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

Pfizer and BioNTech’s announcement regarding the success rate of over 90% for its OCVID-19 vaccine kickstarted a strong rally in stock markets around the world. Since the announcement of the interim data of the Phase 3 study of the COVID-19 vaccine on 9th November 2020, Japan’s Topix index has rallied by 7.1%.Share prices of Japan’s two biggest beer makers, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> and <a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a> have gained by 22.8% and 25.8% respectively since the announcement. <a href="https://www.smartkarma.com/entities/sapporo-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14085:1" rel="noopener">Sapporo Holdings (2501 JP)</a>, whose EV is just 14% of Kirin’s and 10% of Asahi’s, increased 13.9% during the post-announcement period.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/993/original/image_54568104321607357503773.png?1607357505" class="editor-image img-responsive" data-smartkarma-image-id="176993"></figure>

Pfizer and BioNTech’s announcement regarding the success rate of over 90% for its OCVID-19 vaccine kickstarted a strong rally in stock markets around the world. Since the announcement of the interim data of the Phase 3 study of the COVID-19 vaccine on 9th November 2020, Japan’s Topix index has rallied by 7.1%.Share prices of Japan’s two biggest beer makers, Kirin Holdings (2503 JP) and Asahi Group Holdings (2502 JP) have gained by 22.8% and 25.8% respectively since the announcement. Sapporo Holdings (2501 JP), whose EV is just 14% of Kirin’s and 10% of Asahi’s, increased 13.9% during the post-announcement period.

Japanese Beer Pair Trade: Long Sapporo/Short Asahi

On 21st November 2020, Nikkei reported that <a href="https://www.smartkarma.com/entities/bega-cheese-ltd" target="_blank" data-smartkarma-citation="entities:7272:1" rel="noopener">Bega Cheese Ltd (BGA AU)</a> will acquire <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>’s Australian subsidiary, Lion Dairy &amp; Drinks for an estimated valuation of more than ¥40.0 billion, 13% discount to the November 2019 valuation.Please refer below links for more details regarding the sale of Lion Dairy &amp; Drinks business.<ul>
<li><a href="https://www.smartkarma.com/insights/kirin-completes-the-sale-of-lion-dairy-and-drinks-business-amidst-pressure-from-activist-investor" target="_blank" rel="noopener">Kirin Completes the Sale of Lion Dairy and Drinks Business Amidst Pressure from Activist Investor</a></li>
<li>
<a href="https://www.smartkarma.com/insights/sour-china-australia-diplomatic-relations-halts-china-mengniu-dairy-s-buyout-of-lion-dairy-drinks" target="_blank" rel="noopener">Sour China:Australia Diplomatic Relations Halts China Mengniu Dairy’s Buyout of Lion Dairy &amp; Drinks</a> </li>
<li><a href="https://www.smartkarma.com/insights/kirin-restarts-ldd-sale-after-china-mengniu-deal-falls-through" target="_blank" rel="noopener">Kirin Restarts LDD Sale After China Mengniu Deal Falls Through</a></li>
</ul>

On 21st November 2020, Nikkei reported that Bega Cheese Ltd (BGA AU) will acquire Kirin Holdings (2503 JP)’s Australian subsidiary, Lion Dairy &amp; Drinks for an estimated valuation of more than ¥40.0 billion, 13% discount to the November 2019 valuation.Please refer below links for more details regarding the sale of Lion Dairy &amp; Drinks business.
Kirin Completes the Sale of Lion Dairy and Drinks Business Amidst Pressure from Activist Investor

Sour China:Australia Diplomatic Relations Halts China Mengniu Dairy’s Buyout of Lion Dairy &amp; Drinks 
Kirin Restarts LDD Sale After China Mengniu Deal Falls Through


Bega Cheese to Acquire Kirin’s Lion Dairy & Drinks at a 13% Discount

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Equity Bottom-Up

One of our long-running thematic ideas has been that Japanese corporates are starting to get to grips with improving productivity. This isn’t a universal trend but we had flagged the Toyota group as a bellwether for Japan and that both Toyota and its group companies were demonstrating increasingly flexible and fast decision making capability and less rigid cultural norms. The <a href="https://asia.nikkei.com/Business/Business-trends/Toyota-named-top-ESG-brand-in-Japan-survey2" target="_blank" rel="noopener">Nikkei has an article citing Toyota as the top ESG pick</a> by consumers and business people, and its contents are worth thinking about.

One of our long-running thematic ideas has been that Japanese corporates are starting to get to grips with improving productivity. This isn’t a universal trend but we had flagged the Toyota group as a bellwether for Japan and that both Toyota and its group companies were demonstrating increasingly flexible and fast decision making capability and less rigid cultural norms. The Nikkei has an article citing Toyota as the top ESG pick by consumers and business people, and its contents are worth thinking about.

Toyota – Topping the Nikkei’s ESG Survey and an Indicator of Labour Reform?

<a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and dairy products. The company is also involved in other business lines such as pharmaceuticals, cosmetics, and biochemicals. Kirin holds the number two position in the Japanese RTD [ready-to-drink] market.

Kirin Holdings (2503 JP) is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and dairy products. The company is also involved in other business lines such as pharmaceuticals, cosmetics, and biochemicals. Kirin holds the number two position in the Japanese RTD [ready-to-drink] market.

Kirin Capitalising on RTD [Ready-To-Drink] Boom While Closed Bars Drowns Asahi

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Today after the close it was <a href="https://www.globenewswire.com/news-release/2020/10/06/2103999/0/en/Danone-intends-to-sell-its-stake-in-Yakult.html" target="_blank" rel="noopener">announced</a> that <a href="https://www.smartkarma.com/entities/danone-sa" target="_blank" data-smartkarma-citation="entities:21403:1" rel="noopener">Danone SA (BN FP)</a> - currently the largest shareholder in <a href="https://www.smartkarma.com/entities/yakult-honsha-co-ltd" target="_blank" data-smartkarma-citation="entities:17153:1" rel="noopener">Yakult Honsha (2267 JP)</a> - intended to sell down the last of its stake after a 20-year run.The press release notes "Danone's collaboration with Yakult began in 2004."That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.<div>
Yakult and Danone signed an Alliance Agreement in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their Strategic Alliance and signed a Memorandum of Understanding on a Collaborative Relationship.
The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. 
</div><div>
That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. 
<h2>The NEW News</h2>
Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the <a href="https://ml-eu.globenewswire.com/Resource/Download/768c55f8-a7c0-4ba7-b4e8-9f01bf4bef68" target="_blank" rel="noopener">announcement</a>).
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/665/original/Screenshot%202020-10-06%20at%204.58.37%20PM.png?1601974734" class="editor-image img-responsive" data-smartkarma-image-id="163665"></figure>
The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.
After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.
This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. 
Much more below the fold.
</div>

Today after the close it was announced that Danone SA (BN FP) - currently the largest shareholder in Yakult Honsha (2267 JP) - intended to sell down the last of its stake after a 20-year run.The press release notes "Danone's collaboration with Yakult began in 2004."That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.
Yakult and Danone signed an Alliance Agreement in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their Strategic Alliance and signed a Memorandum of Understanding on a Collaborative Relationship.
The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. 

That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. 
The NEW News
Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the announcement).

The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.
After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.
This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. 
Much more below the fold.


Danone Sells The Last of Their Yakult - Buy the Cleanup

Japan

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

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Kirin Holdings (2503 JP)

Japanese Beer Pair Trade: Long Sapporo/Short Asahi

Pfizer and BioNTech’s announcement regarding the success rate of over 90% for its OCVID-19 vaccine kickstarted a strong rally in stock markets...

Oshadhi Kumarasiri

Bega Cheese to Acquire Kirin’s Lion Dairy & Drinks at a 13% Discount

On 21st November 2020, Nikkei reported that Bega Cheese will acquire Kirin’s Australian subsidiary, Lion Dairy & Drinks for an estimated valuation...

Oshadhi Kumarasiri

Toyota – Topping the Nikkei’s ESG Survey and an Indicator of Labour Reform?

Toyota's efforts to reform labour policies bear watching as Japan's change of government and response to COVID's impact on workplaces offer a...

Mio Kato

Kirin Capitalising on RTD [Ready-To-Drink] Boom While Closed Bars Drowns Asahi

Kirin Holdings is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and other dairy products. The company is...

Oshadhi Kumarasiri

Danone Sells The Last of Their Yakult - Buy the Cleanup

Today after the close it was announced that $Danone

Travis Lundy

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