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>It seems investors are starting to move past the fears of Japan Tobacco’s exposure to Russia and Ukraine with shares rising 6% following a steep decline alongside Russia’s Ukraine invasion.</li>
<li>Meanwhile, we expect the company’s OP to continue trending upwards with the weakening yen helping the International Tobacco segment and price hikes benefiting the Domestic business.</li>
<li>If OP reaches the 2014 level, we think <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> shares could go up around 90% to ¥4,000 per share over the next 12 months.</li>
</ul>


It seems investors are starting to move past the fears of Japan Tobacco’s exposure to Russia and Ukraine with shares rising 6% following a steep decline alongside Russia’s Ukraine invasion.
Meanwhile, we expect the company’s OP to continue trending upwards with the weakening yen helping the International Tobacco segment and price hikes benefiting the Domestic business.
If OP reaches the 2014 level, we think Japan Tobacco (2914 JP) shares could go up around 90% to ¥4,000 per share over the next 12 months.


Japan Tobacco 2022 High Conviction Update: Time to Double Down

<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 share price fell 14% from the bottom end of the upward trend channel and underperformed Topix by 6% over the last 15 days.</li>
<li>Even if Russia yields zero dollars, we think the impact on JT’s valuation could be around 20%.</li>
<li>With demand for cigarettes expected to go up during these war times, we think the market reaction of this scale is unwarranted.</li>
</ul>



Japan Tobacco (2914 JP)’s share price fell 14% from the bottom end of the upward trend channel and underperformed Topix by 6% over the last 15 days.
Even if Russia yields zero dollars, we think the impact on JT’s valuation could be around 20%.
With demand for cigarettes expected to go up during these war times, we think the market reaction of this scale is unwarranted.


Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone

Pan Pacific International Holdings / Equity Bottom-Up

Pan Pacific International Holdings (7532 JP)

<ul>
<li>With momentum behind defensive/semi defensive names in the Japanese market, <a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>’ seems to have one of the best risk reward ratios among Japanese retail players.</li>
<li>PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.</li>
<li>Thus, we would buy PPI with a target of 40% upside in the short term.</li>
</ul>


With momentum behind defensive/semi defensive names in the Japanese market, Pan Pacific International Holdings (7532 JP)’ seems to have one of the best risk reward ratios among Japanese retail players.
PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.
Thus, we would buy PPI with a target of 40% upside in the short term.


Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<ul>
<li>In 2020 and 2021 we had nine conviction calls, four of which returned over 50% within just over a year.</li>
<li>Three more returned close to 40%, one returned 15% and just one was an abject failure returning -39%. </li>
<li>On average, alpha generation was 24.3% and our 2022 names are off to a good start putting up 14.7% in alpha in just over a month and a half.</li>
</ul>


In 2020 and 2021 we had nine conviction calls, four of which returned over 50% within just over a year.
Three more returned close to 40%, one returned 15% and just one was an abject failure returning -39%. 
On average, alpha generation was 24.3% and our 2022 names are off to a good start putting up 14.7% in alpha in just over a month and a half.


A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022

<ul>
<li>After declining for more than five years, <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 earnings momentum shifted after COVID-19 with both domestic and international segments expected to return to achieving growth in 2021.</li>
<li>The company is expected to make an EBIT of around ¥580-600bn in 2021, which is more than JT’s 2016 EBIT.</li>
<li>With profitability surpassing the 2016 level during the next few years, we think JT’s share price could return to the 2016 level of around ¥4,000 per share.</li>
</ul>


After declining for more than five years, Japan Tobacco (2914 JP)’s earnings momentum shifted after COVID-19 with both domestic and international segments expected to return to achieving growth in 2021.
The company is expected to make an EBIT of around ¥580-600bn in 2021, which is more than JT’s 2016 EBIT.
With profitability surpassing the 2016 level during the next few years, we think JT’s share price could return to the 2016 level of around ¥4,000 per share.


2022 High Conviction - Japan Tobacco: The Comeback Story

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 2022 High Conviction Update: Time to Double Down

With the yen weakening to levels last seen in 2016 and regular price hikes in the range of 8% per annum in the Domestic business, we could expect...

Oshadhi Kumarasiri

Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone

We think the market is worrying unnecessarily towards JT’s Russia exposure as growth in demand during war times could offset at least around 50% of...

Oshadhi Kumarasiri

Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

With momentum shifting positive, we think PPI has the largest upside potential among the Japanese semi defensive names with a possible 40% upside...

Oshadhi Kumarasiri

A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022

We take a look back at our conviction calls from 2020 and 2021 to assess performance and put the strong start to our 2022 names in context.

Mio Kato

2022 High Conviction - Japan Tobacco: The Comeback Story

With the change in earnings momentum helping JT to surpass the 2016 EBIT, there’s a possibility that JT’s share price could reach ¥4,000 per share...

Oshadhi Kumarasiri

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