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>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

<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

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

<ul>
<li>Japanese are developing a growing love for frozen foods, creating new opportunities for food brands and retailers.  </li>
<li>Frozen foods were long overlooked within the supply chain because of a traditional emphasis on fresh foods but frozen </li>
<li>As supply has increased, consumer demand has grown to match and now, with the growth of e-commerce and home delivery, frozen foods offer key advantages to both consumers and retailers.</li>
</ul>


Japanese are developing a growing love for frozen foods, creating new opportunities for food brands and retailers.  
Frozen foods were long overlooked within the supply chain because of a traditional emphasis on fresh foods but frozen 
As supply has increased, consumer demand has grown to match and now, with the growth of e-commerce and home delivery, frozen foods offer key advantages to both consumers and retailers.


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 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

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

Japan's New Food Boom: Frozen Food

Frozen food sales have boomed during the pandemic but the new enthusiasm for all things frozen is a long-term trend and some retailers and...

Michael Causton

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