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

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" rel="noopener">Mio Kato</a> has suggested three potential candidates based on Carlyle’s previous investments in Japan - <a href="https://www.smartkarma.com/entities/a-d-company-ltd" target="_blank" rel="noopener">A&amp;D (7745 JP)</a>, <a href="https://www.smartkarma.com/entities/fujio-food-system-co-ltd" target="_blank" data-smartkarma-citation="entities:12242:1" rel="noopener">Fujio Food System (2752 JP)</a>, and <a href="https://www.smartkarma.com/entities/fuji-oil-holdings-inc" target="_blank" data-smartkarma-citation="entities:4035:1" rel="noopener">Fuji Oil (2607 JP)</a>. In this Insight, we review Fuji Oil, a food materials company, in which <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu (8001 JP)</a> has a 38.5% stake (an increase from 33.2% in March 2020).

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. Mio Kato has suggested three potential candidates based on Carlyle’s previous investments in Japan - A&amp;D (7745 JP), Fujio Food System (2752 JP), and Fuji Oil (2607 JP). In this Insight, we review Fuji Oil, a food materials company, in which Itochu (8001 JP) has a 38.5% stake (an increase from 33.2% in March 2020).

Fuji Oil In Itochu's Industry Consolidation Plans?

<ul>
<li>Japanese consumer goods company <a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji Holdings (2269 JP)</a> issued a <a href="https://www.release.tdnet.info/inbs/ek/140120200611442767.pdf" target="_blank" rel="noopener">press release</a> on Friday (12th June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.</li>
<li>The company previously conducted a two for one stock split on 1st October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.</li>
<li>We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.</li>
</ul>


Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.
The company previously conducted a two for one stock split on 1st October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.
We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.


Meiji Holdings: Considering a Stock Split

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/748/original/2020-05-16_08-18-15.png?1589584720" class="editor-image img-responsive" data-smartkarma-image-id="133748"></figure><div class="content-caption">Source • Japan Analytics</div>"WORSENING" - The Cabinet Office updated their Business Condition Leading Indicator for March this week, confirming the trend already apparent from our Results &amp; Revision Score data series. The correlation between the series is 0.80, with the only significant deviation occurring in 2016, Coincident conditions are assessed as "worsening" wording that is unchanged since August 2019. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/788/original/2020-05-16_12-10-50.png?1589598664" class="editor-image img-responsive" data-smartkarma-image-id="133788"></figure><div class="content-caption">Source • Japan Analytics</div>DECOMPOSED - Our Score is decomposed into a Results Score, an Annual Forecast/Revision Score and an Interim Forecast Revision Score.  The last two are ten-year lows; the first should join them next week. A notable limiting factor is the shortage of forecasts being made. Without this reticence, both forecast Scores would be considerably lower.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/795/original/2020-05-16_12-47-02.png?1589600841" class="editor-image img-responsive" data-smartkarma-image-id="133795"></figure><div class="content-caption">Source • Japan Analytics</div>RETICENCE - 77% by number and 81% by value of companies with year-ends in  March, June, September, or December have already reported. Of these 2,464 companies representing ¥438 trillion of market cap, just 1,119 have issued annual forecasts for the current year, and 583 have made interim forecasts. Of all listed companies, one-third by market value are currently unable to see ahead twelve months and only 16% by value and 23% by number are prepared to look forward four-and-a-half months. This unusual degree of reticence leaves the sell-side without their regular anchoring comfort blanket.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/802/original/2020-05-16_13-27-57.png?1589605282" class="editor-image img-responsive" data-smartkarma-image-id="133802"></figure><div class="content-caption">Source • Japan Analytics</div>NOT CHEAP -  Even allowing for the lack of a full complement of forecasts, the market's forward multiple is at a five-year high with Net Income expected to reach levels first seen in 2015, 37% below the December 2018 peak. The ten-year peak trailing multiple was 29 on aggregate Net Income of  ¥14.6 trillion, which was ten times the 2009 trough.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/801/original/2020-05-16_14-00-16.png?1589605245" class="editor-image img-responsive" data-smartkarma-image-id="133801"></figure><div class="content-caption">Source • Japan Analytics</div>FIDDLING ABOUT - The Bank of Japan has reduced the amount of its daily ETF program for a second time; however, intervened for the last three days of last week seemingly intent on keeping the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> above 20,000. The cumulative total of BoJ purchases represents over 5% of the Total Market Value.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/884/original/2020-05-17_12-54-22.png?1589687679" class="editor-image img-responsive" data-smartkarma-image-id="133884"></figure><div class="content-caption">Source • Japan Analytics</div>In the DETAIL below, we review some market data trends, look at the Results &amp; Revision Score trends by Sector (a 15-year timeline is shown above), apply some KPMG 'recovery analysis' to Japan and look at Friday's results and revisions.<div><ul>
<li>The balance between positive/neutral/negative of the 490 results announcements was 206:45:239. The average change in Results Score was -0.2.</li>
<li>For the 205 revisions/initial forecasts, the split was 49:10:146, and the average Revision Score was -7.5. Of the 364 companies declaring full-year results, 47% made forecasts for the current year.</li>
<li>Fifty-one will announce today, the largest of which by market capitalisation will be <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/terumo-corp" target="_blank" data-smartkarma-citation="entities:6708:1" rel="noopener">Terumo Corp (4543 JP)</a>, and <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu (6301 JP).</a>
</li>
</ul></div>

Source • Japan Analytics"WORSENING" - The Cabinet Office updated their Business Condition Leading Indicator for March this week, confirming the trend already apparent from our Results &amp; Revision Score data series. The correlation between the series is 0.80, with the only significant deviation occurring in 2016, Coincident conditions are assessed as "worsening" wording that is unchanged since August 2019. Source • Japan AnalyticsDECOMPOSED - Our Score is decomposed into a Results Score, an Annual Forecast/Revision Score and an Interim Forecast Revision Score.  The last two are ten-year lows; the first should join them next week. A notable limiting factor is the shortage of forecasts being made. Without this reticence, both forecast Scores would be considerably lower.Source • Japan AnalyticsRETICENCE - 77% by number and 81% by value of companies with year-ends in  March, June, September, or December have already reported. Of these 2,464 companies representing ¥438 trillion of market cap, just 1,119 have issued annual forecasts for the current year, and 583 have made interim forecasts. Of all listed companies, one-third by market value are currently unable to see ahead twelve months and only 16% by value and 23% by number are prepared to look forward four-and-a-half months. This unusual degree of reticence leaves the sell-side without their regular anchoring comfort blanket.Source • Japan AnalyticsNOT CHEAP -  Even allowing for the lack of a full complement of forecasts, the market's forward multiple is at a five-year high with Net Income expected to reach levels first seen in 2015, 37% below the December 2018 peak. The ten-year peak trailing multiple was 29 on aggregate Net Income of  ¥14.6 trillion, which was ten times the 2009 trough.Source • Japan AnalyticsFIDDLING ABOUT - The Bank of Japan has reduced the amount of its daily ETF program for a second time; however, intervened for the last three days of last week seemingly intent on keeping the Nikkei 225 (NKY INDEX) above 20,000. The cumulative total of BoJ purchases represents over 5% of the Total Market Value.Source • Japan AnalyticsIn the DETAIL below, we review some market data trends, look at the Results &amp; Revision Score trends by Sector (a 15-year timeline is shown above), apply some KPMG 'recovery analysis' to Japan and look at Friday's results and revisions.
The balance between positive/neutral/negative of the 490 results announcements was 206:45:239. The average change in Results Score was -0.2.
For the 205 revisions/initial forecasts, the split was 49:10:146, and the average Revision Score was -7.5. Of the 364 companies declaring full-year results, 47% made forecasts for the current year.
Fifty-one will announce today, the largest of which by market capitalisation will be Softbank Group (9984 JP), Terumo Corp (4543 JP), and Komatsu (6301 JP).



🇯🇵 JAPAN MARKET UPDATE 18th May - "Worsening"

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Japanese beer giant <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><a href="https://pdf.irpocket.com/C2503/D5nz/gium/abkM.pdf" target="_blank" rel="noopener">announced</a> a large buyback on 7 November 2019 as one way to mollify activists who had been pressuring the company to improve capital returns. The buyback was to repurchase up to 60,000,000 shares (6.8% of shares out) for up to ¥100bn over the course of the next year. Given the shares were trading at a level which only allowed for 43.5mm shares to be bought back with the money, and only 40 million shares to be bought based on the next day's trading price, and the shares traded an average 2.7mm shares a day the previous three years, that was 6.0% of expected volume.There were cross-holdings which looked like they could fall (because of the sheer breadth - 1500+ companies), and the announcement was light on execution details, so I expected ToSTNeT-3 buybacks before other companies' FY-end would be possible. That made the market impact less exciting. Today, the company <a href="https://pdf.irpocket.com/C2503/fwbV/pVYc/C8Yr.pdf" target="_blank" rel="noopener">announced</a> that it had repurchased 44,464,000 million shares with its ¥100 billion, and the buyback was completed in 5 months rather than 12.So that's done. Analysis follows. There is an interesting trading model shown of Kirin vs comps.

Japanese beer giant Kirin Holdings (2503 JP)announced a large buyback on 7 November 2019 as one way to mollify activists who had been pressuring the company to improve capital returns. The buyback was to repurchase up to 60,000,000 shares (6.8% of shares out) for up to ¥100bn over the course of the next year. Given the shares were trading at a level which only allowed for 43.5mm shares to be bought back with the money, and only 40 million shares to be bought based on the next day's trading price, and the shares traded an average 2.7mm shares a day the previous three years, that was 6.0% of expected volume.There were cross-holdings which looked like they could fall (because of the sheer breadth - 1500+ companies), and the announcement was light on execution details, so I expected ToSTNeT-3 buybacks before other companies' FY-end would be possible. That made the market impact less exciting. Today, the company announced that it had repurchased 44,464,000 million shares with its ¥100 billion, and the buyback was completed in 5 months rather than 12.So that's done. Analysis follows. There is an interesting trading model shown of Kirin vs comps.

Kirin's Big Buyback Ended - A Trading and Signal Model for Kirin Going Forward

Equity Bottom-Up

In a recent news publication from the Japanese beverage company <a href="https://www.smartkarma.com/entities/16977" target="_blank" data-smartkarma-citation="entities:16977:1">Kirin Holdings (2503 JP)</a>, it was reported that the company entered into an agreement to sell its subsidiary Lion Pty Limited’s (Lion) speciality cheese segment to the Canadian dairy giant Saputo for $196.9m. It is a part of a sell down which Kirin initiated last October when the company decided to sell its Lion-Dairy and Drinks business (LDD) business of the Australian subsidiary Lion.
Lion Dairy and Drinks Business
The business was founded in 1960 and it mainly focuses on the production and distribution of fresh dairy food, fruit juices, soy milk products, cheese, yoghurts, dairy desserts and creams, flavoured and modified fresh and ultra-high-temperature (UHT) milk products. LDD became a part of Kirin in 2007 as Kirin acquired LDD for USD2.6bn (JPY294bn)
Saputo Inc.
The Canadian dairy company Saputo is one of the top 10 dairy manufacturers in the world and it is engaged in the production and distribution of dairy products such as cheese, fluid milk, extended shelf-life milk and cream products, cultured products and other dairy ingredients.

In a recent news publication from the Japanese beverage company Kirin Holdings (2503 JP), it was reported that the company entered into an agreement to sell its subsidiary Lion Pty Limited’s (Lion) speciality cheese segment to the Canadian dairy giant Saputo for $196.9m. It is a part of a sell down which Kirin initiated last October when the company decided to sell its Lion-Dairy and Drinks business (LDD) business of the Australian subsidiary Lion.
Lion Dairy and Drinks Business
The business was founded in 1960 and it mainly focuses on the production and distribution of fresh dairy food, fruit juices, soy milk products, cheese, yoghurts, dairy desserts and creams, flavoured and modified fresh and ultra-high-temperature (UHT) milk products. LDD became a part of Kirin in 2007 as Kirin acquired LDD for USD2.6bn (JPY294bn)
Saputo Inc.
The Canadian dairy company Saputo is one of the top 10 dairy manufacturers in the world and it is engaged in the production and distribution of dairy products such as cheese, fluid milk, extended shelf-life milk and cream products, cultured products and other dairy ingredients.

Second Overseas Business Disposal for Kirin in Two Years: Lion to Sell Its Specialty Cheese Business

Japan

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.

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Yakult Honsha (2267 JP)

Fuji Oil In Itochu's Industry Consolidation Plans?

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the...

Oshadhi Kumarasiri

Meiji Holdings: Considering a Stock Split

Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering...

Oshadhi Kumarasiri

🇯🇵 JAPAN MARKET UPDATE 18th May - "Worsening"

"WORSENING" - The Cabinet Office updated their Business Condition Leading Indicator for March this week, confirming the trend already apparent from...

Campbell Gunn

Kirin's Big Buyback Ended - A Trading and Signal Model for Kirin Going Forward

Japanese beer giant Kirin Holdings (2503 JP)announced a large buyback on 7 November 2019 as one way to mollify activists who had been pressuring...

Travis Lundy

Second Overseas Business Disposal for Kirin in Two Years: Lion to Sell Its Specialty Cheese Business

In a recent news publication from the Japanese beverage company Kirin Holdings (2503 JP), it was reported that the company entered into an...

Oshadhi Kumarasiri

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