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

<ul>
<li>Independent Franchise Partners relaunched its investor activism campaign against <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> last Friday, (14th February 2020) with a proposal to initiate a ¥600bn share buyback and requesting permission to appoint independent directors.</li>
<li>At the time we looked at it from the company’s point of view and felt that Franchise Partners’ proposal could harm Kirin’s long-term growth potential.</li>
</ul>
<a href="https://www.smartkarma.com/insights/kirin-activist-investor-seeks-600bn-buyback-and-a-nomination-of-an-independent-director" target="_blank" rel="noopener">Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director</a>
<ul>
<li>Kirin rejected Franchise Partners’ proposal and explained their reasons for rejecting them via a press release. Click here for Kirin's responses: <a href="https://pdf.irpocket.com/C2503/ly8K/KuFz/B01C.pdf" target="_blank" rel="noopener">Response 1</a>, <a href="https://pdf.irpocket.com/C2503/ly8K/yvj9/gsZl.pdf" target="_blank" rel="noopener">Response 2</a>
</li>
<li>As Franchise Partners lacked support from Kirin’s major investors, they have turned their attention towards retail and small institutional investors who together own more than 47% of Kirin’s share capital.</li>
<li>This was done via a launch of a website called “Better Kirin”</li>
</ul>
<a href="https://www.abetterkirin.com/" target="_blank" rel="noopener">https://www.abetterkirin.com/</a>
<ul>
<li>It contains the reasoning behind Franchise Partners’ proposals and it also appeals to Kirin’s existing shareholders to stand by Franchise Partners’ investor activism campaign.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/921/original/image_56125170421582117579489.png?1582117576" class="editor-image img-responsive" data-smartkarma-image-id="118921"></figure>
<ul>
<li>We have marked this insight bullish as Kirin has rejected this short-term oriented proposal from Franchise Partners.</li>
</ul>
Summary of the main recommendations 
<ul>
<li>Divest all non-core businesses including Kyowa Kirin Pharmaceuticals, Kyowa Hakko Bio, FANCL and the domestic non-alcoholic beverages segment.</li>
<li>Abandon the strategic initiative to bridge the gap in Kirin’s product line-up (F&amp;B to Healthcare)</li>
<li>Work towards substantial margin and working capital improvements.</li>
<li>Use cash from divestments to buyback up to a maximum of 300m shares at a purchase consideration of ¥600bn.</li>
<li>Substantially increase the dividend payout ratio.</li>
<li>Invest sensibly in the core business and return excess cash to shareholders.</li>
</ul>


Independent Franchise Partners relaunched its investor activism campaign against Kirin Holdings (2503 JP) last Friday, (14th February 2020) with a proposal to initiate a ¥600bn share buyback and requesting permission to appoint independent directors.
At the time we looked at it from the company’s point of view and felt that Franchise Partners’ proposal could harm Kirin’s long-term growth potential.

Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director

Kirin rejected Franchise Partners’ proposal and explained their reasons for rejecting them via a press release. Click here for Kirin's responses: Response 1, Response 2

As Franchise Partners lacked support from Kirin’s major investors, they have turned their attention towards retail and small institutional investors who together own more than 47% of Kirin’s share capital.
This was done via a launch of a website called “Better Kirin”

https://www.abetterkirin.com/

It contains the reasoning behind Franchise Partners’ proposals and it also appeals to Kirin’s existing shareholders to stand by Franchise Partners’ investor activism campaign.



We have marked this insight bullish as Kirin has rejected this short-term oriented proposal from Franchise Partners.

Summary of the main recommendations 

Divest all non-core businesses including Kyowa Kirin Pharmaceuticals, Kyowa Hakko Bio, FANCL and the domestic non-alcoholic beverages segment.
Abandon the strategic initiative to bridge the gap in Kirin’s product line-up (F&amp;B to Healthcare)
Work towards substantial margin and working capital improvements.
Use cash from divestments to buyback up to a maximum of 300m shares at a purchase consideration of ¥600bn.
Substantially increase the dividend payout ratio.
Invest sensibly in the core business and return excess cash to shareholders.


"A Better Kirin" By Activist Investor Franchise Partners

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/403/original/2020-02-18_08-44-22.png?1581983074" class="editor-image img-responsive" data-smartkarma-image-id="118403"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/404/original/2020-02-18_08-42-56.png?1581983098" class="editor-image img-responsive" data-smartkarma-image-id="118404"></figure><div class="content-caption">Source • Japan Analytics</div>THREE-YEAR LOW - With <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a>'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/405/original/2020-02-18_09-29-28.png?1581985792" class="editor-image img-responsive" data-smartkarma-image-id="118405"></figure><div class="content-caption">Source • Japan Analytics</div>LEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-<ul>
<li>Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.</li>
<li>The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.</li>
<li>The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.</li>
<li>
All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.
<hr>
• SECTOR SCORES •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/410/original/2020-02-18_09-55-29.png?1581987489" class="editor-image img-responsive" data-smartkarma-image-id="118410"></figure><div class="content-caption">Source • Japan Analytics</div>
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 
</li>
</ul>

Source • Japan AnalyticsTHREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. Source • Japan AnalyticsLEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-
Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.
The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.
The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.

• SECTOR SCORES •
Source • Japan Analytics
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 



🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

It was reported that Franchise Partners has submitted a proposal to <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> asking the company to initiate a ¥600bn share buyback. They have also requested the appointment of one independent director to the board of directors.This latest round of investor activism comes after Franchise Partners’ (October 2019) attempt to convince Kirin to concentrate on its beer business rather than diversifying into biochemicals and pharmaceuticals.

It was reported that Franchise Partners has submitted a proposal to Kirin Holdings (2503 JP) asking the company to initiate a ¥600bn share buyback. They have also requested the appointment of one independent director to the board of directors.This latest round of investor activism comes after Franchise Partners’ (October 2019) attempt to convince Kirin to concentrate on its beer business rather than diversifying into biochemicals and pharmaceuticals.

Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/756/original/2020-02-14_05-11-41.png?1581624901" class="editor-image img-responsive" data-smartkarma-image-id="117756"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/760/original/2020-02-14_05-38-10.png?1581626321" class="editor-image img-responsive" data-smartkarma-image-id="117760"></figure><div class="content-caption">Source • Japan Analytics</div>13TH FEBRUARY ROUNDUP - The penultimate day of this results 'season' saw 402 results and 224 forecast or revision announcements.  Our results Score lost another 7 basis points; however, positive initial annual forecasts from several December year-end companies including <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1" rel="noopener">Dentsu  (4324 JP)</a>, <a href="https://www.smartkarma.com/entities/unicharm-corp" target="_blank" data-smartkarma-citation="entities:6246:1" rel="noopener">Unicharm (8113 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 (2502 JP)</a>, <a href="https://www.smartkarma.com/entities/coca-cola-bottlers-japan" target="_blank" data-smartkarma-citation="entities:20051:1" rel="noopener">Coca Cola Bottlers Japan (2579 JP)</a>, <a href="https://www.smartkarma.com/entities/suntory-beverage-food-ltd" target="_blank" data-smartkarma-citation="entities:8218:1" rel="noopener">Suntory Beverage &amp; Food (2587 JP)</a>, and <a href="https://www.smartkarma.com/entities/mcdonald-s-holdings-co-japan" target="_blank" data-smartkarma-citation="entities:985:1" rel="noopener">Mcdonald's Japan (2702 JP)</a> added 34 bps to the Forecast/Revision Score. The 'gap' between the two Scores is the largest since mid-2016, and a large gap is a precondition for setting a cycle low. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/757/original/2020-02-14_05-14-40.png?1581625349" class="editor-image img-responsive" data-smartkarma-image-id="117757"></figure><div class="content-caption">Source • Japan Analytics</div>SECTOR TIMELINE - These initial forecasts were the prime driver of the on-day changes in our Sector Timeline, which saw gains for Restaurants,Media, Food, Beverages &amp; Tobacco, and Other Consumer Products. Time will tell if this optimism is well-founded or not.

Source • Japan Analytics13TH FEBRUARY ROUNDUP - The penultimate day of this results 'season' saw 402 results and 224 forecast or revision announcements.  Our results Score lost another 7 basis points; however, positive initial annual forecasts from several December year-end companies including Dentsu  (4324 JP), Unicharm (8113 JP), Asahi Group (2502 JP), Coca Cola Bottlers Japan (2579 JP), Suntory Beverage &amp; Food (2587 JP), and Mcdonald's Japan (2702 JP) added 34 bps to the Forecast/Revision Score. The 'gap' between the two Scores is the largest since mid-2016, and a large gap is a precondition for setting a cycle low. Source • Japan AnalyticsSECTOR TIMELINE - These initial forecasts were the prime driver of the on-day changes in our Sector Timeline, which saw gains for Restaurants,Media, Food, Beverages &amp; Tobacco, and Other Consumer Products. Time will tell if this optimism is well-founded or not.

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 13th February ▲2587 4612 8113 ▼ 7201 4004 4912

Equity Bottom-Up

On 25th November 2019, Japanese beverage company Kirin Holdings, reported that they entered into an agreement with China Mengniu Dairy Company Limited to transfer the ownership of Lion-Dairy and Drinks Pty Ltd to China Mengniu Dairy Company’s subsidiary Monday Smoothie Pty Ltd. The sale is priced at ¥45.6bn (A$600m) and it is expected to complete in the first half of 2020 upon approvals by the Australian Competition &amp; Consumer Commission and the Foreign Investment Review Board.
Lion Dairy and Drinks Business (LDD)
The business was founded in 1960 and it mainly focuses on the production and distribution of fresh dairy food, fruit juices, soy milk products, cheese, yoghurts, dairy desserts and creams, flavoured and modified fresh and ultra-high-temperature (UHT) milk products. LDD became a part of Kirin in 2007 when Kirin acquired LDD for ¥294bn ($2.6bn). On 10th October 2018, Kirin initiated the disposal program of LDD and as a result, LDD’s Specialty Cheese Business was sold to the Canadian dairy company Saputo for ¥22.4bn in April 2019.
China Mengniu Dairy Company Limited
Founded in 1999, China Mengniu Dairy Company Limited is a manufacturer and a distributor of UHT milk, milk beverages, milk powder, yoghurt, ice cream, cheese and plant-based beverages and nutrient products.

On 25th November 2019, Japanese beverage company Kirin Holdings, reported that they entered into an agreement with China Mengniu Dairy Company Limited to transfer the ownership of Lion-Dairy and Drinks Pty Ltd to China Mengniu Dairy Company’s subsidiary Monday Smoothie Pty Ltd. The sale is priced at ¥45.6bn (A$600m) and it is expected to complete in the first half of 2020 upon approvals by the Australian Competition &amp; Consumer Commission and the Foreign Investment Review Board.
Lion Dairy and Drinks Business (LDD)
The business was founded in 1960 and it mainly focuses on the production and distribution of fresh dairy food, fruit juices, soy milk products, cheese, yoghurts, dairy desserts and creams, flavoured and modified fresh and ultra-high-temperature (UHT) milk products. LDD became a part of Kirin in 2007 when Kirin acquired LDD for ¥294bn ($2.6bn). On 10th October 2018, Kirin initiated the disposal program of LDD and as a result, LDD’s Specialty Cheese Business was sold to the Canadian dairy company Saputo for ¥22.4bn in April 2019.
China Mengniu Dairy Company Limited
Founded in 1999, China Mengniu Dairy Company Limited is a manufacturer and a distributor of UHT milk, milk beverages, milk powder, yoghurt, ice cream, cheese and plant-based beverages and nutrient products.

Kirin Completes the Sale of Lion Dairy and Drinks Business Amidst Pressure from Activist Investor

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)

"A Better Kirin" By Activist Investor Franchise Partners

Independent Franchise Partners relaunched its investor activism campaign against Kirin Holdings (2503 JP) last Friday, (14th February 2020) with a...

Oshadhi Kumarasiri

🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

THREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our...

Campbell Gunn

Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director

It was reported that Franchise Partners has submitted a proposal to Kirin Holdings (2503 JP) asking the company to initiate a ¥600bn share buyback....

Oshadhi Kumarasiri

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 13th February ▲2587 4612 8113 ▼ 7201 4004 4912

13TH FEBRUARY ROUNDUP - The penultimate day of this results 'season' saw 402 results and 224 forecast or revision announcements. Our results Score...

Campbell Gunn

Kirin Completes the Sale of Lion Dairy and Drinks Business Amidst Pressure from Activist Investor

On 25th November 2019, Japanese beverage company Kirin Holdings, reported that they entered into an agreement with China Mengniu Dairy Company...

Oshadhi Kumarasiri

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