Global Healthcare Analyst

Tina Banerjee

Event-Driven

<ul>
<li>LIM Japan Event Master Fund sent a document to <a href="https://www.smartkarma.com/entities/torii-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:3253:1" rel="noopener">Torii Pharmaceutical (4551 JP)</a> requesting the company to distribute 100% of its surplus to shareholders and conduct a drastic share buyback.</li>
<li>LIM is of view that Torii has excess cash balances, which is more than the market cap of the company. Inefficient use of capital has led to low single-digit ROE.</li>
<li>Torii opposes the proposal, as the company thinks it needs adequate cash to pursue business development aka in-licensing of new drugs.  </li>
</ul>


LIM Japan Event Master Fund sent a document to Torii Pharmaceutical (4551 JP) requesting the company to distribute 100% of its surplus to shareholders and conduct a drastic share buyback.
LIM is of view that Torii has excess cash balances, which is more than the market cap of the company. Inefficient use of capital has led to low single-digit ROE.
Torii opposes the proposal, as the company thinks it needs adequate cash to pursue business development aka in-licensing of new drugs.  


Torii Pharmaceutical (4551 JP): Board Opposes Shareholder Proposal for Appropriation of Surplus

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.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.</li>
<li>2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.</li>
<li>But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in <a href="https://www.smartkarma.com/entities/torii-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:3253:1" rel="noopener">Torii Pharmaceutical (4551 JP)</a>.</li>
</ul>



Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).


Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

Equity Bottom-Up

<ul>
<li>As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.</li>
<li>With further dividend hikes looking increasingly possible, our 2022 high-conviction call, <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a> has more room to run this year.</li>
<li>However, it’s probably the right time to take profits from our 2021 high-conviction trade, <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> as the US gas-stations profitability maxed-out in the last quarter.</li>
</ul>


As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.
With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco (2914 JP) has more room to run this year.
However, it’s probably the right time to take profits from our 2021 high-conviction trade, Seven &amp; I Holdings (3382 JP) as the US gas-stations profitability maxed-out in the last quarter.


2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

<ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a>’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.</li>
<li>Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.</li>
<li>We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.</li>
</ul>



Japan Tobacco (2914 JP)’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.
Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.
We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.


Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

<ul>
<li>We expect a strong 2Q22 and an upgrade to annual guidance from <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a> through strong Domestic and International Tobacco performance.</li>
<li>It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  </li>
<li>Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.</li>
</ul>


We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  
Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.


Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

Japan

Ajinomoto Co., Inc. produces and sells a variety of food products, including seasonings, edible oils, processed foods, beverages, and dairy products.  The Company also develops and manufactures pharmaceuticals, amino acids, and specialty chemicals.

Asahi Group Holdings, Ltd. produces beer and other beverages including non-alcoholic drinks. The Company sells its products in Japan and overseas.

Suntory Beverage & Food Ltd manufacture and sells beverages and food products worldwide. The company is a part of Suntory Holdings ltd.

KIKKOMAN CORPORATION produces and markets soy sauce, alcoholic beverages, and other food products.  The Company has marketing rights for Del Monte brand products outside of the United States.  Kikkoman also operates restaurants in Japan and other countries.

Kirin Holdings Company, Limited produces beer, soft drinks, food products, whisky, and pharmaceuticals.  The Company sells its products in Japan and overseas.

YAMAZAKI BAKING CO., LTD. produces baking foods including bread, pastry, and cake.  The Company operates nationwide sales network.  YAMAZAKI BAKING also operates franchised cafeterias and convenience stores.

NISSIN FOODS HOLDINGS CO.,LTD. produces instant noodle and processed food products.  The Company also develops pharmaceuticals.  NISSIN FOODS operates production facilities in overseas countries including Hong Kong, India, U.S., Singapore, and other countries.

MEIJI Holdings Co., Ltd. is the holding company established by reorganization of Meiji Seika Pharma & Meiji Corp.  The company manages subsidiaries engaging in production & sales of confectionary, milk, dairy products, and pharmaceuticals.

TOYO SUISAN KAISHA, LTD. purchases, processes, and sells seafood.  The Company also manufactures instant noodles, processed foods, fish paste, and frozen food products under Maru-chan brand.

YAKULT HONSHA CO., LTD produces and sells fermented milk products, soft drinks and food products.  The Company also manufactures pharmaceutical and cosmetic products.  Through its subsidiary, the professional baseball team, Tokyo Yakult Swallows is owned and managed.

ITC Limited, a member of BAT Group of UK, is a holding company, which has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products.

British American Tobacco P.L.C. operates as a holding company for a group of companies that manufactures, markets, and sells cigarettes and other tobacco products including cigars and roll-your-own tobacco.

Imperial Brands PLC operates as a consumer goods company. The Company manufactures, markets, and sells cigarettes, cigars, pipe and smokeless tobacco, snus, e-cigarettes, and other tobacco products, as well as logistics business. Imperial Brands serves customers worldwide.

Altria Group, Inc. is a holding company.  The Company, through subsidiaries, manufactures and sells cigarettes and other tobacco products, including cigars and pipe tobacco.  Altria holds an interest in a brewery company.

Swedish Match AB manufactures and markets smokeless tobacco products. The Company offers products such as snus, moist snuff, and chewing tobacco. Swedish Match also manufactures and markets machine made cigars as well as matches and lighters.

PT Hanjaya Mandala Sampoerna Tbk manufactures hand rolled and machine-rolled clove-blended cigarettes. The Company distributes its products in the domestic and international market. Through its subsidiaries, the Company also develops properties.

KT&G Corporation processes, produces, and sells cigarettes and other tobacco products.  The Company, through its subsidiaries, manufactures ginseng products such as red ginseng tea and herbal medicines.  KT&G is also involved in real estate development of its former factory sites.

Smoore International Holdings Limited offering vaping technology solutions with advanced research and development technology. The Company manufactures and produces closed system vaping devices, self branded open system vaping devices, vaping components, and other products. Smoore International Holdings markets its products throughout Hong Kong.

Japan Tobacco, Inc. operates as an tobacco product company. The Company manufactures, markets and sells cigarettes and other tobacco products internationally. Japan Tobacco is also engaged in pharmaceutical and food businesses.

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Japan Tobacco (2914 JP)

Torii Pharmaceutical (4551 JP): Board Opposes Shareholder Proposal for Appropriation of Surplus

LIM Japan has sent a document to Torii Pharmaceutical requesting the company to distribute 100% of its surplus to shareholders and conduct a...

Tina Banerjee

Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

It was reported a few weeks ago that activist investor LIM Advisors has sent a letter to Japan Tobacco requesting the company to divest its 53%...

Oshadhi Kumarasiri

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco has more room to run this year. However,...

Oshadhi Kumarasiri

Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

With the annual OP estimate back up around the 2016-17 level, we are expecting a reversal of the 2017-21 share price to OP trend with expectations...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

As investor concerns regarding the Russia business ease while earnings growth momentum strengthens, we think that there’s around 50% further upside...

Oshadhi Kumarasiri

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