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>Despite conservative 2023 guidance last quarter, <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> is primed to exceed expectations in the 3rd quarter of 2023.</li>
<li>Despite no new domestic price hikes, Japan Tobacco's volume recovery post-hikes is expected to help sustain the revenue and profit growth momentum.</li>
<li>New price increases in the Philippines and the UK, coupled with last year's hikes spillover, are expected to boost Japan Tobacco's earnings; and the yen's depreciation amplifies these gains.</li>
</ul>


Despite conservative 2023 guidance last quarter, Japan Tobacco (2914 JP) is primed to exceed expectations in the 3rd quarter of 2023.
Despite no new domestic price hikes, Japan Tobacco's volume recovery post-hikes is expected to help sustain the revenue and profit growth momentum.
New price increases in the Philippines and the UK, coupled with last year's hikes spillover, are expected to boost Japan Tobacco's earnings; and the yen's depreciation amplifies these gains.


Japan Tobacco High Conviction Call: Could Leave 2023 Guidance in the Dust

<ul>
<li>Just eight months into Russia’s Ukraine invasion, <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 has moved back above the pre-Ukraine invasion level suggesting that investors are over with Russia exposure fears.</li>
<li>Based on the company’s guidance upgrade trend historically and YTD financial performance, we are expecting around ¥70bn upside to 2022 OP guidance in 3Q22.</li>
<li>With earnings back on a growth trajectory, we are expecting a reversal of the 2017-21 share price to earnings trend to take Japan Tobacco shares over ¥3,500 in the short-term.</li>
</ul>


Just eight months into Russia’s Ukraine invasion, Japan Tobacco (2914 JP)’s share price has moved back above the pre-Ukraine invasion level suggesting that investors are over with Russia exposure fears.
Based on the company’s guidance upgrade trend historically and YTD financial performance, we are expecting around ¥70bn upside to 2022 OP guidance in 3Q22.
With earnings back on a growth trajectory, we are expecting a reversal of the 2017-21 share price to earnings trend to take Japan Tobacco shares over ¥3,500 in the short-term.


Japan Tobacco High Conviction Update: Guidance Has Upside Potential, The Market Is Pass Russia Fears

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.</li>
<li>Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.</li>
<li>Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.</li>
</ul>


At the October rebalance, there are 970 stocks that will have a lower FFW while 114 stocks will have a higher FFW. 493 stocks will undergo a Phased Weight Reduction.
Estimated one-way turnover is 2.54% resulting in a one-way trade of ¥1.815tn. 500 stocks have over 4 days ADV to trade, 100 stocks have over 9 days ADV to trade.
Setting the threshold at +/-US$50m to trade, the stocks with inflows have outperformed the stocks with outflows by 6.5% over the last four months.


TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<ul>
<li>JT plans to acquire 100% of Vector Group at <strong>$15.00/share</strong>, a 29.9% premium. The offer requires over 50% acceptance, with Board support and completion expected by late 2024, pending approvals.</li>
<li>The shares go ex-dividend on August 30, with payment on September 12. Adjusted for the dividend, shares trade at a -0.4% gross spread. My fair value estimated is $15.92/share.</li>
<li>Consensus sets a target price of $16/share. JT may consider raising its offer to this level (6.67%), especially if they see Vector as a strong long-term investment.</li>
</ul>


JT plans to acquire 100% of Vector Group at $15.00/share, a 29.9% premium. The offer requires over 50% acceptance, with Board support and completion expected by late 2024, pending approvals.
The shares go ex-dividend on August 30, with payment on September 12. Adjusted for the dividend, shares trade at a -0.4% gross spread. My fair value estimated is $15.92/share.
Consensus sets a target price of $16/share. JT may consider raising its offer to this level (6.67%), especially if they see Vector as a strong long-term investment.


Japan Tobacco/Vector Group: Possible Bump-Up?

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

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

Cross Asset Strategy

<ul>
<li>With nominal GDP growing 6%YoY in the latest 3 quarters, Japanese interest rates will be gradually normalized. The JPY rebound, however, precludes the need for rapid BoJ hikes. </li>
<li>Unwinding of Yen carry-trades should take JPY to ¥125/US$ by end-2024, which will contribute to tightening monetary conditions sufficiently, further slowing inflation (from 2.85%YoY in May-Jun'24). </li>
<li>Appreciating JPY is bad for Japanese equities, so stay Underweight, with a defensive portfolio comprising utilities, pharmaceuticals and consumer staples. </li>
</ul>


With nominal GDP growing 6%YoY in the latest 3 quarters, Japanese interest rates will be gradually normalized. The JPY rebound, however, precludes the need for rapid BoJ hikes. 
Unwinding of Yen carry-trades should take JPY to ¥125/US$ by end-2024, which will contribute to tightening monetary conditions sufficiently, further slowing inflation (from 2.85%YoY in May-Jun'24). 
Appreciating JPY is bad for Japanese equities, so stay Underweight, with a defensive portfolio comprising utilities, pharmaceuticals and consumer staples. 


Japan: Normalizing Interest Rates as Nominal GDP Surges, Ending Deflation Era

Japan

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 Call: Could Leave 2023 Guidance in the Dust

JT has exceeded expectations, reporting a revenue of ¥764bn (consensus: ¥707.5bn) and an OP of ¥218bn (consensus: ¥178.2bn). Additionally, the...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: Guidance Has Upside Potential, The Market Is Pass Russia Fears

Just eight months into Russia’s Ukraine invasion, Japan Tobacco’s share price has moved back above the pre-Ukraine invasion level suggesting that...

Oshadhi Kumarasiri

TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Lower FFWs on 970 stocks and higher FFWs on 114 stocks will result in one-way turnover of 2.52% leading to a one-way trade of ¥1.8tn at the close...

Brian Freitas

Japan Tobacco/Vector Group: Possible Bump-Up?

JT plans to acquire 100% of Vector Group at $15.00/share, a 29.9% premium. The offer requires over 50% acceptance, with Board support and...

Jesus Rodriguez Aguilar

Japan: Normalizing Interest Rates as Nominal GDP Surges, Ending Deflation Era

Japanese interest rates are set to normalize amid robust nominal GDP. But a rebounding JPY (at ¥125/US$ by end'24) precludes further BoJ hikes,...

Prasenjit K. Basu

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japan Tobacco High Conviction Call: Could Leave 2023 Guidance in the Dust

JT has exceeded expectations, reporting a revenue of ¥764bn (consensus: ¥707.5bn) and an OP of ¥218bn (consensus: ¥178.2bn). Additionally, the...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: Guidance Has Upside Potential, The Market Is Pass Russia Fears

Just eight months into Russia’s Ukraine invasion, Japan Tobacco’s share price has moved back above the pre-Ukraine invasion level suggesting that...

Oshadhi Kumarasiri

TOPIX October Rebalance: BIG One With ¥1.8tn a Side to Trade

Lower FFWs on 970 stocks and higher FFWs on 114 stocks will result in one-way turnover of 2.52% leading to a one-way trade of ¥1.8tn at the close...

Brian Freitas

Japan Tobacco/Vector Group: Possible Bump-Up?

JT plans to acquire 100% of Vector Group at $15.00/share, a 29.9% premium. The offer requires over 50% acceptance, with Board support and...

Jesus Rodriguez Aguilar

Japan: Normalizing Interest Rates as Nominal GDP Surges, Ending Deflation Era

​Japanese interest rates are set to normalize amid robust nominal GDP. But a rebounding JPY (at ¥125/US$ by end'24) precludes further BoJ hikes,...

Prasenjit K. Basu

Japanese interest rates are set to normalize amid robust nominal GDP. But a rebounding JPY (at ¥125/US$ by end'24) precludes further BoJ hikes,...