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.

Event-Driven

<ul>
<li>New York-based hedge fund ValueAct has told <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a>’s shareholders to support them in their bid to spin off the 7-Eleven US convenience store business.</li>
<li>Spinning off the only growth driver of the business does not seem like an idea that Seven &amp; I or its shareholders are likely to entertain.</li>
<li>We fear that ValueAct could be looking for reasons to call-off its investor-activism-campaign and perhaps is trying to squeeze out every last bit of gains as it exits its positions.</li>
</ul>


New York-based hedge fund ValueAct has told Seven &amp; I Holdings (3382 JP)’s shareholders to support them in their bid to spin off the 7-Eleven US convenience store business.
Spinning off the only growth driver of the business does not seem like an idea that Seven &amp; I or its shareholders are likely to entertain.
We fear that ValueAct could be looking for reasons to call-off its investor-activism-campaign and perhaps is trying to squeeze out every last bit of gains as it exits its positions.


Seven & I: Activist ValueAct Seeking a Spin-Off of The US Business

Japan Specialist

Mark Chadwick

Thematic (Sector/Industry)

<ul>
<li>OVERSEAS: SPX down 3 in a Row as  Fed Hawks out in force; Oil bucks trend ;  P&amp;G see weak sales; Musk makes it up on TESLA's self driving</li>
<li>JAPAN: Kishida Cabinet approval at record lows;  Activist ValueAct tgts S&amp;i(3382); Spate of Street upgrades to BUY incl General Contractors at MS; Japan CPI on tap.</li>
<li>DAILY NUGGET: Could be Nothing Burger but the costs of US default is rising as Debt Limit hit.</li>
</ul>


OVERSEAS: SPX down 3 in a Row as  Fed Hawks out in force; Oil bucks trend ;  P&amp;G see weak sales; Musk makes it up on TESLA's self driving
JAPAN: Kishida Cabinet approval at record lows;  Activist ValueAct tgts S&amp;i(3382); Spate of Street upgrades to BUY incl General Contractors at MS; Japan CPI on tap.
DAILY NUGGET: Could be Nothing Burger but the costs of US default is rising as Debt Limit hit.


Good Morning Japan |Fed Hawks Return; Earnings Weigh; ValueAct Tgts S&I(3382); Spate of JP BUY U/Gs

<ul>
<li>The Nikkei traded up half a percentage point this week, while the JPY strengthened 3% to Y127/$</li>
<li>US stocks (and hence global) rallied after data showed that inflation cooled in December, easing pressure on the Fed. </li>
<li>Lower inflation, interest rates, and China's reopening are providing a decent backdrop for Japanese equities</li>
</ul>


The Nikkei traded up half a percentage point this week, while the JPY strengthened 3% to Y127/$
US stocks (and hence global) rallied after data showed that inflation cooled in December, easing pressure on the Fed. 
Lower inflation, interest rates, and China's reopening are providing a decent backdrop for Japanese equities


Japan Weekly | Tokyo Electron, 7&I, Fast Retail

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a>'s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.</li>
<li>This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.</li>
<li>Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.</li>
</ul>



Seven &amp; I Holdings (3382 JP)'s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.
This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.
Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.


Seven & I’s Valuation Nears Breaking Point

<ul>
<li>We would be closing our 2021 high-conviction long trade on <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> before they release 3QFY23 results next week.</li>
<li>Although we are not expecting the company to miss consensus estimates this time around, we are expecting significant downside risks to Seven &amp; I’s US business throughout the year.</li>
<li>Given that shares went nowhere after 12% revenue and 1% OP beats in the previous quarter is a good indication that the upside is limited.</li>
</ul>


We would be closing our 2021 high-conviction long trade on Seven &amp; I Holdings (3382 JP) before they release 3QFY23 results next week.
Although we are not expecting the company to miss consensus estimates this time around, we are expecting significant downside risks to Seven &amp; I’s US business throughout the year.
Given that shares went nowhere after 12% revenue and 1% OP beats in the previous quarter is a good indication that the upside is limited.


2021 High Conviction Seven & I: Major Headwinds Deflected By The Yen Depreciation, Upside Is Limited

Japan

Seven & i Holdings Co., Ltd. is a holding company which was established through the merger of Ito-Yokado Co., Seven Eleven Japan Co., and Denny's Japan. The Company plans, manages, and operates mainly convenience stores, supermarkets, and department stores.

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Seven & I Holdings (3382 JP)

Seven & I: Activist ValueAct Seeking a Spin-Off of The US Business

Following a recent media report that the company received an acquisition proposal, Value Act has hinted about a possible or even probable buyout...

Oshadhi Kumarasiri

Good Morning Japan |Fed Hawks Return; Earnings Weigh; ValueAct Tgts S&I(3382); Spate of JP BUY U/Gs

Fed Hawks out in full force; Kishida Cabinet approval at record lows; Activist tgts S&i(3382); Spate of Street upgrades to BUY incl General...

Mark Chadwick

Japan Weekly | Tokyo Electron, 7&I, Fast Retail

We highlight stocks that have impacted the Japanese market this week. Overall, equities were buoyed by a softening of US inflation rates and...

Mark Chadwick

Seven & I’s Valuation Nears Breaking Point

Much to our surprise, 7-Eleven’s retail fuel margin rose by 4.3 cents QoQ to exceed our estimate by 7.7 cents per gallon and lifted the segment’s...

Oshadhi Kumarasiri

2021 High Conviction Seven & I: Major Headwinds Deflected By The Yen Depreciation, Upside Is Limited

Down more than 34% since June 2022, gas price poses the biggest threat to 7-Eleven’s US business performance. Based on retail fuel prices during...

Oshadhi Kumarasiri

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