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>
<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 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.</li>
<li>2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.</li>
<li>But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in <a href="https://www.smartkarma.com/entities/torii-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:3253:1" rel="noopener">Torii Pharmaceutical (4551 JP)</a>.</li>
</ul>



Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).


Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

Equity Bottom-Up

<ul>
<li>As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.</li>
<li>With further dividend hikes looking increasingly possible, our 2022 high-conviction call, <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> has more room to run this year.</li>
<li>However, it’s probably the right time to take profits from our 2021 high-conviction trade, <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> as the US gas-stations profitability maxed-out in the last quarter.</li>
</ul>


As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.
With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco (2914 JP) has more room to run this year.
However, it’s probably the right time to take profits from our 2021 high-conviction trade, Seven &amp; I Holdings (3382 JP) as the US gas-stations profitability maxed-out in the last quarter.


2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

<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

<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

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: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

It was reported a few weeks ago that activist investor LIM Advisors has sent a letter to Japan Tobacco requesting the company to divest its 53%...

Oshadhi Kumarasiri

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco has more room to run this year. However,...

Oshadhi Kumarasiri

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

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