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.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.</li>
<li>Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.</li>
<li>We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.</li>
</ul>



Japan Tobacco (2914 JP)’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.
Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.
We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.


Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

<ul>
<li>Just eight months into Russia’s Ukraine invasion, <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>’s share price has moved back above the pre-Ukraine invasion level suggesting that investors are over with Russia exposure fears.</li>
<li>Based on the company’s guidance upgrade trend historically and YTD financial performance, we are expecting around ¥70bn upside to 2022 OP guidance in 3Q22.</li>
<li>With earnings back on a growth trajectory, we are expecting a reversal of the 2017-21 share price to earnings trend to take Japan Tobacco shares over ¥3,500 in the short-term.</li>
</ul>


Just eight months into Russia’s Ukraine invasion, Japan Tobacco (2914 JP)’s share price has moved back above the pre-Ukraine invasion level suggesting that investors are over with Russia exposure fears.
Based on the company’s guidance upgrade trend historically and YTD financial performance, we are expecting around ¥70bn upside to 2022 OP guidance in 3Q22.
With earnings back on a growth trajectory, we are expecting a reversal of the 2017-21 share price to earnings trend to take Japan Tobacco shares over ¥3,500 in the short-term.


Japan Tobacco High Conviction Update: Guidance Has Upside Potential, The Market Is Pass Russia Fears

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.</li>
<li>Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.</li>
<li>Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.</li>
</ul>


At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.
Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.
Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.


TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

<ul>
<li>We expect a strong 2Q22 and an upgrade to annual guidance from <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a> through strong Domestic and International Tobacco performance.</li>
<li>It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  </li>
<li>Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.</li>
</ul>


We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  
Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.


Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

<ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.</li>
<li>Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.</li>
<li>With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. </li>
</ul>



Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. 


Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

Japan

Japan Tobacco, Inc. operates as an tobacco product company. The Company manufactures, markets and sells cigarettes and other tobacco products internationally. Japan Tobacco is also engaged in pharmaceutical and food businesses.

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Japan Tobacco (2914 JP)

Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

With the annual OP estimate back up around the 2016-17 level, we are expecting a reversal of the 2017-21 share price to OP trend with expectations...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: Guidance Has Upside Potential, The Market Is Pass Russia Fears

Just eight months into Russia’s Ukraine invasion, Japan Tobacco’s share price has moved back above the pre-Ukraine invasion level suggesting that...

Oshadhi Kumarasiri

TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Lower FFWs on 970 stocks and higher FFWs on 114 stocks will result in one-way turnover of 2.52% leading to a one-way trade of ¥1.8tn at the close...

Brian Freitas

Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

As investor concerns regarding the Russia business ease while earnings growth momentum strengthens, we think that there’s around 50% further upside...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

With the change in earnings momentum helping JT’s OP to reach the 2015-16 level, there’s a possibility that JT’s share price could reach ¥4,000...

Oshadhi Kumarasiri

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