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 Capital Markets

Asahi Group Holdings / Equity Capital Markets

The Japanese beer company, <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>, which holds the largest market share in the Japanese market and sells Japan’s No. 1 beer, “Asahi Super Dry”, acquired Carlton &amp; United Breweries (CUB) in June 2020 for a valuation of A$16 billion, (¥1,141.6 billion) which is the largest outbound purchase by a Japanese beer maker to date.
The acquisition was financed through a short-term loan of ¥1.185 trillion from <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a> and the loan is to be repaid on 19th May 2021, which gives Asahi until second quarter of 2021 to pursue the proposed equity and long-term debt issue to refinance this short-term loan.
However, the current capital market conditions are unfavourable for Asahi to pursue a secondary equity offering as the share price has declined 30% from the pre COVID-19 level. Although Asahi currently has a weak financial position relative to its history, we still feel it is not enough to force an equity offering at a discount to its pre-COVID-19 price.

The Japanese beer company, Asahi Group Holdings (2502 JP), which holds the largest market share in the Japanese market and sells Japan’s No. 1 beer, “Asahi Super Dry”, acquired Carlton &amp; United Breweries (CUB) in June 2020 for a valuation of A$16 billion, (¥1,141.6 billion) which is the largest outbound purchase by a Japanese beer maker to date.
The acquisition was financed through a short-term loan of ¥1.185 trillion from Sumitomo Mitsui Financial Group (8316 JP) and the loan is to be repaid on 19th May 2021, which gives Asahi until second quarter of 2021 to pursue the proposed equity and long-term debt issue to refinance this short-term loan.
However, the current capital market conditions are unfavourable for Asahi to pursue a secondary equity offering as the share price has declined 30% from the pre COVID-19 level. Although Asahi currently has a weak financial position relative to its history, we still feel it is not enough to force an equity offering at a discount to its pre-COVID-19 price.

Asahi Group Holdings Placement: Unlikely Until Share Price Rebounds

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><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> reported its 2Q20 results today. Along with its results it also provided updates on its recently completed Carlton &amp; United Breweries (CUB) acquisition and its full year estimates.</div><div>
I had covered the background of the transaction and its implications in my earlier insights:
<ul>
<li><a href="https://www.smartkarma.com/insights/trade-idea-asahi-group-usd2bn-placement-overhang" target="_blank" rel="noopener">Trade Idea: Asahi Group - USD2bn Placement Overhang, </a></li>
<li><a href="https://www.smartkarma.com/insights/placement-trade-idea-asahi-group-accc-approval-makes-us-2bn-placement-just-a-matter-of-time" target="_blank" rel="noopener">Placement/​Trade Idea: Asahi Group - ACCC Approval Makes US$2bn Placement Just a Matter of Time</a></li>
<li><a href="https://www.smartkarma.com/insights/placement-trade-idea-asahi-group-wants-to-delay-the-inevitable-us-2bn-block" target="_blank" rel="noopener">Placement/​​Trade Idea: Asahi Group - Wants to Delay the Inevitable US$2bn Block</a></li>
</ul>
</div><div>In this insight, I'll look at the results and other recent updates.</div>

Asahi Group Holdings (2502 JP) reported its 2Q20 results today. Along with its results it also provided updates on its recently completed Carlton &amp; United Breweries (CUB) acquisition and its full year estimates.
I had covered the background of the transaction and its implications in my earlier insights:

Trade Idea: Asahi Group - USD2bn Placement Overhang, 
Placement/​Trade Idea: Asahi Group - ACCC Approval Makes US$2bn Placement Just a Matter of Time
Placement/​​Trade Idea: Asahi Group - Wants to Delay the Inevitable US$2bn Block

In this insight, I'll look at the results and other recent updates.

Asahi Group Placement Tracker - No Signs of a Placement Even Though Net Debt to EBITDA Is at 8.2x

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/997/original/2020-06-15_11-08-56.png?1592186965" class="editor-image img-responsive" data-smartkarma-image-id="139997"></figure><div class="content-caption">Source: Japan Analytics</div>
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-1-altman-z-scores" target="_blank" data-smartkarma-citation="insights:40180" rel="noopener">Part 1</a> looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)'s</a> Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
</div>UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  Five non-financial companies, which have significant financial subsidiaries (<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <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> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>), have been excluded from this analysis.


Source: Japan Analytics
STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated among larger Japanese companies. Part 1 looked at the time-worn Altman-Z Score for both manufacturing and non-manufacturing companies. In Part 2 will we turn our attention to the cash flow statement starting with the 'lifeblood' of all businesses - Operating Cash Flow.
ACCRUAL ACCOUNTING - Despite the sacrosanctity in some quarters of discounted cash flow analysis, for valuation purposes, our preference is to use accrual accounting. As Professor Stephen Penman states, "Accrual accounting brings the future forward in time and anticipates future cash flows."  Nevertheless, cash flow accounting, and the level of accounting accruals, can provide early insights into periodic stress. Nissan Motor (7201 JP)'s Accruals (Operating Income less Operating Cash Flow) as a percentage of period-end market capitalisation correlate with the company's Relative Price Score over the last thirty years. Further Insights in this series will continue to 'mine'  the Cash Flow statement by exploring Financing Cash Flows and the Working Capital Cycle.
REFORMULATED CASH FLOWSTATEMENTS - Our Operating Cash Flow calculation is derived from each company's Balance Sheet and Income Statement for periods of up to twenty-eight years. Cash Flow items relating to operating activities are divided into Operating Cash Flow and Investing Cash Flow, which includes Fixed Asset and Inventory Cash Flows.  Cash flows relating to financing activities are divided into Financing Cash Flow and Shareholder Cash Flow. The reformulated Balance Sheets, Income and Cash Flow Statements follow a clean-surplus relationship. All three Statements are fully articulated to include items of Other Comprehensive Income which are added to or subtracted from Shareholders' Equity. 
UNIVERSE - The universe for this Insight comprises the 614 Japanese companies with a market capitalisation excluding Treasury Stock over ¥100 million and for which we have at least two years of cash flow data.  Five non-financial companies, which have significant financial subsidiaries (Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)), have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

Event-Driven

<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

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Both <a href="https://www.smartkarma.com/entities/heineken-malaysia-bhd" target="_blank" data-smartkarma-citation="entities:12647:1" rel="noopener">Heineken Malaysia (HEIM MK)</a> and <a href="https://www.smartkarma.com/entities/carlsberg-brewery-malaysia-bhd" target="_blank" data-smartkarma-citation="entities:5389:1" rel="noopener">Carlsberg Brewery Malaysia (CAB MK)</a> Q1 2020 performance have suffered YoY due to the MCO and as a result, their share prices correlation int he last 3 months is much higher than in the past 12 months, presenting investors with a potential relative value opportunity.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/138/943/original/image_95328298391591719093320.png?1591719095" class="editor-image img-responsive" data-smartkarma-image-id="138943"></figure><div class="content-remarks">source: Capital IQ</div>It is still an unknown how the on-trades revenues can recover in the next months to come thus the amount of cash in the balance sheet matters! From the cash in the balance sheet only to pay a dividend, Carlsberg's dividend yield is 1.2% while Heineken's dividend yield is 4.5% - a stark contrast worth noticing. Heineken is currently trading at 21x historical PER, a 25% discount to Carlsberg. On a similar note, Heineken's 14.6x PBR is a 68% discount to Carlsberg at 46x PBR.  Based on PER and PBR alone, Heineken is clearly undervalued compared to Carlsberg despite sharing the top two market share in Malaysia. Carlsberg had declared earlier on that they will suspend quarterly dividends and will only pay a dividend by the year-end due to the difficult period but Heineken seems to be on track on declaring dividends this month-end due to the adequate cash positions. The dividend is a key factor to create a price gap between the two companies. Long Heineken and Short Carlsberg.

Both Heineken Malaysia (HEIM MK) and Carlsberg Brewery Malaysia (CAB MK) Q1 2020 performance have suffered YoY due to the MCO and as a result, their share prices correlation int he last 3 months is much higher than in the past 12 months, presenting investors with a potential relative value opportunity.source: Capital IQIt is still an unknown how the on-trades revenues can recover in the next months to come thus the amount of cash in the balance sheet matters! From the cash in the balance sheet only to pay a dividend, Carlsberg's dividend yield is 1.2% while Heineken's dividend yield is 4.5% - a stark contrast worth noticing. Heineken is currently trading at 21x historical PER, a 25% discount to Carlsberg. On a similar note, Heineken's 14.6x PBR is a 68% discount to Carlsberg at 46x PBR.  Based on PER and PBR alone, Heineken is clearly undervalued compared to Carlsberg despite sharing the top two market share in Malaysia. Carlsberg had declared earlier on that they will suspend quarterly dividends and will only pay a dividend by the year-end due to the difficult period but Heineken seems to be on track on declaring dividends this month-end due to the adequate cash positions. The dividend is a key factor to create a price gap between the two companies. Long Heineken and Short Carlsberg.

Japan

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

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Asahi Group Holdings (2502 JP)

Asahi Group Placement Tracker - No Signs of a Placement Even Though Net Debt to EBITDA Is at 8.2x

Asahi Group Holdings (2502 JP) reported its 2Q20 results today. Along with its results it also provided updates on its recently completed Carlton...

Sumeet Singh

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated...

Campbell Gunn

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

In Malaysia - Carlsberg or Heineken?

Both Heineken Malaysia (HEIM MK) and Carlsberg Brewery Malaysia (CAB MK) Q1 2020 performance have suffered YoY due to the MCO and as a result,...

Henry Soediarko

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Asahi Group Holdings Placement: Unlikely Until Share Price Rebounds

The Japanese beer company, Asahi Group Holdings (2502 JP), which holds the largest market share in the Japanese market and sells Japan’s No. 1...

Oshadhi Kumarasiri

Asahi Group Placement Tracker - No Signs of a Placement Even Though Net Debt to EBITDA Is at 8.2x

Asahi Group Holdings (2502 JP) reported its 2Q20 results today. Along with its results it also provided updates on its recently completed Carlton...

Sumeet Singh

🇯🇵 JAPAN - Stress Tests Part 2 - Operating Cash Flow & Accruals

STRESS TESTS - This Insight is the second in our Japan Stress Test series in which we endeavour to assess where business risk is concentrated...

Campbell Gunn

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

In Malaysia - Carlsberg or Heineken?

Both Heineken Malaysia (HEIM MK) and Carlsberg Brewery Malaysia (CAB MK) Q1 2020 performance have suffered YoY due to the MCO and as a result,...

Henry Soediarko