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

<p><a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> first-quarter revenue and operating income exceeded consensus estimates by 3.1% and 122%, respectively, but declined by 19% and 44% year-on-year. Cosmetics revenue and profits declined by 24% and 59%, while the Nutritional Supplements segment saw revenue declined 20%, but operating profits grew by 20% year-on-year. Although the company did not change its initial full-year forecasts due to uncertainties over inbound demand, interim revenue and operating profit forecast were increased by ¥0.65 and ¥1.3 billion, respectively.</p>
<p>Of greater interest, FANCL provided an update on its expansion in China, a venture which could eventually lead to the company reaching the scale of <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" rel="noopener">Shiseido (4911 JP)</a> or <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" rel="noopener">Kao (4452 JP)</a>.</p>

Fancl Corp (4921 JP) first-quarter revenue and operating income exceeded consensus estimates by 3.1% and 122%, respectively, but declined by 19% and 44% year-on-year. Cosmetics revenue and profits declined by 24% and 59%, while the Nutritional Supplements segment saw revenue declined 20%, but operating profits grew by 20% year-on-year. Although the company did not change its initial full-year forecasts due to uncertainties over inbound demand, interim revenue and operating profit forecast were increased by ¥0.65 and ¥1.3 billion, respectively.
Of greater interest, FANCL provided an update on its expansion in China, a venture which could eventually lead to the company reaching the scale of Shiseido (4911 JP) or Kao (4452 JP).

Under-Appreciated China Expansion:  Fancl Now Our Preferred Japanese Cosmetics Stock

<p><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>, will announce second-quarter results on the 6th August. In this Insight, we shall use recent METI and Ministry of Finance domestic cosmetics industry data to preview Shiseido’s results and suggest that a downward revision to the company’s initial revenue and profit forecasts made in early February is imminent.</p>

Shiseido Company (4911 JP), will announce second-quarter results on the 6th August. In this Insight, we shall use recent METI and Ministry of Finance domestic cosmetics industry data to preview Shiseido’s results and suggest that a downward revision to the company’s initial revenue and profit forecasts made in early February is imminent.

Shiseido(4911 JP): Downward Revision Imminent

<p>More than six months on from the initial outbreak, the spread of COVID-19 is still gaining momentum with more than 16 million recorded cases and 600,000 deaths worldwide.</p>
<p><a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a> downplayed the impact of COVID-19 on quarterly results initially. However, 2Q20 results, released yesterday (29<sup>th</sup> July 2020) was a reality check for Kao, possibly the most resilient Japanese cosmetic company among peers <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/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a>, <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> and <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a>.</p>
<p>It appears that Kao has overestimated its resilience, especially in a time where peers were much more sceptical. Kao’s significantly weak 2Q20 results compared to its expectations as of April 2020 has prompted the company to lower its 2020 revenue and OP guidance by 5% and 14% respectively from the lower end of the April 2020 guidance range.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/831/original/image_93425590421596077376146.png?1596077381" width="595" height="358" class="editor-image img-responsive" data-smartkarma-image-id="148831"></figure>
<div class="content-caption">Source: Company Disclosures</div>

More than six months on from the initial outbreak, the spread of COVID-19 is still gaining momentum with more than 16 million recorded cases and 600,000 deaths worldwide.
Kao Corp (4452 JP) downplayed the impact of COVID-19 on quarterly results initially. However, 2Q20 results, released yesterday (29th July 2020) was a reality check for Kao, possibly the most resilient Japanese cosmetic company among peers Shiseido Company (4911 JP), Kose Corp (4922 JP), Pola Orbis Holdings (4927 JP) and Fancl Corp (4921 JP).
It appears that Kao has overestimated its resilience, especially in a time where peers were much more sceptical. Kao’s significantly weak 2Q20 results compared to its expectations as of April 2020 has prompted the company to lower its 2020 revenue and OP guidance by 5% and 14% respectively from the lower end of the April 2020 guidance range.

Source: Company Disclosures

Kao 2Q20 Results: Expecting Worse in the Third Quarter

'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/000/148/784/original/2020-07-30_08-23-32.png?1596065031" class="editor-image img-responsive" data-smartkarma-image-id="148784"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/785/original/2020-07-30_08-24-39.png?1596065092" class="editor-image img-responsive" data-smartkarma-image-id="148785"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/786/original/2020-07-30_08-25-16.png?1596065140" class="editor-image img-responsive" data-smartkarma-image-id="148786"></figure><div class="content-caption">Source • Japan Analytics</div>
<p><strong>29th JULY</strong> - As the pace of announcements picks up, <a href="https://www.smartkarma.com/entities/ana-holdings-inc" target="_blank" data-smartkarma-citation="entities:5308:1" rel="noopener">ANA (9202 JP)</a>, <a href="https://www.smartkarma.com/entities/showa-corp" target="_blank" data-smartkarma-citation="entities:15079:1" rel="noopener">Showa (7274 JP)</a>, and <a href="https://www.smartkarma.com/entities/isetan-mitsukoshi-holdings-ltd" target="_blank" data-smartkarma-citation="entities:18871:1" rel="noopener">Isetan Mitsukoshi (3099 JP)</a> were the three 'worst' large-cap results yesterday in terms of our scoring methodology. In the<strong> DETAIL</strong> below, we cover all the results and forecasts for companies with a market cap of over ¥100 billion and make some trading suggestions.</p>
<hr>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div><hr><div><p style="text-align: center;"><strong>85 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score</strong>: 30 Positive / 5 Neutral / 50 Negative</li>
<li>
<strong>Average Results Score Change:</strong> -2.4</li>
<li>
<strong>Average % Change in Revenue:</strong> -9.7% Quarter YoY / -2.7% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.0ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 24%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>35 Annual • 15 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 6 Positive / 1 Neutral / 28 Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change: 4 </strong>Positive / 0 Neutral / 11 Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -12.8</li>
</ul></div>


Source • Japan Analytics
29th JULY - As the pace of announcements picks up, ANA (9202 JP), Showa (7274 JP), and Isetan Mitsukoshi (3099 JP) were the three 'worst' large-cap results yesterday in terms of our scoring methodology. In the DETAIL below, we cover all the results and forecasts for companies with a market cap of over ¥100 billion and make some trading suggestions.

DAILY STATS
85 Quarterly Results

Results Score: 30 Positive / 5 Neutral / 50 Negative

Average Results Score Change: -2.4

Average % Change in Revenue: -9.7% Quarter YoY / -2.7% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.0ppt

Percentage Making Quarterly Losses: 24%
 35 Annual • 15 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 6 Positive / 1 Neutral / 28 Negative

Interim Forecast/Revision Score Change: 4 Positive / 0 Neutral / 11 Negative

Average Forecast/Revision Score Change: -12.8


🇯🇵 JAPAN • Results & Revisions 29th July - Kao, SMFG, Nomura, NRI, Asahi Holdings, NRE

<p>In this insight we provide a preview into <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a>’s 1QFY21 results scheduled to be released on 31<sup>st</sup> July 2020. Our approach to forecast quarterly results is based on our alternative data analysis. It uses monthly exports and domestic production data to forecast the company’s revenue. We discuss the details below.</p>

In this insight we provide a preview into Kose Corp (4922 JP)’s 1QFY21 results scheduled to be released on 31st July 2020. Our approach to forecast quarterly results is based on our alternative data analysis. It uses monthly exports and domestic production data to forecast the company’s revenue. We discuss the details below.

KOSÉ 1QFY21 Earnings Preview: China Recovery Overlooked

Japan

Kao Corporation is a manufacturer of household and chemical products. The company produces cosmetics, laundry and cleaning products, hygiene products, fatty chemicals, edible oils, and specialty chemicals.

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Kao Corp (4452 JP)

Under-Appreciated China Expansion: Fancl Now Our Preferred Japanese Cosmetics Stock

Fancl Corp (4921 JP) first-quarter revenue and operating income exceeded consensus estimates by 3.1% and 122%, respectively, but declined by 19%...

Oshadhi Kumarasiri

Shiseido(4911 JP): Downward Revision Imminent

Shiseido Company (4911 JP), will announce second-quarter results on the 6th August. In this Insight, we shall use recent METI and Ministry of...

Oshadhi Kumarasiri

Kao 2Q20 Results: Expecting Worse in the Third Quarter

More than six months on from the initial outbreak, the spread of COVID-19 is still gaining momentum with more than 16 million recorded cases and...

Oshadhi Kumarasiri

🇯🇵 JAPAN • Results & Revisions 29th July - Kao, SMFG, Nomura, NRI, Asahi Holdings, NRE

29th JULY - As the pace of announcements picks up, ANA (9202 JP), Showa (7274 JP), and Isetan Mitsukoshi (3099 JP) were the three 'worst'...

Campbell Gunn

KOSÉ 1QFY21 Earnings Preview: China Recovery Overlooked

In this insight we provide a preview into Kose Corp (4922 JP)’s 1QFY21 results scheduled to be released on 31st July 2020. Our approach to forecast...

Oshadhi Kumarasiri

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