Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

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<li>
<a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>’s share price has underperformed its peers, <a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a> and <a href="https://www.smartkarma.com/entities/sapporo-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14085:1" rel="noopener">Sapporo Holdings (2501 JP)</a> by 47.5% and 36.8% respectively during the last 10 months as big foreign funds such as Franklin Resources, Morgan Stanley and Canada Pension Plan Investment Board decided to trim their stakes, amidst human rights violation allegations regarding Kirin’s JV partner in Myanmar, Myanmar Economic Holdings (MEHL).</li>
<li>We expect Kirin to settle the matter with MEHL before February 2022. In addition, we expect the consumption of alcoholic beverages to increase following the complete removal of the state of emergency in Japan from the 1st of October 2021.</li>
<li>Meanwhile, institutional investors have started to increase their holdings over the last few months, perhaps in anticipation of a settlement for the Myanmar JV issues. We expect this change in investor sentiment to unwind Kirin’s holdco discount, which is currently at a multi-year low level.</li>
</ul>



Kirin Holdings (2503 JP)’s share price has underperformed its peers, Asahi Group Holdings (2502 JP) and Sapporo Holdings (2501 JP) by 47.5% and 36.8% respectively during the last 10 months as big foreign funds such as Franklin Resources, Morgan Stanley and Canada Pension Plan Investment Board decided to trim their stakes, amidst human rights violation allegations regarding Kirin’s JV partner in Myanmar, Myanmar Economic Holdings (MEHL).
We expect Kirin to settle the matter with MEHL before February 2022. In addition, we expect the consumption of alcoholic beverages to increase following the complete removal of the state of emergency in Japan from the 1st of October 2021.
Meanwhile, institutional investors have started to increase their holdings over the last few months, perhaps in anticipation of a settlement for the Myanmar JV issues. We expect this change in investor sentiment to unwind Kirin’s holdco discount, which is currently at a multi-year low level.


Kirin: Holdco Discount Could Unwind As Institutional Investors Return Following Myanmar JV Troubles

Equity Analyst - Asia Consumer Sector, Investory

Devi Subhakesan

Equity Analyst - Asia Consumer Sector

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/thai-beverage-pcl" target="_blank" data-smartkarma-citation="entities:3656:1" rel="noopener">Thai Beverage (THBEV SP)</a> had reported a strong improvement in its Thailand operations for 9MFY2021 suggesting that a recovery is underway and we expect this could look up further as the country opens to tourists from November 1st (ending quarantine for visitors to tourist destinations). The stock, at current levels, does not seem to factor in an earnings recovery given it is trading at conservative valuations even on current earnings.  In the insight below, we share SOTP based valuation to assess the stock's upside potential and discuss possible catalysts and timelines.

Thai Beverage (THBEV SP) had reported a strong improvement in its Thailand operations for 9MFY2021 suggesting that a recovery is underway and we expect this could look up further as the country opens to tourists from November 1st (ending quarantine for visitors to tourist destinations). The stock, at current levels, does not seem to factor in an earnings recovery given it is trading at conservative valuations even on current earnings.  In the insight below, we share SOTP based valuation to assess the stock's upside potential and discuss possible catalysts and timelines.

Thai Bev (THBEV SP): Neither Recovery nor BeerCo IPO Is Priced In. SOTP Suggests Upside.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> reported its 1Q21 results last week, with revenue and operating profit falling broadly in line with consensus estimates.</li>
<li>The company’s revenue declined by 3.6% YoY to ¥409.3bn, compared to 2.3%, 9.6%, 4.1% and 2.7% YoY in 1Q20, 2Q20, 3Q20, and 4Q20 respectively.</li>
<li>The operating profit increased by 7.5% YoY to ¥28.1bn, compared to ¥26.1bn, ¥23.4bn, ¥54.9bn, and ¥-1.4bn in 1Q20, 2Q20, 3QY20, and 4Q20 respectively. This was mainly due to lower SG&amp;A and other operating expenses.</li>
<li>The full year revenue and profit guidance remained unchanged at a revenue of ¥1,880bn and an operating profit of ¥151bn compared to consensus revenue and OP of ¥1,856bn and ¥151.4bn respectively. However, the company is still evaluating options regarding its Myanmar JV, which could lead to a significant impact on Kirin’s 2021 guidance.</li>
</ul>



Kirin Holdings (2503 JP) reported its 1Q21 results last week, with revenue and operating profit falling broadly in line with consensus estimates.
The company’s revenue declined by 3.6% YoY to ¥409.3bn, compared to 2.3%, 9.6%, 4.1% and 2.7% YoY in 1Q20, 2Q20, 3Q20, and 4Q20 respectively.
The operating profit increased by 7.5% YoY to ¥28.1bn, compared to ¥26.1bn, ¥23.4bn, ¥54.9bn, and ¥-1.4bn in 1Q20, 2Q20, 3QY20, and 4Q20 respectively. This was mainly due to lower SG&amp;A and other operating expenses.
The full year revenue and profit guidance remained unchanged at a revenue of ¥1,880bn and an operating profit of ¥151bn compared to consensus revenue and OP of ¥1,856bn and ¥151.4bn respectively. However, the company is still evaluating options regarding its Myanmar JV, which could lead to a significant impact on Kirin’s 2021 guidance.


Kirin Seems Enticing from a Holdco Perspective, but Myanmar JV Still Poses Reputational & ESG Risks

Tokyo Stock Exchange is expected to restructure its market structure in April 2022, with new guidelines encouraging companies to sell down cross holdings. <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a> and <a href="https://www.smartkarma.com/entities/sapporo-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14085:1" rel="noopener">Sapporo Holdings (2501 JP)</a> have capital tie-ups with a number of popular restaurants chains in Japan. We believe the upcoming TSE restructure and the dislike among institutional investors of crossholdings could force these beer companies to sell their shareholdings in Japanese restaurants.

Tokyo Stock Exchange is expected to restructure its market structure in April 2022, with new guidelines encouraging companies to sell down cross holdings. Kirin Holdings (2503 JP), Asahi Group Holdings (2502 JP) and Sapporo Holdings (2501 JP) have capital tie-ups with a number of popular restaurants chains in Japan. We believe the upcoming TSE restructure and the dislike among institutional investors of crossholdings could force these beer companies to sell their shareholdings in Japanese restaurants.

TSE Restructure Might Force Japanese Beer to Break Their Capital Tie-Ups with Restaurant Chains

<a target="_blank">Norges Bank </a>manages the Norwegian sovereign fund, which is the world’s largest sovereign wealth funds, with AUM of around $1.3 trillion. The fund is the 12th largest shareholder of the Japanese beverage company <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> with an ownership of 1.4% of Kirin’s share capital.Yesterday, the Norwegian central bank said that it had put Kirin on a watchlist for possible exclusion from the sovereign wealth fund over Kirin’s ties with Myanmar Economic Holdings (MEHL).

Norges Bank manages the Norwegian sovereign fund, which is the world’s largest sovereign wealth funds, with AUM of around $1.3 trillion. The fund is the 12th largest shareholder of the Japanese beverage company Kirin Holdings (2503 JP) with an ownership of 1.4% of Kirin’s share capital.Yesterday, the Norwegian central bank said that it had put Kirin on a watchlist for possible exclusion from the sovereign wealth fund over Kirin’s ties with Myanmar Economic Holdings (MEHL).

Norges Bank Puts Kirin On a Watchlist Over Ties with Myanmar Military Linked JV

Japan

Asahi Group Holdings, Ltd. produces beer and other beverages including non-alcoholic drinks. The Company sells its products in Japan and overseas.

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Asahi Group Holdings (2502 JP)

Kirin: Holdco Discount Could Unwind As Institutional Investors Return Following Myanmar JV Troubles

Institutional investors are starting to return to Kirin in anticipation of a settlement for the Myanmar JV issues. We expect this change in...

Oshadhi Kumarasiri

Thai Bev (THBEV SP): Neither Recovery nor BeerCo IPO Is Priced In. SOTP Suggests Upside.

SOTP based valuation analysis suggests room for near-term upside even at conservative valuation multiples assuming the worst of COVID is past us.

Devi Subhakesan

Kirin Seems Enticing from a Holdco Perspective, but Myanmar JV Still Poses Reputational & ESG Risks

We think the market has already overreacted to Myanmar’s JV troubles, but with the Myanmar coup still in the news, there is a chance that Kirin...

Oshadhi Kumarasiri

TSE Restructure Might Force Japanese Beer to Break Their Capital Tie-Ups with Restaurant Chains

We expect the Japanese restaurants sector to remain oversold over medium term driven by the sell down of cross holdings by Japanese beer companies....

Oshadhi Kumarasiri

Norges Bank Puts Kirin On a Watchlist Over Ties with Myanmar Military Linked JV

We believe the market has already factored in the worst-case scenario for Kirin. That said, The Norges Bank putting Kirin on a watchlist could...

Oshadhi Kumarasiri

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