us to watch out for seasonal weakness in February and March of 2000 <G>:
SOFTBANK (SFTBF, Y81,500, C-2-1-7) Share Price Correction, Reiterate Accumulate/Buy (Mahendra Negi 813 3213 6258)
Softbank shares fall to Y80,000. We have been concerned about "irrational exuberance" in the Internet sector since the beginning of CY00, and this price correction brings the shares to a more reasonable level. Meanwhile, as always happens in a volatile market, a number of negative comments have started appearing in the press regarding Softbank. We believe most of them are simply unfounded speculation, and if the share price continues to weaken, we would continue to accumulate the stock below the Y80,000 level.
To address some specific issues, we do not think that there is a boardroom battle going on in Softbank (though Mr. Shigeta, president of Hikari Tsushin, may leave after the May board meeting), and the company has also denied reports of a Y300bn equity issue (we do expect the company to tap the capital market at some point in time, but we believe that it would be at a share price above Y100,000).
On the positive side, NAV /share continues to go up despite the correction in Internet stocks (mainly because the increase in Yahoo! Inc, Yahoo Japan and E Trade shares over the last four months), and we estimate the NAV / share to be Y41,000 (after capital gains
RC#10208912
Daily News & Analysis of the Technology Sector Global Technology
29 March, 2000
AFTERNOON EDITION Melissa Bildner
Softbank ? The Internet Portfolio
Softbank, with its investments in 100+ start-ups and the setting up of new venture
capital funds ($1.8bn USD in the US, $120mn in Japan, $50mn in Asia, $100mn in
Europe) is the number one Internet venture capital firm in the world. The company
also owns a large stake of Ziff Davis, as well as 23% of Yahoo! and 26% of E*Trade.
Key factors supporting our purchase recommendation:
1. Provides exposure to unlisted Internet companies in Japan. Softbank provides an
ideal (in terms of liquidity and risk distribution) way to take an exposure on the growth
of Japanese Internet market, in our view. Only five Internet companies are currently
listed, but we expect this number to grow to 50 by the end of 2000, and exceed 200 by
the end of 2001.
2. Already a successful track record. The company already has latent gains of around
$30bn in its listed holdings, and with the listing of Internet companies likely to start full-scale
on the Mothers market in December 1999, these gains should continue to grow.
3. Also creating new businesses. Unlike a financial company, Softbank also creates new
businesses ? e.g Yahoo! Japan (listed), eS Books (unlisted), eS Toys (unlisted), E*Trade
Japan (unlisted). We believe that the return on investment on such businesses will be
even higher than that which is generated from VC activity.
4. Watch out for some seasonal weakness in early 2000. Some seasonal weakness in
Internet stocks (and Softbank) is possible in February/March 2000 as information flow
slows down, but we remain bullish on the long-term outlook.
Japan
Price: ¾71,000
Price Obj: ¾80,000
Recommendations
Int. Term Price Earnings Per Share P/E x Est 5 Yr. Indicated Dividend
Opinion Opinion 8 Dec. 99 1998A 1999E 2000E 2000E EPS (%) Rate Yield (%)
Japan
Hikari Tsushin** 9435 Accumulate D-2-1-7 ¾152,000 ¾334.3 ¾413.6 ¾570.9 266x 40% 70.0 0.1
Softbank* 9984 Accumulate C-2-1-7 ¾71,000 ¾341.7 -¾24.4 ¾118.6 599X 8% 25.0 0.0
Yahoo! Japan* 4689 Accumulate D-2-1-9 ¾73,500,000 ¾27,144.5 ¾39,202.3 ¾81,617.7 901x 200% 0.0 0.0
* Fiscal Year ends March 31 of following year ** Fiscal Year ends August 31 of following year.
Mahendra Negi 8 December 1999 Mahendra Negi |
