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

<ul>
<li>
<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 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.</li>
<li>2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.</li>
<li>But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in <a href="https://www.smartkarma.com/entities/torii-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:3253:1" rel="noopener">Torii Pharmaceutical (4551 JP)</a>.</li>
</ul>



Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).


Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

Equity Bottom-Up

<ul>
<li>As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.</li>
<li>With further dividend hikes looking increasingly possible, our 2022 high-conviction call, <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> has more room to run this year.</li>
<li>However, it’s probably the right time to take profits from our 2021 high-conviction trade, <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> as the US gas-stations profitability maxed-out in the last quarter.</li>
</ul>


As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.
With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco (2914 JP) has more room to run this year.
However, it’s probably the right time to take profits from our 2021 high-conviction trade, Seven &amp; I Holdings (3382 JP) as the US gas-stations profitability maxed-out in the last quarter.


2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

<ul>
<li>
<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 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.</li>
<li>Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.</li>
<li>We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.</li>
</ul>



Japan Tobacco (2914 JP)’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.
Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.
We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.


Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

<ul>
<li>We expect a strong 2Q22 and an upgrade to annual guidance from <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> through strong Domestic and International Tobacco performance.</li>
<li>It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  </li>
<li>Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.</li>
</ul>


We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  
Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.


Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

<ul>
<li>
<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 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.</li>
<li>Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.</li>
<li>With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. </li>
</ul>



Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%. 


Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

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: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

It was reported a few weeks ago that activist investor LIM Advisors has sent a letter to Japan Tobacco requesting the company to divest its 53%...

Oshadhi Kumarasiri

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco has more room to run this year. However,...

Oshadhi Kumarasiri

Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again

With the annual OP estimate back up around the 2016-17 level, we are expecting a reversal of the 2017-21 share price to OP trend with expectations...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: 50% Upside Potential as Investors Move on From Russia Fears

As investor concerns regarding the Russia business ease while earnings growth momentum strengthens, we think that there’s around 50% further upside...

Oshadhi Kumarasiri

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

With the change in earnings momentum helping JT’s OP to reach the 2015-16 level, there’s a possibility that JT’s share price could reach ¥4,000...

Oshadhi Kumarasiri

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