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

<p>Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/876/original/image_56442858141611229982276.png?1611229987" class="editor-image img-responsive" data-smartkarma-image-id="183876"></figure><p>COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.</p><p>In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.</p>

Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Japanese Cosmetics Industry: Statistics Update – October & November 2020

Japan Specialist

Mark Chadwick

<div><p><span xml:lang="EN-US" data-contrast="none">There has been growing awareness of the business case for inclusion and diversity (I&amp;D) in the workplace. In Japan, Prime Minister Suga has pledged continued government support for corporate governance reform and he would like to see more </span><span xml:lang="EN-US" data-contrast="none">women</span><span xml:lang="EN-US" data-contrast="none"> and foreigners in key positions. While many companies cite I&amp;D as a source of competitive advantage and a key enabler of growth, few academic studies have been able to prove a direct link between I&amp;D and financial performance. Our analysis on Japan’s larger companies suggests the following:</span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></div><div><ol style="list-style-type: decimal;" role="list" start="1"><li role="listitem" data-leveltext="%1." data-font="Calibri" data-listid="1" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><p><span xml:lang="EN-US" data-contrast="none">Most Japanese companies have very low levels of diversity. Although the participation of women on the boards of Japanese companies is expanding, those with higher levels of diversity are yet to see any improvement in financial metrics or stock performance. </span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></li></ol></div><div><ol style="list-style-type: decimal;" role="list" start="2"><li role="listitem" data-leveltext="%1." data-font="Calibri" data-listid="1" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><p><span xml:lang="EN-US" data-contrast="none">Our broad composite index of board entrenchment also bears little correlation with key metrics. However, boards that are younger on average do appear to be more effective, and are correlated with a broad range of operating metrics. </span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></li></ol></div>

There has been growing awareness of the business case for inclusion and diversity (I&amp;D) in the workplace. In Japan, Prime Minister Suga has pledged continued government support for corporate governance reform and he would like to see more women and foreigners in key positions. While many companies cite I&amp;D as a source of competitive advantage and a key enabler of growth, few academic studies have been able to prove a direct link between I&amp;D and financial performance. Our analysis on Japan’s larger companies suggests the following: Most Japanese companies have very low levels of diversity. Although the participation of women on the boards of Japanese companies is expanding, those with higher levels of diversity are yet to see any improvement in financial metrics or stock performance.  Our broad composite index of board entrenchment also bears little correlation with key metrics. However, boards that are younger on average do appear to be more effective, and are correlated with a broad range of operating metrics.  

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/683/original/2020-12-01_09-00-54.png?1606780869" class="editor-image img-responsive" data-smartkarma-image-id="175683"></figure></section><div class="content-caption">Source for all charts &amp; tables: Japan Analytics </div><p><strong>FOUR QUADRANTS</strong> - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-</p><div>
<ul style="list-style-type: disc;">
<li>
<strong>CONTRARIAN BUYS</strong> - Low Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>CONTRARIAN SELLS</strong> - High Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>TURNAROUND BUYS </strong>- High Results &amp; Revision Scores &amp; low Relative Price Scores</li>
<li>
<strong>EX-GROWTH SELLS</strong> - Low Results &amp; Revision Scores &amp; high Relative Price Scores</li>
</ul>
<p>The Ex-Growth Sells quadrant offers more fertile ground for shorting as the decline in earnings momentum is already clear, however, in many cases, the market is reluctant to sell the 'darlings' of the past. Examples of profitable Ex-Growth Sells from 2020 are <a href="https://www.smartkarma.com/entities/kyudenko-corp" target="_blank" data-smartkarma-citation="entities:5414:1" rel="noopener">Kyudenko(1959 JP)</a>, <a href="https://www.smartkarma.com/entities/ariake-japan-co-ltd" target="_blank" data-smartkarma-citation="entities:4908:1" rel="noopener">Ariake Japan (2815 JP)</a>, and <a href="https://www.smartkarma.com/entities/santen-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:8602:1" rel="noopener">Santen Pharmaceutical (4536 JP)</a>. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/693/original/2020-12-01_10-13-31.png?1606785235" class="editor-image img-responsive" data-smartkarma-image-id="175693"></figure></section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/699/original/2020-12-01_10-22-36.png?1606785767" class="editor-image img-responsive" data-smartkarma-image-id="175699"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/700/original/2020-12-01_10-23-41.png?1606785833" class="editor-image img-responsive" data-smartkarma-image-id="175700"></figure></section><p><strong><a href="https://www.dropbox.com/s/7b61jl02dh0pzno/2020-11-25_12-43-55.png?dl=0" target="_blank" rel="noopener">EX-GROWTH SELLS</a></strong> - In the <strong>DETAIL</strong> section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series. The first three Insights can be found at - <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-buys" target="_blank" data-smartkarma-citation="insights:45688" rel="noopener">Contrarian Buys,</a> <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-sells" target="_blank" data-smartkarma-citation="insights:45725" rel="noopener">Contrarian Sells</a>, and <a href="https://www.smartkarma.com/insights/japan-four-quadrants-turnaround-buys" target="_blank" data-smartkarma-citation="insights:45829" rel="noopener">Turnaround Buys</a>.   </p></section>
</div>

Source for all charts &amp; tables: Japan Analytics FOUR QUADRANTS - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-


CONTRARIAN BUYS - Low Results &amp; Revision and Relative Price Scores

CONTRARIAN SELLS - High Results &amp; Revision and Relative Price Scores

TURNAROUND BUYS - High Results &amp; Revision Scores &amp; low Relative Price Scores

EX-GROWTH SELLS - Low Results &amp; Revision Scores &amp; high Relative Price Scores

The Ex-Growth Sells quadrant offers more fertile ground for shorting as the decline in earnings momentum is already clear, however, in many cases, the market is reluctant to sell the 'darlings' of the past. Examples of profitable Ex-Growth Sells from 2020 are Kyudenko(1959 JP), Ariake Japan (2815 JP), and Santen Pharmaceutical (4536 JP). 
EX-GROWTH SELLS - In the DETAIL section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series. The first three Insights can be found at - Contrarian Buys, Contrarian Sells, and Turnaround Buys.   


🇯🇵 JAPAN • Four Quadrants - Ex-Growth Sells

<p>By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s largest shopping event of the year.</p><p><a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> has been livestreaming almost every day since late October, when marketing campaigns for China’s Singles’ Day sale held every year on November 11 accelerated. More than 400,000 viewers tuned in to Shiseido’s livestreams from its Tokyo headquarters and a studio in the Chinese city of Hangzhou.</p><p>In Japan, such advertising campaigns were usually carried out by social media influencers. However, Shiseido is relying on its own employees instead of social media influencers to promote its products. Shiseido started using “Miss SHISEIDO” to promote its products as early as 1934, which later evolved to beauty consultants. The consultants have been trained to use technology advancements, and c. 7,400 people have enrolled at the Shiseido Digital Academy. We believe that the trend towards live e-commerce and livestreaming events will continue to accelerate post-pandemic, not just with Shiseido but also with other Japanese cosmetic companies.</p>

By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s largest shopping event of the year.Shiseido Company (4911 JP) has been livestreaming almost every day since late October, when marketing campaigns for China’s Singles’ Day sale held every year on November 11 accelerated. More than 400,000 viewers tuned in to Shiseido’s livestreams from its Tokyo headquarters and a studio in the Chinese city of Hangzhou.In Japan, such advertising campaigns were usually carried out by social media influencers. However, Shiseido is relying on its own employees instead of social media influencers to promote its products. Shiseido started using “Miss SHISEIDO” to promote its products as early as 1934, which later evolved to beauty consultants. The consultants have been trained to use technology advancements, and c. 7,400 people have enrolled at the Shiseido Digital Academy. We believe that the trend towards live e-commerce and livestreaming events will continue to accelerate post-pandemic, not just with Shiseido but also with other Japanese cosmetic companies.

How Livestreaming, The Latest Trend in E-Commerce Is Revolutionising Cosmetics Retail

<p>Although <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected demand in Japan and worsening COVID-19 health crisis in Europe and the US. However, Shiseido shares were up 4.7% yesterday following the release of positive COVID-19 vaccine update by Pfizer. With the 2021 EV/OP multiple at an all-time high of 52.0x, it appears that the post-pandemic recovery is already priced in.</p>

Although Shiseido Company (4911 JP) beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected demand in Japan and worsening COVID-19 health crisis in Europe and the US. However, Shiseido shares were up 4.7% yesterday following the release of positive COVID-19 vaccine update by Pfizer. With the 2021 EV/OP multiple at an all-time high of 52.0x, it appears that the post-pandemic recovery is already priced in.

Shiseido: Departing From Cost Discipline or Playing Safe?

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.

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Shiseido Company (4911 JP)

Japanese Cosmetics Industry: Statistics Update – October & November 2020

We analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy,...

Oshadhi Kumarasiri

Japan Governance - Diversity Matters

Japanese companies have very low levels of board diversity. Participation by women is too low to see any tangible results yet, but more youthful...

Mark Chadwick

🇯🇵 JAPAN • Four Quadrants - Ex-Growth Sells

EX-GROWTH SELLS - In the DETAIL section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series.

Campbell Gunn

How Livestreaming, The Latest Trend in E-Commerce Is Revolutionising Cosmetics Retail

By using a tool usually associated with social media influencers, Japanese cosmetics makers have put a twist on advertising, especially for China’s...

Oshadhi Kumarasiri

Shiseido: Departing From Cost Discipline or Playing Safe?

Although Shiseido beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected...

Oshadhi Kumarasiri

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