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

<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 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.</li>
<li>Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.</li>
<li>With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. </li>
</ul>



Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. 


Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

<ul>
<li>It seems investors are starting to move past the fears of Japan Tobacco’s exposure to Russia and Ukraine with shares rising 6% following a steep decline alongside Russia’s Ukraine invasion.</li>
<li>Meanwhile, we expect the company’s OP to continue trending upwards with the weakening yen helping the International Tobacco segment and price hikes benefiting the Domestic business.</li>
<li>If OP reaches the 2014 level, we think <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> shares could go up around 90% to ¥4,000 per share over the next 12 months.</li>
</ul>


It seems investors are starting to move past the fears of Japan Tobacco’s exposure to Russia and Ukraine with shares rising 6% following a steep decline alongside Russia’s Ukraine invasion.
Meanwhile, we expect the company’s OP to continue trending upwards with the weakening yen helping the International Tobacco segment and price hikes benefiting the Domestic business.
If OP reaches the 2014 level, we think Japan Tobacco (2914 JP) shares could go up around 90% to ¥4,000 per share over the next 12 months.


Japan Tobacco 2022 High Conviction Update: Time to Double Down

<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 share price fell 14% from the bottom end of the upward trend channel and underperformed Topix by 6% over the last 15 days.</li>
<li>Even if Russia yields zero dollars, we think the impact on JT’s valuation could be around 20%.</li>
<li>With demand for cigarettes expected to go up during these war times, we think the market reaction of this scale is unwarranted.</li>
</ul>



Japan Tobacco (2914 JP)’s share price fell 14% from the bottom end of the upward trend channel and underperformed Topix by 6% over the last 15 days.
Even if Russia yields zero dollars, we think the impact on JT’s valuation could be around 20%.
With demand for cigarettes expected to go up during these war times, we think the market reaction of this scale is unwarranted.


Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

<ul>
<li>Japanese are developing a growing love for frozen foods, creating new opportunities for food brands and retailers.  </li>
<li>Frozen foods were long overlooked within the supply chain because of a traditional emphasis on fresh foods but frozen </li>
<li>As supply has increased, consumer demand has grown to match and now, with the growth of e-commerce and home delivery, frozen foods offer key advantages to both consumers and retailers.</li>
</ul>


Japanese are developing a growing love for frozen foods, creating new opportunities for food brands and retailers.  
Frozen foods were long overlooked within the supply chain because of a traditional emphasis on fresh foods but frozen 
As supply has increased, consumer demand has grown to match and now, with the growth of e-commerce and home delivery, frozen foods offer key advantages to both consumers and retailers.


Pan Pacific International Holdings / Equity Bottom-Up

<ul>
<li>With momentum behind defensive/semi defensive names in the Japanese market, <a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>’ seems to have one of the best risk reward ratios among Japanese retail players.</li>
<li>PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.</li>
<li>Thus, we would buy PPI with a target of 40% upside in the short term.</li>
</ul>


With momentum behind defensive/semi defensive names in the Japanese market, Pan Pacific International Holdings (7532 JP)’ seems to have one of the best risk reward ratios among Japanese retail players.
PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.
Thus, we would buy PPI with a target of 40% upside in the short term.


Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

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)

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

With the change in earnings momentum helping JT’s OP to reach the 2015-16 level, there’s a possibility that JT’s share price could reach ¥4,000...

Oshadhi Kumarasiri

Japan Tobacco 2022 High Conviction Update: Time to Double Down

With the yen weakening to levels last seen in 2016 and regular price hikes in the range of 8% per annum in the Domestic business, we could expect...

Oshadhi Kumarasiri

Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone

We think the market is worrying unnecessarily towards JT’s Russia exposure as growth in demand during war times could offset at least around 50% of...

Oshadhi Kumarasiri

Japan's New Food Boom: Frozen Food

Frozen food sales have boomed during the pandemic but the new enthusiasm for all things frozen is a long-term trend and some retailers and...

Michael Causton

Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

With momentum shifting positive, we think PPI has the largest upside potential among the Japanese semi defensive names with a possible 40% upside...

Oshadhi Kumarasiri

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