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 Capital Markets

Shinnihonseiyaku Co Ltd / Equity Capital Markets

Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company's returns over the medium to long term.<table class="table table-striped"><tbody>
<tr>
<td>IPO Details</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Book Building</td>
<td colspan="3">From 2019/06/11 to 2019/06/17</td>
</tr>
<tr>
<td>Offer</td>
<td colspan="3">From 2019/06/19 to 2019/06/24</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Selling Shareholders</td>
<td>4,570,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Overallotment Option</td>
<td>730,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>New Issue</td>
<td>300,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Existing Shares</td>
<td>20,581,300</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Shares Outstanding Post IPO</td>
<td>20,881,300</td>
<td></td>
<td></td>
</tr>
<tr>
<td></td>
<td>Low</td>
<td>High</td>
<td></td>
</tr>
<tr>
<td>Price Range</td>
<td>1,350</td>
<td>1,470</td>
<td></td>
</tr>
<tr>
<td>Expected Market Cap - in ¥m</td>
<td>28,190</td>
<td>30,696</td>
<td></td>
</tr>
<tr>
<td>Expected EV - in ¥m</td>
<td>20,121</td>
<td>22,596</td>
<td></td>
</tr>
<tr><td colspan="4">*based on March 2019 debt and cash and IPO proceeds</td></tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Implied Multiples- FY2018 </td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>EV/Sales</td>
<td>0.6x</td>
<td>0.7x</td>
<td></td>
</tr>
<tr>
<td>EV/EBIT</td>
<td>8.1x</td>
<td>9.1x</td>
<td></td>
</tr>
<tr>
<td>P/E</td>
<td>16.1x</td>
<td>17.5x</td>
<td></td>
</tr>
</tbody></table>Source: Company Disclosures

Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company's returns over the medium to long term.

IPO Details





Book Building
From 2019/06/11 to 2019/06/17


Offer
From 2019/06/19 to 2019/06/24








Selling Shareholders
4,570,000




Overallotment Option
730,000




New Issue
300,000




Existing Shares
20,581,300




Shares Outstanding Post IPO
20,881,300





Low
High



Price Range
1,350
1,470



Expected Market Cap - in ¥m
28,190
30,696



Expected EV - in ¥m
20,121
22,596


*based on March 2019 debt and cash and IPO proceeds







Implied Multiples- FY2018 





EV/Sales
0.6x
0.7x



EV/EBIT
8.1x
9.1x



P/E
16.1x
17.5x


Source: Company Disclosures

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

Equity Bottom-Up

FANCL Corporation’s share price gained more than 25% over the last 3 months on the back of the positivity surrounding the Japanese cosmetics industry. The stock may not look cheap at over 30x Forward PE, but considering its long-term growth prospects we are very optimistic about FANCL in the long run.
In our previous insight: <a href="https://www.smartkarma.com/insights/fancl-playing-the-long-game" target="_blank">FANCL: Playing the Long Game</a> we, covered the stock on a traditional investment research angle. In that we expected the company to outperform the competition in the long run. Now we take a more novel approach using alternative data to analyse FANCL’s short to medium term prospects. The results are as good and therefore we maintain our positive view on FANCL prior to the release of their FY03/19 results which is due on the 25th of April 2019.
<ul>
<li>
Consensus estimates reversions on the back of weak inbound sales and maturing Calolimit and Enkin
<ul>
<li>Calolimit – POS data analysis</li>
<li>Enkin – POS data analysis</li>
</ul>
</li>
<li>
Rest of supplements business and cosmetics steady growth- Doesn’t justify estimate reversions 
<ul>
<li>Naishi Support – POS data analysis</li>
<li>Cosmetics expected to grow 8% YoY in 4QFY03/19</li>
</ul>
</li>
<li>FANCL to beat FY03/19 guidance and consensus estimates</li>
<li>We expect even stronger performance in FY03/20</li>
</ul>

FANCL Corporation’s share price gained more than 25% over the last 3 months on the back of the positivity surrounding the Japanese cosmetics industry. The stock may not look cheap at over 30x Forward PE, but considering its long-term growth prospects we are very optimistic about FANCL in the long run.
In our previous insight: FANCL: Playing the Long Game we, covered the stock on a traditional investment research angle. In that we expected the company to outperform the competition in the long run. Now we take a more novel approach using alternative data to analyse FANCL’s short to medium term prospects. The results are as good and therefore we maintain our positive view on FANCL prior to the release of their FY03/19 results which is due on the 25th of April 2019.


Consensus estimates reversions on the back of weak inbound sales and maturing Calolimit and Enkin

Calolimit – POS data analysis
Enkin – POS data analysis



Rest of supplements business and cosmetics steady growth- Doesn’t justify estimate reversions 

Naishi Support – POS data analysis
Cosmetics expected to grow 8% YoY in 4QFY03/19


FANCL to beat FY03/19 guidance and consensus estimates
We expect even stronger performance in FY03/20


FANCL Corporation: What to Expect in FY03/19 Results and Beyond

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/728/original/2019-03-02_20-40-55.png?1551526871" class="editor-image img-responsive" data-smartkarma-image-id="80728"></figure>Source: Japan Analytics
</div>LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/722/original/2019-03-02_18-02-59.png?1551517390" class="editor-image img-responsive" data-smartkarma-image-id="80722"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/724/original/2019-03-02_18-07-56.png?1551517689" class="editor-image img-responsive" data-smartkarma-image-id="80724"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/729/original/2019-03-02_20-41-51.png?1551526925" class="editor-image img-responsive" data-smartkarma-image-id="80729"></figure><div class="content-caption">Source: Japan Analytics</div>HOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/10020" target="_blank" data-smartkarma-citation="entities:10020:1">Sakai Moving Service (9039 JP)</a>, <a href="https://www.smartkarma.com/entities/20269" target="_blank" data-smartkarma-citation="entities:20269:1">Sumitomo Chemical (4005 JP)</a>, <a href="https://www.smartkarma.com/entities/8431" target="_blank" data-smartkarma-citation="entities:8431:1">Parco (8251 JP)</a>, <a href="https://www.smartkarma.com/entities/4489" target="_blank" data-smartkarma-citation="entities:4489:1">Chugai Pharmaceutical (4519 JP)</a>, <a href="https://www.smartkarma.com/entities/14674" target="_blank" data-smartkarma-citation="entities:14674:1">Nichias (5393 JP)</a>, <a href="https://www.smartkarma.com/entities/27043" target="_blank" data-smartkarma-citation="entities:27043:1">Raksul (4384 JP)</a>, <a href="https://www.smartkarma.com/entities/10503" target="_blank" data-smartkarma-citation="entities:10503:1">Daito Trust (1878 JP)</a>, and <a href="https://www.smartkarma.com/entities/14502" target="_blank" data-smartkarma-citation="entities:14502:1">Benefit One (2412 JP)</a>.


Source: Japan Analytics
LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  Source: Japan AnalyticsHOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on Sakai Moving Service (9039 JP), Sumitomo Chemical (4005 JP), Parco (8251 JP), Chugai Pharmaceutical (4519 JP), Nichias (5393 JP), Raksul (4384 JP), Daito Trust (1878 JP), and Benefit One (2412 JP).   

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of <a href="https://www.japantimes.co.jp/news/2019/02/20/national/number-foreign-visitors-japan-rises-7-5-2-69-million-january/#.XG4GyqIzbIV" target="_blank">foreign visitors to Japan</a> rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).</li>
<li>According to Korea Ministry of Economy &amp; Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.</li>
<li>As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. </li>
</ul>


In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
According to Korea Ministry of Economy &amp; Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 


A Comparison of Recent Visitors Trend to Korea and Japan

THANKSGIVING RALLY - Japan's equity markets have recovered by 2.4% since 16th November and are now 5% above the October 29th low, but the market composite still needs to break above the previous rally-high of 9th November for the rally to be sustained. In US$ terms the recovery has been more muted, and the market is 9% below the October high and US$1 trillion or 14.5% down from January 23rd. Relative Strength has risen to the highest point since October 26th and suggests a short-term peak is nearing and the market has yet to exit from the 'Death Cross'.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/846/original/2018-12-02_07-34-53.png?1543703710" class="editor-image img-responsive" data-smartkarma-image-id="71846"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/847/original/2018-12-02_07-49-25.png?1543704574" class="editor-image img-responsive" data-smartkarma-image-id="71847"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/071/848/original/2018-12-02_07-54-12.png?1543704863" class="editor-image img-responsive" data-smartkarma-image-id="71848"></figure>
<div class="content-caption">Source: Japan Analytics</div>
<div class="content-highlight">
OUTLOOK - Japanese equities are attractively priced relative to trailing earnings. However, the market is in the process of discounting the end of the current eight-quarter-long upcycle. The Bank of Japan (BoJ) appears to be slowing the rate of an intended tapering of its ultra-loose monetary policy while the US Federal Reserve is, at least verbally, tempering the pace of its quantitative tightening. As a result, the USD/JPY exchange rate should continue to weaken, as has been the case in recent weeks, although other cross-rates will be supportive of corporate earnings. One-quarter of market operating income comes from companies in the auto and telecommunications sectors and are under threat from global and local 'forces', respectively. A further 15% of operating profits are attributed to financial sectors and cannot be expected to rise while under the 'yolk' of the BoJ's 'ZIRP' policies. Aside from the many stock-specific investments that are on offer in Japan, the market overall should remain underweighted in global portfolios.  
</div>
In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on <a href="https://www.smartkarma.com/entities/2287" target="_blank" data-smartkarma-citation="entities:2287:1">Pola Orbis (4927 JP)</a> and <a href="https://www.smartkarma.com/entities/753" target="_blank" data-smartkarma-citation="entities:753:1">Kyocera (6971 JP)</a>.

THANKSGIVING RALLY - Japan's equity markets have recovered by 2.4% since 16th November and are now 5% above the October 29th low, but the market composite still needs to break above the previous rally-high of 9th November for the rally to be sustained. In US$ terms the recovery has been more muted, and the market is 9% below the October high and US$1 trillion or 14.5% down from January 23rd. Relative Strength has risen to the highest point since October 26th and suggests a short-term peak is nearing and the market has yet to exit from the 'Death Cross'.



Source: Japan Analytics

OUTLOOK - Japanese equities are attractively priced relative to trailing earnings. However, the market is in the process of discounting the end of the current eight-quarter-long upcycle. The Bank of Japan (BoJ) appears to be slowing the rate of an intended tapering of its ultra-loose monetary policy while the US Federal Reserve is, at least verbally, tempering the pace of its quantitative tightening. As a result, the USD/JPY exchange rate should continue to weaken, as has been the case in recent weeks, although other cross-rates will be supportive of corporate earnings. One-quarter of market operating income comes from companies in the auto and telecommunications sectors and are under threat from global and local 'forces', respectively. A further 15% of operating profits are attributed to financial sectors and cannot be expected to rise while under the 'yolk' of the BoJ's 'ZIRP' policies. Aside from the many stock-specific investments that are on offer in Japan, the market overall should remain underweighted in global portfolios.  

In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Pola Orbis (4927 JP) and Kyocera (6971 JP).

Japan: Fortnightly Update - Thanksgiving Rally

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Pola Orbis Holdings (4927 JP)

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small...

Oshadhi Kumarasiri

FANCL Corporation: What to Expect in FY03/19 Results and Beyond

FANCL Corporation’s share price gained more than 25% over the last 3 months on the back of the positivity surrounding the Japanese cosmetics...

Oshadhi Kumarasiri

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the...

Campbell Gunn

A Comparison of Recent Visitors Trend to Korea and Japan

In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to...

Douglas Kim

Japan: Fortnightly Update - Thanksgiving Rally

THANKSGIVING RALLY - Japan's equity markets have recovered by 2.4% since 16th November and are now 5% above the October 29th low, but the market...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)