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

In <a href="https://www.smartkarma.com/insights/japan-cosmetics-pair-trade-long-fancl-short-kose" target="_blank" rel="noopener">Japan Cosmetics Pair Trade: Long Fancl/​Short Kose</a>, we suggested setting up a long/short pair trade between <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/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> before Kose’s Q2 earnings release on 30th October 2020. Kose released its 2QFY21 results last Friday and results were underwhelming as expected.The main catalyst for our long/short trade idea was the quarterly earnings. Part one of the catalyst (Kose’s earnings) yielded 10.6% as Kose’s share price has underperformed Fancl by the same percentage since our previous insight. We believe Part two (Fancl’s earnings) could realise an extra 5-6% in market-neutral returns and therefore suggests investors wait until Fancl’s quarterly results on 4th November 2020 before closing the trade.

In Japan Cosmetics Pair Trade: Long Fancl/​Short Kose, we suggested setting up a long/short pair trade between Fancl Corp (4921 JP) and Kose Corp (4922 JP) before Kose’s Q2 earnings release on 30th October 2020. Kose released its 2QFY21 results last Friday and results were underwhelming as expected.The main catalyst for our long/short trade idea was the quarterly earnings. Part one of the catalyst (Kose’s earnings) yielded 10.6% as Kose’s share price has underperformed Fancl by the same percentage since our previous insight. We believe Part two (Fancl’s earnings) could realise an extra 5-6% in market-neutral returns and therefore suggests investors wait until Fancl’s quarterly results on 4th November 2020 before closing the trade.

Long Fancl/Short Kose: Kose’s Q2 Results As Expected, Now Waiting For Fancl to Come Through

In <a href="https://www.smartkarma.com/insights/japan-cosmetics-pair-trade-long-kose-short-shiseido" target="_blank" rel="noopener">Japan Cosmetics Pair Trade: Long Kose/​​Short Shiseido</a>, we suggested that <a href="https://www.smartkarma.com/entities/kose-corp" target="_blank" data-smartkarma-citation="entities:18009:1" rel="noopener">Kose Corp (4922 JP)</a> could outperform <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> and the rest of the Japanese cosmetics peers. Since then, Kose’s share price increased by 20.2%, while Shiseido’s price decreased by 2.3%.
As the earnings season approaches, we suggest that investors consider closing the Long Kose/Short Shiseido trade and reversing the same, but this time with <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> as the hedge.

In Japan Cosmetics Pair Trade: Long Kose/​​Short Shiseido, we suggested that Kose Corp (4922 JP) could outperform Shiseido Company (4911 JP) and the rest of the Japanese cosmetics peers. Since then, Kose’s share price increased by 20.2%, while Shiseido’s price decreased by 2.3%.
As the earnings season approaches, we suggest that investors consider closing the Long Kose/Short Shiseido trade and reversing the same, but this time with Fancl Corp (4921 JP) as the hedge.

Japan Cosmetics Pair Trade: Long Fancl/Short Kose

Equity Bottom-Up

As lockdowns and restrictions eased towards the end of the second quarter and into the third quarter, Japanese cosmetics companies are expected to stage a comeback in 3Q2020. As a result, all major Japanese cosmetics companies (excluding Pola Orbis, who is struggling to regain its mojo) are trading near their historical high FY+2 EV/EBIT multiples.Main overseas markets have performed exceptionally well during the July and August 2020 months. Japan’s cosmetics exports to main countries grew 23% year-on-year during the July-August period compared to 4.5% in 2Q20.However, domestic sales during July and August 2020 remained 25-30% lower than the pre-pandemic level. We believe the immediate domestic cosmetics sales recovery could be over. The 25-30% loss of domestic demand is predominantly a result of non-existent inbound sales while behavioural changes due to COVID-19 may have also had a small impact. We expect the behavioural changes to have a lasting impact on domestic demand. However, as travel restrictions are lifted inbound demand could return and warrant a sharp increase in domestic sales.In this insight, we analyse Japan’s cosmetic industry using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

As lockdowns and restrictions eased towards the end of the second quarter and into the third quarter, Japanese cosmetics companies are expected to stage a comeback in 3Q2020. As a result, all major Japanese cosmetics companies (excluding Pola Orbis, who is struggling to regain its mojo) are trading near their historical high FY+2 EV/EBIT multiples.Main overseas markets have performed exceptionally well during the July and August 2020 months. Japan’s cosmetics exports to main countries grew 23% year-on-year during the July-August period compared to 4.5% in 2Q20.However, domestic sales during July and August 2020 remained 25-30% lower than the pre-pandemic level. We believe the immediate domestic cosmetics sales recovery could be over. The 25-30% loss of domestic demand is predominantly a result of non-existent inbound sales while behavioural changes due to COVID-19 may have also had a small impact. We expect the behavioural changes to have a lasting impact on domestic demand. However, as travel restrictions are lifted inbound demand could return and warrant a sharp increase in domestic sales.In this insight, we analyse Japan’s cosmetic industry using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Japanese Cosmetics Stats: Absent Inbound Demand Pauses Domestic Recovery, Exports Grow Double-Digits

<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.
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>.

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

<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.

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

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.

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Kose Corp (4922 JP)

Long Fancl/Short Kose: Kose’s Q2 Results As Expected, Now Waiting For Fancl to Come Through

As lockdowns and restrictions were eased towards the end of the quarter ended June 2020, investors expected the domestic cosmetics sector to make a...

Oshadhi Kumarasiri

Japan Cosmetics Pair Trade: Long Fancl/Short Kose

As the earnings season approaches, we suggest that investors consider closing the Long Kose/Short Shiseido trade and reversing the same, but this...

Oshadhi Kumarasiri

Japanese Cosmetics Stats: Absent Inbound Demand Pauses Domestic Recovery, Exports Grow Double-Digits

Japan’s cosmetics exports to main countries grew 23% year-on-year during the July-August period compared to 4.5% in 2Q20.

Oshadhi Kumarasiri

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

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