Oshadhi Kumarasiri

Equity Analyst

LightStream Research

Long-Short Analysis on Japan, Asia and the World

Equity Bottom-Up

<ul>
<li>
<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 share price is down more than 4% today following a mixed 4Q22 with revenue missing consensus by 2.1% but OP beating by 31.7%.</li>
<li>A lot of optimism was baked in the medium-term plan, but 2023 OP guidance (¥60.0bn) was ¥17.5bn below consensus expectations.</li>
<li>Nevertheless, we think this shouldn’t worry investors too much as Shiseido has outperformed initial guidance by an average of ¥17.0bn over the past 3 years.</li>
</ul>

<ul>
<li>The indication that China is prepared to scrap its strict Zero-COVID policy has gotten <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> going again after an earnings beat in Q3 saw shares climb almost 20%.</li>
<li>Given that the shares have been range bound throughout the COVID crisis, we think Shiseido could reach near the upper limit of the COVID-range in the near-term to around ¥8,000.</li>
<li>Nevertheless, we would approach this trade with caution and only with a short time horizon as we see a lot of downside risks in the medium to long term.</li>
</ul>

<ul>
<li>The success of domestic brands in the low-cost cosmetics segment seems to be cascading into mid and high-price segments within the Chinese cosmetics market.</li>
<li>This could be bad news 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>, whose investors are expecting the company to maintain its historical superiority in the Chinese cosmetics market.</li>
<li>We think that there’s a good chance for FY+2 EV/OP to return to the 12-20x range once the market price-in Shiseido’s weakening competitive position in the mainland China market.</li>
</ul>

<ul>
<li>
<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 valuation multiples have come down a lot over the last year. However, they don’t seem genuinely cheap with FY+2 consensus EV/OP at 25.4x.</li>
<li>Meanwhile, Shiseido’s position in the Chinese market is weakening and there are also risks such as earnings misses and write-offs.</li>
<li>Thus, we think there’s more downside to Shiseido, whose share price may seem cheap after declining by more than 35% during the past 10 months of this year.</li>
</ul>

<ul>
<li>Shiseido’s acquisition of Drunk Elephant for a valuation of $845m was perceived positively, hoping that Shiseido could use Drunk Elephant’s digital marketing expertise to restructure its North America business.</li>
<li>Rather than emulating Drunk Elephant like digital marketing to the company’s other brands, Shiseido has been trying to accommodate all its brands including Drunk Elephant into a hybrid marketing strategy.</li>
<li>This seems to have killed Drunk Elephant’s appeal to its customers. Thus, <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> could be facing a massive $845m write-off over the next few years.</li>
</ul>

Japan

Shiseido Company, Limited manufactures cosmetic and toiletry products. The Company offers an array of makeup and skin-care products, toiletries, beauty salon, pharmaceuticals, foodstuffs, and fine chemicals.

ADTV (USDm)	0.00
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
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EV/Sales	0.00
Dividend (Yield)	0.00

Shiseido Company - 4911 JP

Shiseido: Conservative Guidance Is Not a Cause for Concern as Shiseido Almost Always Overdelivers

A lot of optimism was baked in the medium-term plan, but 2023 OP guidance was ¥17.5bn below consensus. Nevertheless, we think that this shouldn’t...

Oshadhi Kumarasiri

Shiseido: Outperforms With Relaxation Of China’s COVID Restrictions, Long Term We Are a Bit Cautious

The indication that China is prepared to scrap its strict Zero COVID policy has gotten Shiseido going again after an earnings beat in Q3 saw shares...

Oshadhi Kumarasiri

Shiseido: International Cosmetics Brands Sent Packing by Chinese Rivals

The success of domestic brands in the low-cost cosmetics segment seems to be cascading into mid and high-price segments within the Chinese...

Oshadhi Kumarasiri

Shiseido: China Exposure, Potential Earnings Misses and Write-Offs Create Additional Downside Risk

We think that there’s still considerable downside risk to Shiseido in the short term, especially with the company’s exposure to the worsening China...

Oshadhi Kumarasiri

Shiseido: Drunk Elephant Seems an $845m Write-Off

The #barewithus🐘 movement, rarely gets any new selfies posted and the Drunk Elephant Instagram page follower growth is now around less than 1/4th...

Oshadhi Kumarasiri

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