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/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

We have high expectations for Japanese cosmetics in the post COVID era as we expect a significant bump in the sector’s operating margin due to a transformation in how marketing and advertising activities are conducted. <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>’s new medium to long term plan, “WIN 2023 and Beyond” suggest that the company is targeting a 15.0% OP margin in 2023 and 18.0% by 2030. We won’t be surprised if Shiseido beat these estimates by around 2.0 percentage points as we think these margin estimates are towards the low side. With a 15-16% pre-COVID OP margin, the likelihood of OP margin improvement is rather low for <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> (possibly the lowest in the entire sector).

We have high expectations for Japanese cosmetics in the post COVID era as we expect a significant bump in the sector’s operating margin due to a transformation in how marketing and advertising activities are conducted. Shiseido Company (4911 JP)’s new medium to long term plan, “WIN 2023 and Beyond” suggest that the company is targeting a 15.0% OP margin in 2023 and 18.0% by 2030. We won’t be surprised if Shiseido beat these estimates by around 2.0 percentage points as we think these margin estimates are towards the low side. With a 15-16% pre-COVID OP margin, the likelihood of OP margin improvement is rather low for Kose Corp (4922 JP) (possibly the lowest in the entire sector).

Long Shiseido/Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion

<a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> delivered 4QFY21 results on 30th April 2021 with revenue and operating profit falling broadly in line with the revised company guidance and consensus estimates.Kose's revenue declined 4.3% YoY in 4QFY21, compared to 26.5%, 21.2% and 5.6% YoY in 1QFY21, 2QFY21 and 3QFY21 respectively.The company’s 4QFY21 operating profit was ¥2.2bn, compared to ¥1.1bn in 1QFY21, ¥2.9bn in 2QFY21 and ¥7.1bn in 3QFY21.The company is shifting to a December year-end from 2021. For the next calendar year (9 months period from April-December 2021) Kose guided for ¥230bn in revenue and ¥20bn in OP, compared to consensus estimates of ¥245bn and ¥26.8bn respectively.

Kose Corp (4922 JP) delivered 4QFY21 results on 30th April 2021 with revenue and operating profit falling broadly in line with the revised company guidance and consensus estimates.Kose's revenue declined 4.3% YoY in 4QFY21, compared to 26.5%, 21.2% and 5.6% YoY in 1QFY21, 2QFY21 and 3QFY21 respectively.The company’s 4QFY21 operating profit was ¥2.2bn, compared to ¥1.1bn in 1QFY21, ¥2.9bn in 2QFY21 and ¥7.1bn in 3QFY21.The company is shifting to a December year-end from 2021. For the next calendar year (9 months period from April-December 2021) Kose guided for ¥230bn in revenue and ¥20bn in OP, compared to consensus estimates of ¥245bn and ¥26.8bn respectively.

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

Japan

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Kose Corp (4922 JP)

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

Long Shiseido/Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion

We have high expectations for Japanese cosmetics in the post COVID era as we expect a significant bump in the sector’s operating margin due to a...

Oshadhi Kumarasiri

KOSE: Losing Ground In Japan

We believe there could be noticeable downside risks to Kose's currently elevated valuation multiples if the company keeps losing ground in the...

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)