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

<a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> delivered strong 1Q21 results today with revenue and operating profit surpassing consensus estimates by ¥16.7bn and ¥4.6bn respectively.The company’s revenue grew 7.5% YoY (6.0% YoY excluding the FX impact) in 1Q21, compared to -17.1%, -34.4% and -16.3% and -6.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively.There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number one pick to get exposed to the margin growth theme.Please refer, <a href="https://www.smartkarma.com/insights/long-shiseido-short-kose-as-japanese-cosmetics-shift-focus-to-margin-expansion" target="_blank" rel="noopener">Long Shiseido/​Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion</a> and <a href="https://www.smartkarma.com/insights/shiseido-s-2023-transformation-plan-kicks-into-gear-with-the-proposed-sale-of-the-personal-care-unit" target="_blank" rel="noopener">Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit</a> for more details.

Shiseido Company (4911 JP) delivered strong 1Q21 results today with revenue and operating profit surpassing consensus estimates by ¥16.7bn and ¥4.6bn respectively.The company’s revenue grew 7.5% YoY (6.0% YoY excluding the FX impact) in 1Q21, compared to -17.1%, -34.4% and -16.3% and -6.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively.There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number one pick to get exposed to the margin growth theme.Please refer, Long Shiseido/​Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion and Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit for more details.

Shiseido's 1Q21 Results Beat Consensus But Try to Play Safe With Conservative 2021 Guidance

<a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> delivered 4QFY21 results today, which saw operating profit increase by 74.8% YoY to ¥2.9bn (consensus ¥3.4bn). The company’s revenue grew 2.6% YoY, compared to the consensus estimated growth rate of 8.3% YoY.With 3.7% YoY projected revenue and OP growth in FY22, FANCL’s guidance is quite disappointing (considering the low-base set in FY21 due to COVID-19). However, it seems like FANCL could be playing safe by lowballing FY22 guidance amidst uncertainties relating to COVID.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/205/281/original/image_515953276131620648943397.png?1620648944" class="editor-image img-responsive" data-smartkarma-image-id="205281"></figure>Since we said that we favor FANCL over the popular and bigger Japanese cosmetics names in early 2019, FANCL has outperformed <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>, <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a>, <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> and <a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis Holdings (4927 JP)</a> by 42%, 64%, 58% and 65% respectively.Our long thesis for FANCL remains intact and would therefore buy any weakness resulting from the less than impressive FY22 guidance.

Fancl Corp (4921 JP) delivered 4QFY21 results today, which saw operating profit increase by 74.8% YoY to ¥2.9bn (consensus ¥3.4bn). The company’s revenue grew 2.6% YoY, compared to the consensus estimated growth rate of 8.3% YoY.With 3.7% YoY projected revenue and OP growth in FY22, FANCL’s guidance is quite disappointing (considering the low-base set in FY21 due to COVID-19). However, it seems like FANCL could be playing safe by lowballing FY22 guidance amidst uncertainties relating to COVID.Since we said that we favor FANCL over the popular and bigger Japanese cosmetics names in early 2019, FANCL has outperformed Shiseido Company (4911 JP), Kao Corp (4452 JP), Kose Corp (4922 JP) and Pola Orbis Holdings (4927 JP) by 42%, 64%, 58% and 65% respectively.Our long thesis for FANCL remains intact and would therefore buy any weakness resulting from the less than impressive FY22 guidance.

FANCL: Conservative Guidance Could Form an Opening on The Long Side

With 36.7% YoY growth in 1Q21, cosmetics exports continue to drive the recovery of the Japanese cosmetics sector. However, the out-of-control COVID-19 situation in the domestic market continues to offset the resurgence of exports with 19.9% YoY decline in January and February 2021.The earnings season of the Japanese cosmetics commenced yesterday with <a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis Holdings (4927 JP)</a> generating a modest 0.6% YoY revenue growth in 1Q21, the company’s first YoY revenue growth since June 2018. <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> reports tomorrow (30th April 2021).Before earnings go into full swing with <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a>, <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> and <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> scheduled to report on 7th, 10th and 12th of May 2021 respectively, we analyze the 1Q21 cosmetic industry statistics, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

With 36.7% YoY growth in 1Q21, cosmetics exports continue to drive the recovery of the Japanese cosmetics sector. However, the out-of-control COVID-19 situation in the domestic market continues to offset the resurgence of exports with 19.9% YoY decline in January and February 2021.The earnings season of the Japanese cosmetics commenced yesterday with Pola Orbis Holdings (4927 JP) generating a modest 0.6% YoY revenue growth in 1Q21, the company’s first YoY revenue growth since June 2018. Kose Corp (4922 JP) reports tomorrow (30th April 2021).Before earnings go into full swing with Kao Corp (4452 JP), Fancl Corp (4921 JP) and Shiseido Company (4911 JP) scheduled to report on 7th, 10th and 12th of May 2021 respectively, we analyze the 1Q21 cosmetic industry statistics, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Japanese Cosmetics Industry: 1Q21 Statistics Update

Best World International / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/best-world-international-ltd" target="_blank" data-smartkarma-citation="entities:4600:1" rel="noopener">Best World International (BEST SP)</a> is a Singapore based manufacturer, distributor and a retailor of skincare, personal care and nutritional supplement brands such as Avance, Optrimax, Foodphilo, Margaret Dabbs, DR’s Secret, Miraglo, PentaLab and Bare Feet.
SGX suspended trading of Best World shares in May 2019, following a news article and a short seller report alleging the company of fabricating sales of its China operations. SGX also called for an independent review and it was completed in July last year. The company is currently cooperating with SGX to resolve the issue but the timeline for a possible lifting of the trading suspension remains unclear.
It’s been two years since the initial allegation, yet there are too many unknown variables. At bare minimum, we expect Best World’s robust revenue and OP growth to get hampered over the next few years as the company is forced to do a number of changes to the business model, internal controls and corporate governance measures.

Best World International (BEST SP) is a Singapore based manufacturer, distributor and a retailor of skincare, personal care and nutritional supplement brands such as Avance, Optrimax, Foodphilo, Margaret Dabbs, DR’s Secret, Miraglo, PentaLab and Bare Feet.
SGX suspended trading of Best World shares in May 2019, following a news article and a short seller report alleging the company of fabricating sales of its China operations. SGX also called for an independent review and it was completed in July last year. The company is currently cooperating with SGX to resolve the issue but the timeline for a possible lifting of the trading suspension remains unclear.
It’s been two years since the initial allegation, yet there are too many unknown variables. At bare minimum, we expect Best World’s robust revenue and OP growth to get hampered over the next few years as the company is forced to do a number of changes to the business model, internal controls and corporate governance measures.

Best World International: The End Is Not Yet In Sight

Event-Driven

<a target="_blank">Norges Bank </a>manages the Norwegian sovereign fund, which is the world’s largest sovereign wealth funds, with AUM of around $1.3 trillion. The fund is the 12th largest shareholder of the Japanese beverage company <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> with an ownership of 1.4% of Kirin’s share capital.Yesterday, the Norwegian central bank said that it had put Kirin on a watchlist for possible exclusion from the sovereign wealth fund over Kirin’s ties with Myanmar Economic Holdings (MEHL).

Norges Bank manages the Norwegian sovereign fund, which is the world’s largest sovereign wealth funds, with AUM of around $1.3 trillion. The fund is the 12th largest shareholder of the Japanese beverage company Kirin Holdings (2503 JP) with an ownership of 1.4% of Kirin’s share capital.Yesterday, the Norwegian central bank said that it had put Kirin on a watchlist for possible exclusion from the sovereign wealth fund over Kirin’s ties with Myanmar Economic Holdings (MEHL).

Norges Bank Puts Kirin On a Watchlist Over Ties with Myanmar Military Linked JV

Japan

POLA ORBIS HOLDINGS INC. develops, manufactures and markets cosmetic products, centering in skincare  products. Under its multi-brand strategy, the Company holds nine cosmetic brands including POLA, prestige skincare brand, ORBIS, oil-free skincare brand, H2O PLUS and Jurlique.

Rizap Group Inc provides low calorie foods including soy milk cookies, diet drinks, and supplements.  The Company sells its products through mail order.

KOBAYASHI PHARMACEUTICAL CO., LTD. manufactures and wholesales pharmaceuticals and medical equipment.  The Company also develops and manufactures fragrances, deodorant, sanitary products, and ointment for stiff shoulders, as well as exports to Southeast Asia and the US.

Noevir Holdings Co., Ltd. manufactures and sells a variety of cosmetic products. The Company's products include skin care and make-up.  Noevir also manufactures and sells medicines, nutritional supplements and apparel.

Milbon Co., Ltd. manufactures hair care products for beauty salons.  The Company produces chemicals for permanents, hair coloring, shampoos, rinses, and hair growth stimulant products.

euglena Co., Ltd. develops and manufactures euglena based products. The Company uses the unique growing and nutritional properties to produce functional food tablets, jelly, beverages, cookies, noodles, and cosmetics. euglena grows in high carbon dioxide environments which enables it to be used for environmental and outer space applications as well.

KOSE Corporation manufactures, retails, and exports cosmetics including make up, skin care, and hair care products.  The Company sells its products in Hong Kong, China, Singapore, and Malaysia.

MANDOM CORPORATION manufactures and markets a variety of cosmetic products for men and women.  The Company's products include hair care and skin care cosmetics.

COTA CO., LTD. manufactures and sells hair care products.  The Company offers an extensive line of perm, coloring, styling, and treatment products.

YA-MAN LTD. is a manufacturer of home facial equipment, and also sells its facial massager, cosmetics and laundry.

LG H&H Co., Ltd. manufactures and distributes cosmetics. The Company produces whoo, o hui, sum 37, basic cosmetics, color cosmetics, and other related products. LG H&H also produces toothpaste, soap, detergents, healthy, personal care, and refreshing products.

AMOREPACIFIC Group is an investment holding company. The Company, through its subsidiaries, produce cosmetics and toiletries.

Edgewell Personal Care Co., manufactures and markets a diversified range of personal care  products in the wet shave, skin care, feminine care and infant care categories.  The Companies products include shaving systems and disposable razors, feminine care products, sun care products, infant feeding, gloves and moist wipes.

Amorepacific Corporation develops, manufactures, and exports skin care, make-up, and fragrance products. The Company also produces and markets personal care and health-related products, such as shampoos, soaps, toothpastes, and health teas.

Shanghai Flyco Electrical Appliance Co., Ltd. develops, manufactures and sells personal care appliances. Main products include electric shavers and hairdryers.

Shanghai Flyco Electrical Appl (603868 CH)

Shanghai Jahwa United Co., Ltd. develops, manufactures and wholesales skin care and hair care products, cosmetics, perfumes, detergents, and other household chemical products.  The Company also provides technical and food services.

PT Industri Jamu Dan Farmasi Sido Muncul Tbk manufactures and produces herbal products. The Company's products consist of medicinal herbs, energy drinks, sweets and other beverages.

Blackmores Limited manufactures and markets vitamin, herbal, mineral supplements and natural skin and hair treatment products in Australia and New Zealand. These products are supplied to the over the counter retail market and to health care professionals. The Company also has a line of natural beauty and aromatherapy products and its products are distributed in South East Asia.

Cosmax, Inc. is a cosmetics manufacturer. The Company develops and produces a variety of cosmetics for men and women, such as basic and special skin care, makeup, hair care, and other beauty products. Cosmax manufactures its products on original equipment manufacturing (OEM) basis.

Herbalife Ltd. is a global nutrition company that sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products as well as personal care products. The Company distributes and sells its products through a network of independent distributors, using the direct selling channel.

FANCL CORPORATION produces and sells additive-free skin care cosmetics for both women and men.  The Company's products include cleansing creams, hair care goods such as shampoos and conditioners, and facial make up products.  Fancl also makes and distributes dietary supplements including royal jelly and various tablets with extracted essence from mushrooms, garlic, ginseng, and soy beans.

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Fancl Corp (4921 JP)

Shiseido's 1Q21 Results Beat Consensus But Try to Play Safe With Conservative 2021 Guidance

There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number...

Oshadhi Kumarasiri

FANCL: Conservative Guidance Could Form an Opening on The Long Side

With 3.7% YoY projected revenue and OP growth in FY22, FANCL’s guidance is quite disappointing. However, it seems like FANCL could be playing safe...

Oshadhi Kumarasiri

Japanese Cosmetics Industry: 1Q21 Statistics Update

With 36.7% YoY growth in 1Q21, cosmetics exports continue to drive the recovery of the Japanese cosmetics sector. However, the out-of-control COVID...

Oshadhi Kumarasiri

Best World International: The End Is Not Yet In Sight

SGX suspended trading of Best World shares in May 2019, following a news article and a short seller report alleging the company of fabricating...

Oshadhi Kumarasiri

Norges Bank Puts Kirin On a Watchlist Over Ties with Myanmar Military Linked JV

We believe the market has already factored in the worst-case scenario for Kirin. That said, The Norges Bank putting Kirin on a watchlist could...

Oshadhi Kumarasiri

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