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>Considering the geopolitical relationship over the last 100 years, it doesn’t take much for Chinese people to start developing an anti-Japan sentiment.</li>
<li>The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics.</li>
<li>We think the Japanese government’s decision to not send a government delegation to the Winter Olympics could be all that is needed to spark an anti-Japan sentiment among Chinese consumers.</li>
</ul>


Considering the geopolitical relationship over the last 100 years, it doesn’t take much for Chinese people to start developing an anti-Japan sentiment.
The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics.
We think the Japanese government’s decision to not send a government delegation to the Winter Olympics could be all that is needed to spark an anti-Japan sentiment among Chinese consumers.


Japan’s Boycott of Winter Olympics Could Be the Tipping Point

<ul>
<li>With life getting back to the usual ways following changes due to COVID-19, the Japanese cosmetics sector was expected to experience an uplift in earnings, mainly through inbound demand.</li>
<li>However, the extension of China’s common prosperity crackdowns to the live-streaming e-commerce business, could more than offset a possible recovery in inbound demand.</li>
<li>Thus, we fear that there is additional downside risk to Japanese cosmetics multiples in the short term.</li>
</ul>


With life getting back to the usual ways following changes due to COVID-19, the Japanese cosmetics sector was expected to experience an uplift in earnings, mainly through inbound demand.
However, the extension of China’s common prosperity crackdowns to the live-streaming e-commerce business, could more than offset a possible recovery in inbound demand.
Thus, we fear that there is additional downside risk to Japanese cosmetics multiples in the short term.


Crackdown on Live-Streaming E-Commerce Could Derail The Recovery of Japanese Cosmetics

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>JPX-Nikkei 400 is composed of common stocks listed in the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents. </li>
<li>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. </li>
<li>Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-November 2021.</li>
</ul>


JPX-Nikkei 400 is composed of common stocks listed in the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents. 
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. 
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-November 2021.


JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Nov 2021

<ul>
<li>
<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 is up 5.1% today compared to 3.6%, 4.9%, 4.2%, 2.8% and 2.2% for <a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>, <a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis Holdings (4927 JP)</a>, <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a>, <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a> and the Topix Index respectively despite an underwhelming quarter ending September 2021 results release on 29<sup>th</sup> October 2021 (aftermarket) with revenue declining 1.7% (adjusted for changes in accounting standards) from the same period of the previous year.</li>
<li>Quarterly revenue increased 9.2% (adjusted) on a QoQ basis. The OP increased 86.2% YoY and 54.3% QoQ (adjusted) on cost controls.</li>
<li>In addition, the company has lowered its revenue and OP guidance for the 9 months from April-December 2021 by ¥14.0bn (5.9%) and ¥4.0bn (20%) respectively to ¥224.0bn revenue and ¥16.0bn OP, which implies a full-year revenue of ¥299.3bn and an OP of ¥18.2bn in CY2021 compared to ¥282.8bn revenue and ¥13.5bn OP in CY2020.</li>
</ul>



Kose Corp (4922 JP)’s share price is up 5.1% today compared to 3.6%, 4.9%, 4.2%, 2.8% and 2.2% for Shiseido Company (4911 JP), Pola Orbis Holdings (4927 JP), Fancl Corp (4921 JP), Kao Corp (4452 JP) and the Topix Index respectively despite an underwhelming quarter ending September 2021 results release on 29th October 2021 (aftermarket) with revenue declining 1.7% (adjusted for changes in accounting standards) from the same period of the previous year.
Quarterly revenue increased 9.2% (adjusted) on a QoQ basis. The OP increased 86.2% YoY and 54.3% QoQ (adjusted) on cost controls.
In addition, the company has lowered its revenue and OP guidance for the 9 months from April-December 2021 by ¥14.0bn (5.9%) and ¥4.0bn (20%) respectively to ¥224.0bn revenue and ¥16.0bn OP, which implies a full-year revenue of ¥299.3bn and an OP of ¥18.2bn in CY2021 compared to ¥282.8bn revenue and ¥13.5bn OP in CY2020.


Further Downside Is Possible As Kose Keeps Losing Ground in Japan

<p><a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>’s CEO, Masahiko Uotani has met with several reporters to discuss the company’s view on the cosmetics industry at a time Shiseido’s share price has underperformed the Topix and Nikkei indices by more than 8%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/665/original/image_43531005321634807122546.png?1634807123" class="editor-image img-responsive" data-smartkarma-image-id="236665"></figure><div class="content-caption"><em>Source: Cap IQ</em></div><p>Uotani is expecting a sharp recovery in inbound revenue over the course of the next year. Even though Uotani says that he is less concerned about signs of an economic slowdown and concerns of tighter regulation in China, he is planning on hedging the China slowdown risk through acquisitions in the US and Europe.</p>

Shiseido Company (4911 JP)’s CEO, Masahiko Uotani has met with several reporters to discuss the company’s view on the cosmetics industry at a time Shiseido’s share price has underperformed the Topix and Nikkei indices by more than 8%.Source: Cap IQUotani is expecting a sharp recovery in inbound revenue over the course of the next year. Even though Uotani says that he is less concerned about signs of an economic slowdown and concerns of tighter regulation in China, he is planning on hedging the China slowdown risk through acquisitions in the US and Europe.

Shiseido: Inbound Demand Could Rebound During The Next Twelve Months

Japan

POLA ORBIS HOLDINGS INC. develops, manufactures and markets cosmetic products, centering in skincare  products. Under its multi-brand strategy, the Company holds nine cosmetic brands including POLA, prestige skincare brand, ORBIS, oil-free skincare brand, H2O PLUS and Jurlique.

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Pola Orbis Holdings (4927 JP)

Japan’s Boycott of Winter Olympics Could Be the Tipping Point

The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics. With the...

Oshadhi Kumarasiri

Crackdown on Live-Streaming E-Commerce Could Derail The Recovery of Japanese Cosmetics

Valuation multiples of Japanese cosmetics makers more than doubled during the last 6-7 years alongside the growth driven by the China expansion and...

Oshadhi Kumarasiri

JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Nov 2021

A discussion on potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-November...

Janaghan Jeyakumar, CFA

Further Downside Is Possible As Kose Keeps Losing Ground in Japan

The share price and valuation multiples have come down by around 25% and 35% respectively over the last three months as the market started reacting...

Oshadhi Kumarasiri

Shiseido: Inbound Demand Could Rebound During The Next Twelve Months

Inbound demand is an extremely important portion of Shiseido’s domestic revenue as it contributed around ¥70.0-80.0bn (around 18% of domestic...

Oshadhi Kumarasiri

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