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

This is the last of a three-part series on <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a>, Japan’s largest furniture and home accessories retailer. Previously, we have covered the company’s business model, financial performance, as well as the company’s medium-term profitability and revenue outlook using two different approaches: <a href="https://www.smartkarma.com/insights/nitori-holdings-coverage-initiation-part-1-driving-growth-through-diversification" target="_blank" rel="noopener">traditional investment research</a> and <a href="https://www.smartkarma.com/insights/nitori-holdings-coverage-initiation-part-2-alternative-data-analysis" target="_blank" rel="noopener">alternative data</a>. In this Insight, we focus on valuation and our investment recommendation.
Revenue &amp; OP Estimates
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 31.0%;">
In ¥m
</td>
<td style="width: 22.86%;">
FY21
</td>
<td style="width: 22.48%;">
FY22
</td>
<td style="width: 23.64%;">
FY23
</td>
</tr>
<tr>
<td style="width: 31.0%;">
Revenue
</td>
<td style="width: 22.86%;"></td>
<td style="width: 22.48%;"></td>
<td style="width: 23.64%;"></td>
</tr>
<tr>
<td style="width: 31.0%;">
Consensus
</td>
<td style="width: 22.86%;">
658,888
</td>
<td style="width: 22.48%;">
701,791
</td>
<td style="width: 23.64%;">
742,894
</td>
</tr>
<tr>
<td style="width: 31.0%;">
LSR
</td>
<td style="width: 22.86%;">
681,719
</td>
<td style="width: 22.48%;">
744,364
</td>
<td style="width: 23.64%;">
771,573
</td>
</tr>
<tr>
<td style="width: 31.0%;">
 
</td>
<td style="width: 22.86%;"></td>
<td style="width: 22.48%;"></td>
<td style="width: 23.64%;"></td>
</tr>
<tr>
<td style="width: 31.0%;">
OP
</td>
<td style="width: 22.86%;"></td>
<td style="width: 22.48%;"></td>
<td style="width: 23.64%;"></td>
</tr>
<tr>
<td style="width: 31.0%;">
Consensus
</td>
<td style="width: 22.86%;">
114,786
</td>
<td style="width: 22.48%;">
123,026
</td>
<td style="width: 23.64%;">
131,201
</td>
</tr>
<tr>
<td style="width: 31.0%;">
LSR
</td>
<td style="width: 22.86%;">
119,284
</td>
<td style="width: 22.48%;">
130,780
</td>
<td style="width: 23.64%;">
136,085
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: Cap IQ, LSR</div>

This is the last of a three-part series on Nitori Holdings (9843 JP), Japan’s largest furniture and home accessories retailer. Previously, we have covered the company’s business model, financial performance, as well as the company’s medium-term profitability and revenue outlook using two different approaches: traditional investment research and alternative data. In this Insight, we focus on valuation and our investment recommendation.
Revenue &amp; OP Estimates




In ¥m


FY21


FY22


FY23




Revenue







Consensus


658,888


701,791


742,894




LSR


681,719


744,364


771,573




 







OP







Consensus


114,786


123,026


131,201




LSR


119,284


130,780


136,085




Source: Cap IQ, LSR

Nitori Holdings Coverage Initiation Part 3: Valuation

Pan Pacific International Holdings / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>, (PPI) (formerly Don Quijote) has been the best-performing general retailer in Japan over the last six months, rising by 21%. Only drugstore and grocery store chains have performed better in the Retail Sector which fell by 3.1%, while the TOPIX index declined by 8.4%. In the DETAIL section below, we explain why we believe PPI has further upside.

Pan Pacific International Holdings (7532 JP), (PPI) (formerly Don Quijote) has been the best-performing general retailer in Japan over the last six months, rising by 21%. Only drugstore and grocery store chains have performed better in the Retail Sector which fell by 3.1%, while the TOPIX index declined by 8.4%. In the DETAIL section below, we explain why we believe PPI has further upside.

Pan Pacific (Donki): Gross Margin Improvement Suggests Further Upside

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

Inevitably, inbound tourist numbers plummeted in March which meant that spending overall also collapsed. The good news, though, is that those who did brave travel made the most of it and spent lavishly. Not enough to help retailers such as department stores and drugstores fill the hole though.

Inevitably, inbound tourist numbers plummeted in March which meant that spending overall also collapsed. The good news, though, is that those who did brave travel made the most of it and spent lavishly. Not enough to help retailers such as department stores and drugstores fill the hole though.

Japan Inbound Traffic Down 93% in March but Arrivals Spend and Spend

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

In something of a betrayal of our typically value investing mentality we have been positive on GMO Payment Gateway which tends to trade at anywhere between a depressed 60x and a perky 130x. Our argument for the stock has been the impregnable looking business foundation that still allows long-term growth rates around the mid-twenties range that has the company targeting a 10x increase in profitability every 10 years. We explain why we still consider the stock attractive below.

In something of a betrayal of our typically value investing mentality we have been positive on GMO Payment Gateway which tends to trade at anywhere between a depressed 60x and a perky 130x. Our argument for the stock has been the impregnable looking business foundation that still allows long-term growth rates around the mid-twenties range that has the company targeting a 10x increase in profitability every 10 years. We explain why we still consider the stock attractive below.

GMO-PG – When Does Hiding Out in a 112x PE Stock Become a Good Idea?

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/350/original/2020-05-10_07-41-07.png?1589064097" class="editor-image img-responsive" data-smartkarma-image-id="132350"></figure><div class="content-caption">Source • Japan Analytics</div>HERD IMMUNITY - The market 'herd' continues to be immune to the siren song of earnings announcements. In last week's two reporting days, aggregate trailing operating income declined by ¥400 billion, while the current year forecast was trimmed by ¥800 billion. The respective numbers for net income were ¥600 billion and ¥200 billion - the latter being flattering in its 'deception' as the figure includes three net-income 'heavy' sogo-shosha. We expect a PER 'breakout' to above 18x in the coming week.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/351/original/2020-05-10_08-08-43.png?1589065754" class="editor-image img-responsive" data-smartkarma-image-id="132351"></figure><div class="content-caption">Source • Japan Analytics</div>INTERIM LEADING THE WAY - Our Results and Revisions scoring methodology tracks both Interim and Annual forecasts with the former signalling the direction of the latter. For some companies such as <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl (4921 JP)</a>, <a href="https://www.smartkarma.com/entities/jcu-corp" target="_blank" data-smartkarma-citation="entities:16229:1" rel="noopener">JCU (4975 JP)</a> and <a href="https://www.smartkarma.com/entities/zenkoku-hosho-co-ltd" target="_blank" data-smartkarma-citation="entities:5537:1" rel="noopener">Zenkoku Hosho (7164 JP)</a>, the Interim forecast is sufficiently pessimistic as to taint the reliability of the annual forecast. Our Interim Score will reach a new ten-year low this week; the Annual Score did so last month. We do not expect the COVID-19 earnings cycle to bottom until the January/February's mostly third-quarter results announcements.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/366/original/2020-05-10_09-01-50.png?1589068924" class="editor-image img-responsive" data-smartkarma-image-id="132366"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/367/original/2020-05-10_09-00-50.png?1589068939" class="editor-image img-responsive" data-smartkarma-image-id="132367"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div>In the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies on Friday. The balance between positive/neutral/negative of the 211 results announcements was 90:27:107. The average change in Score was -1. For the 131 revisions/initial forecasts, the split was 43:4:84  and the average Score was -5. Of the 155 companies declaring full-year results, 49% made interim and annual forecasts for the current year. Two hundred thirty-three companies will announce on Monday, the largest of which by market capitalisation will be <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>, <a href="https://www.smartkarma.com/entities/mitsubishi-electric-corp" target="_blank" data-smartkarma-citation="entities:11171:1" rel="noopener">Mitsubishi Electric (6503 JP)</a>, and <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a>. Friday's 'best' and worst scoring results were from <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" data-smartkarma-citation="entities:6232:1" rel="noopener">Chiyoda (6366 JP)</a> and <a href="https://www.smartkarma.com/entities/keihan-electric-railway-co" target="_blank" data-smartkarma-citation="entities:6120:1" rel="noopener">Keihan Electric Railway (9045 JP)</a>, although the former is below our cap cut-off for our tables below. For more, see <a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato</a>'s results update <a href="https://www.smartkarma.com/insights/chiyoda-gross-margin-disappoints-but-sg-a-control-continues" target="_blank" data-smartkarma-citation="insights:39166" rel="noopener">Chiyoda – Gross Margin Disappoints but SG&amp;A Control Continues</a>.

Source • Japan AnalyticsHERD IMMUNITY - The market 'herd' continues to be immune to the siren song of earnings announcements. In last week's two reporting days, aggregate trailing operating income declined by ¥400 billion, while the current year forecast was trimmed by ¥800 billion. The respective numbers for net income were ¥600 billion and ¥200 billion - the latter being flattering in its 'deception' as the figure includes three net-income 'heavy' sogo-shosha. We expect a PER 'breakout' to above 18x in the coming week.Source • Japan AnalyticsINTERIM LEADING THE WAY - Our Results and Revisions scoring methodology tracks both Interim and Annual forecasts with the former signalling the direction of the latter. For some companies such as Fancl (4921 JP), JCU (4975 JP) and Zenkoku Hosho (7164 JP), the Interim forecast is sufficiently pessimistic as to taint the reliability of the annual forecast. Our Interim Score will reach a new ten-year low this week; the Annual Score did so last month. We do not expect the COVID-19 earnings cycle to bottom until the January/February's mostly third-quarter results announcements.Source • Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made by larger-cap (¥75b+) companies on Friday. The balance between positive/neutral/negative of the 211 results announcements was 90:27:107. The average change in Score was -1. For the 131 revisions/initial forecasts, the split was 43:4:84  and the average Score was -5. Of the 155 companies declaring full-year results, 49% made interim and annual forecasts for the current year. Two hundred thirty-three companies will announce on Monday, the largest of which by market capitalisation will be Softbank Corp (9434 JP), Mitsubishi Electric (6503 JP), and Bridgestone (5108 JP). Friday's 'best' and worst scoring results were from Chiyoda (6366 JP) and Keihan Electric Railway (9045 JP), although the former is below our cap cut-off for our tables below. For more, see Mio Kato's results update Chiyoda – Gross Margin Disappoints but SG&amp;A Control Continues. 

🇯🇵 JAPAN • Results & Revisions Update 8th May - Lion, PPI, Hoya, Sogo Shosha, NEC

Japan

Pan Pacific International Holdings Corporation operates discount stores which sell consumer electronics, daily necessities, groceries, watches, and sporting goods. The Company mostly operates small scale stores based in Tokyo.

Pan Pacific International Holdings (7532 JP)

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Pan Pacific International Holdings (7532 JP)

Nitori Holdings Coverage Initiation Part 3: Valuation

This is the last of a three-part series on Nitori Holdings (9843 JP), Japan’s largest furniture and home accessories retailer. Previously, we have...

Oshadhi Kumarasiri

Pan Pacific (Donki): Gross Margin Improvement Suggests Further Upside

Pan Pacific International Holdings (7532 JP), (PPI) (formerly Don Quijote) has been the best-performing general retailer in Japan over the last six...

Oshadhi Kumarasiri

Japan Inbound Traffic Down 93% in March but Arrivals Spend and Spend

Inevitably, inbound tourist numbers plummeted in March which meant that spending overall also collapsed. The good news, though, is that those who...

Michael Causton

GMO-PG – When Does Hiding Out in a 112x PE Stock Become a Good Idea?

In something of a betrayal of our typically value investing mentality we have been positive on GMO Payment Gateway which tends to trade at anywhere...

Mio Kato

🇯🇵 JAPAN • Results & Revisions Update 8th May - Lion, PPI, Hoya, Sogo Shosha, NEC

HERD IMMUNITY - The market 'herd' continues to be immune to the siren song of earnings announcements. In last week's two reporting days, aggregate...

Campbell Gunn

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