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>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

<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

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/891/original/2020-07-20_11-11-13.png?1595211104" class="editor-image img-responsive" data-smartkarma-image-id="146891"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE 'HUNDRED DAYS WAR'</strong> - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the <strong>DETAIL</strong> section below, we shall look at the leading large caps in both categories and suggest opportunities in each.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/894/original/2020-07-20_11-42-42.png?1595213322" class="editor-image img-responsive" data-smartkarma-image-id="146894"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>RELATIVE PRICE</strong> - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/895/original/2020-07-20_11-58-18.png?1595214235" class="editor-image img-responsive" data-smartkarma-image-id="146895"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>RESULTS DRIVER</strong> - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. </p>

Source • Japan AnalyticsTHE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.Source • Japan AnalyticsRELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.Source • Japan AnalyticsRESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. 

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

Event-Driven

<p>Since June 2020, the share price performance between Japanese cosmetics companies has diverged rather significantly. Among Japanese cosmetics names, <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> were the worst performers, as their share prices declined 13.5% and 15.8% respectively. During that time, <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, <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a>’s 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>’s share prices declined 1.2%, 4.9% and 0.3% respectively.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/266/original/image_90950717321594803990962.png?1594803991" class="editor-image img-responsive" data-smartkarma-image-id="146266"></figure>

Since June 2020, the share price performance between Japanese cosmetics companies has diverged rather significantly. Among Japanese cosmetics names, Kose Corp (4922 JP) and Pola Orbis Holdings (4927 JP) were the worst performers, as their share prices declined 13.5% and 15.8% respectively. During that time, Shiseido Company (4911 JP)’s, Kao Corp (4452 JP)’s and Fancl Corp (4921 JP)’s share prices declined 1.2%, 4.9% and 0.3% respectively.

Japan Cosmetics Pair Trade: Long Kose/​Short Shiseido

<ul>
<li>Cosmetics is one of the industries, worst hit by the coronavirus pandemic. The industry was struggling for growth even before COVID-19. Due to the consumption tax increase, Japan’s domestic cosmetics market declined 0.6% year-on-year on average during Oct-2019 to Jan-2020. The rate of decline accelerated to 26% by April 2020 due to COVID-19.</li>
<li>However, the situation is much better outside of Japan. Total cosmetics exports grew 8% year-on-year in May 2020 as exports to China increased 49.8% year-on-year.</li>
<li>Below we analyse, Japan’s cosmetics industry using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.</li>
</ul>


Cosmetics is one of the industries, worst hit by the coronavirus pandemic. The industry was struggling for growth even before COVID-19. Due to the consumption tax increase, Japan’s domestic cosmetics market declined 0.6% year-on-year on average during Oct-2019 to Jan-2020. The rate of decline accelerated to 26% by April 2020 due to COVID-19.
However, the situation is much better outside of Japan. Total cosmetics exports grew 8% year-on-year in May 2020 as exports to China increased 49.8% year-on-year.
Below we analyse, Japan’s cosmetics industry using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.


Japanese Cosmetics Industry Statistics- May 2020: China Recovers While Domestic Demand Deteriorates

Japan

POLA ORBIS HOLDINGS INC. develops, manufactures and markets cosmetic products, centering in skincare  products. Under its multi-brand strategy, the Company holds nine cosmetic brands including POLA, prestige skincare brand, ORBIS, oil-free skincare brand, H2O PLUS and Jurlique.

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Pola Orbis Holdings (4927 JP)

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

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

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

Japan Cosmetics Pair Trade: Long Kose/Short Shiseido

Since June 2020, the share price performance between Japanese cosmetics companies has diverged rather significantly. Among Japanese cosmetics...

Oshadhi Kumarasiri

Japanese Cosmetics Industry Statistics- May 2020: China Recovers While Domestic Demand Deteriorates

Cosmetics is one of the industries, worst hit by the coronavirus pandemic. The industry was struggling for growth even before COVID-19. Due to the...

Oshadhi Kumarasiri

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

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

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

Japan Cosmetics Pair Trade: Long Kose/​Short Shiseido

Since June 2020, the share price performance between Japanese cosmetics companies has diverged rather significantly. Among Japanese cosmetics...

Oshadhi Kumarasiri

Japanese Cosmetics Industry Statistics- May 2020: China Recovers While Domestic Demand Deteriorates

Cosmetics is one of the industries, worst hit by the coronavirus pandemic. The industry was struggling for growth even before COVID-19. Due to the...

Oshadhi Kumarasiri

Japan Cosmetics Pair Trade: Long Kose/Short Shiseido