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

<a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>, Japan’s biggest cosmetics company with annual revenue and OP of ¥1,131.5bn and ¥113.8bn respectively in 2019, said that it is considering selling its personal care business, which includes famous brands like TSUBAKI, SENKA, SEA Breeze, Ag DEO 24, AQUAIR and Uno, to CVC Capital Partners in the first half of 2021. This sale comes as a part of Shiseido’s 2023 transformation plan which targets 15% operating margin (an increase of 5 percentage points from 2019 level) by 2023.

Shiseido Company (4911 JP), Japan’s biggest cosmetics company with annual revenue and OP of ¥1,131.5bn and ¥113.8bn respectively in 2019, said that it is considering selling its personal care business, which includes famous brands like TSUBAKI, SENKA, SEA Breeze, Ag DEO 24, AQUAIR and Uno, to CVC Capital Partners in the first half of 2021. This sale comes as a part of Shiseido’s 2023 transformation plan which targets 15% operating margin (an increase of 5 percentage points from 2019 level) by 2023.

Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit

Equity Bottom-Up

Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/876/original/image_56442858141611229982276.png?1611229987" class="editor-image img-responsive" data-smartkarma-image-id="183876"></figure>COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Japanese Cosmetics Industry: Statistics Update – October & November 2020

<ul>
<li>Corona virus is rampaging across Japan again. There were 1,591 new COVID cases in Tokyo and over 6,000 nationwide yesterday. Earlier this week, the Japanese government said that they are considering declaring a state of emergency in and around the Tokyo area.</li>
<li>Japanese cosmetics underperformed Topix by 10 percentage points during last year as the cosmetics sector earnings declined by 68% due to the ongoing COVID-19 crisis.</li>
<li>Following the first round of restrictions in April 2020, <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a>’s share price underperformed <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> and <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a> by 49% and 9% respectively in the April-July 2020 period. Since then Kose has outperformed Fancl 31% and Kao by 56%.</li>
<li>As Japan prepares for a second round of “soft lockdowns”, we would recommend investors to reposition their investments in Japanese cosmetics to Short Kose and Long Fancl and Kao.</li>
</ul>


Corona virus is rampaging across Japan again. There were 1,591 new COVID cases in Tokyo and over 6,000 nationwide yesterday. Earlier this week, the Japanese government said that they are considering declaring a state of emergency in and around the Tokyo area.
Japanese cosmetics underperformed Topix by 10 percentage points during last year as the cosmetics sector earnings declined by 68% due to the ongoing COVID-19 crisis.
Following the first round of restrictions in April 2020, Kose Corp (4922 JP)’s share price underperformed Fancl Corp (4921 JP) and Kao Corp (4452 JP) by 49% and 9% respectively in the April-July 2020 period. Since then Kose has outperformed Fancl 31% and Kao by 56%.
As Japan prepares for a second round of “soft lockdowns”, we would recommend investors to reposition their investments in Japanese cosmetics to Short Kose and Long Fancl and Kao.


Japanese Cosmetics Pair Trade Opportunities As Japan Prepares to Declare a State of Emergency

By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s largest shopping event of the year.<a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> has been livestreaming almost every day since late October, when marketing campaigns for China’s Singles’ Day sale held every year on November 11 accelerated. More than 400,000 viewers tuned in to Shiseido’s livestreams from its Tokyo headquarters and a studio in the Chinese city of Hangzhou.In Japan, such advertising campaigns were usually carried out by social media influencers. However, Shiseido is relying on its own employees instead of social media influencers to promote its products. Shiseido started using “Miss SHISEIDO” to promote its products as early as 1934, which later evolved to beauty consultants. The consultants have been trained to use technology advancements, and c. 7,400 people have enrolled at the Shiseido Digital Academy. We believe that the trend towards live e-commerce and livestreaming events will continue to accelerate post-pandemic, not just with Shiseido but also with other Japanese cosmetic companies.

By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s largest shopping event of the year.Shiseido Company (4911 JP) has been livestreaming almost every day since late October, when marketing campaigns for China’s Singles’ Day sale held every year on November 11 accelerated. More than 400,000 viewers tuned in to Shiseido’s livestreams from its Tokyo headquarters and a studio in the Chinese city of Hangzhou.In Japan, such advertising campaigns were usually carried out by social media influencers. However, Shiseido is relying on its own employees instead of social media influencers to promote its products. Shiseido started using “Miss SHISEIDO” to promote its products as early as 1934, which later evolved to beauty consultants. The consultants have been trained to use technology advancements, and c. 7,400 people have enrolled at the Shiseido Digital Academy. We believe that the trend towards live e-commerce and livestreaming events will continue to accelerate post-pandemic, not just with Shiseido but also with other Japanese cosmetic companies.

How Livestreaming, The Latest Trend in E-Commerce Is Revolutionising Cosmetics Retail

Although <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected demand in Japan and worsening COVID-19 health crisis in Europe and the US. However, Shiseido shares were up 4.7% yesterday following the release of positive COVID-19 vaccine update by Pfizer. With the 2021 EV/OP multiple at an all-time high of 52.0x, it appears that the post-pandemic recovery is already priced in.

Although Shiseido Company (4911 JP) beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected demand in Japan and worsening COVID-19 health crisis in Europe and the US. However, Shiseido shares were up 4.7% yesterday following the release of positive COVID-19 vaccine update by Pfizer. With the 2021 EV/OP multiple at an all-time high of 52.0x, it appears that the post-pandemic recovery is already priced in.

Shiseido: Departing From Cost Discipline or Playing Safe?

Japan

FANCL CORPORATION produces and sells additive-free skin care cosmetics for both women and men.  The Company's products include cleansing creams, hair care goods such as shampoos and conditioners, and facial make up products.  Fancl also makes and distributes dietary supplements including royal jelly and various tablets with extracted essence from mushrooms, garlic, ginseng, and soy beans.

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Fancl Corp (4921 JP)

Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit

Shiseido could generate over ¥100bn through the proposed sale of the personal care business unit and the company could use that cash proceeds to...

Oshadhi Kumarasiri

Japanese Cosmetics Industry: Statistics Update – October & November 2020

We analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy,...

Oshadhi Kumarasiri

Japanese Cosmetics Pair Trade Opportunities As Japan Prepares to Declare a State of Emergency

Long Kao/Short Kose and Long Fancl/Short Kose seems rather attractive/low risk pair trade opportunities amidst ongoing discussions about Japan...

Oshadhi Kumarasiri

How Livestreaming, The Latest Trend in E-Commerce Is Revolutionising Cosmetics Retail

By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s...

Oshadhi Kumarasiri

Shiseido: Departing From Cost Discipline or Playing Safe?

Although Shiseido beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected...

Oshadhi Kumarasiri

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