JPMorgan starts CyberAgent with Overweight, sets JPY1,500 target

On Thursday, JPMorgan initiated coverage on CyberAgent Inc. (4751:JP) (OTC: CYGIY) with an Overweight rating and set a price target of JPY1,500.00. The firm’s analysis indicates that after a period of declining profits, CyberAgent is poised for a significant profit recovery starting in FY9/25. The stock has already shown strong momentum, with a 34.5% gain year-to-date, and according to InvestingPro data, currently trades below its Fair Value.

CyberAgent’s operating profit fell for two consecutive years in FY9/22–23, attributed to a mix of factors. Despite this, JPMorgan sees potential for the company’s recovery, noting that the share price has shown some resilience since September 2023, albeit with ongoing instability amid market fluctuations. The company maintains strong fundamentals, with InvestingPro analysis showing a healthy current ratio of 2.14 and more cash than debt on its balance sheet.

The firm’s optimistic outlook for CyberAgent is based on several key business areas. JPMorgan believes that the company’s internet advertising division remains structurally robust. Additionally, the game business is expected to recover from its recent profit downturn. The ABEMA segment, which operates a video streaming service, has reportedly begun to turn profitable on its own. Furthermore, a new intellectual property strategy is anticipated to create group synergies in the medium term. Recent financial data from InvestingPro supports this optimism, showing 9.1% revenue growth and a notably low PEG ratio of 0.24, suggesting attractive growth potential relative to its current valuation.

JPMorgan’s assessment also considers a recent internal investigation report released by CyberAgent on April 16. The report addressed accounting irregularities at Cyber Owl, a subsidiary of CyberAgent. It concluded that the impact of these improprieties on CyberAgent’s financial results and forecasts for FY9/25 is minimal, suggesting that the issues will not significantly hinder the company’s upcoming profit recovery.

With these factors in mind, JPMorgan views CyberAgent’s stock as considerably undervalued, presenting a favorable opportunity ahead of the expected profit turnaround.

In other recent news, CyberAgent Inc. received an upgrade from analysts at Citi, who raised the company’s stock rating from Neutral to Buy. This upgrade came with an increased price target, moving from JPY 1,000 to JPY 1,400. Citi’s analysts have expressed a positive outlook on CyberAgent’s media and intellectual property (IP) segment, highlighting sustained growth in its internet advertisement segment. They noted that CyberAgent is poised to benefit from prior investments in its media and IP segment, which could lead to financial gains. The internet advertisement segment continues to show consistent growth, further supporting the optimistic view. While the game segment remains uncertain, Citi acknowledges CyberAgent’s strong development capabilities, suggesting potential upside depending on the performance of new game titles. The revised price target reflects updated earnings forecasts and confidence in CyberAgent’s growth potential in key business areas. This upgrade indicates Citi’s belief in the company’s strategic investments and future performance.

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