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

<ul>
<li>The company announced last week that it will begin selling POLA products in a duty-free store on Hainan Island, China from July 2021. This is the first step taken by Pola Orbis to tap into the Chinese duty-free market through the company’s flagship brands. Chinese travel retail market offers significant growth potential, especially in the high prestige skincare category.</li>
<li>Meanwhile, <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> has broken out of a medium-term downtrend and outperformed <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/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> by around 20% and <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 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> by around 25% since March 2021.</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/284/original/image_98653331221625128553967.png?1625128554" class="editor-image img-responsive" data-smartkarma-image-id="216284"></figure><ul>
<li>Pola Orbis has a relatively small overseas presence compared to peers such as Shiseido and Kose. With the expansion of its domestic flagship brands into the Chinese market, the company is expected to attain an overseas sales ratio of around 25% by 2023 compared to the current 15%. Exposure to the Chinese cosmetics market is highly regarded by investors and they have generally given such companies premium valuations.</li>
<li>Pola Orbis currently trades at a new all-time high FY+2 EV/EBIT of 22.0x. However, it is still around 40-50% lower than Shiseido’s current FY+2 EV/EBIT, and Kose’s peak FY+2 EV/EBIT multiple, indicating plenty of room for multiple expansion.</li>
</ul>


The company announced last week that it will begin selling POLA products in a duty-free store on Hainan Island, China from July 2021. This is the first step taken by Pola Orbis to tap into the Chinese duty-free market through the company’s flagship brands. Chinese travel retail market offers significant growth potential, especially in the high prestige skincare category.
Meanwhile, Pola Orbis Holdings (4927 JP) has broken out of a medium-term downtrend and outperformed Kose Corp (4922 JP) and Shiseido Company (4911 JP) by around 20% and Kao Corp (4452 JP) and Fancl Corp (4921 JP) by around 25% since March 2021.

Pola Orbis has a relatively small overseas presence compared to peers such as Shiseido and Kose. With the expansion of its domestic flagship brands into the Chinese market, the company is expected to attain an overseas sales ratio of around 25% by 2023 compared to the current 15%. Exposure to the Chinese cosmetics market is highly regarded by investors and they have generally given such companies premium valuations.
Pola Orbis currently trades at a new all-time high FY+2 EV/EBIT of 22.0x. However, it is still around 40-50% lower than Shiseido’s current FY+2 EV/EBIT, and Kose’s peak FY+2 EV/EBIT multiple, indicating plenty of room for multiple expansion.


POLA Launched on Hainan Island: Valuation Could Expand As China Becomes POLA’s Center of Attention

China has announced that it will allow couples to have up to three children, after census data showed a steep decline in birth rates. Previously, we analysed the possible impact on the Japanese baby and childcare company <a href="https://www.smartkarma.com/entities/pigeon-corp" target="_blank" data-smartkarma-citation="entities:3294:1" rel="noopener">Pigeon Corp (7956 JP)</a> as a result of the above policy shift. This time around, we analyse the impact on the Japanese personal care company <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a>, whose share price rose 1.5% in the last two trading days.

China has announced that it will allow couples to have up to three children, after census data showed a steep decline in birth rates. Previously, we analysed the possible impact on the Japanese baby and childcare company Pigeon Corp (7956 JP) as a result of the above policy shift. This time around, we analyse the impact on the Japanese personal care company Kao Corp (4452 JP), whose share price rose 1.5% in the last two trading days.

China’s Three Child Policy Beneficiaries Part 2 Kao Corporation: Finally Off The Leash?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our outlook remains unchanged as the weight of the evidence continues to suggest a mixed, but overall constructive market. Cyclical value Sectors continue to be our favorite areas to overweight (i.e., Energy, Materials, Manufacturing, and Transportation), while defensive Sectors also continue to be worth a look (i.e., Staples, Health Care, and Real Estate).

Our outlook remains unchanged as the weight of the evidence continues to suggest a mixed, but overall constructive market. Cyclical value Sectors continue to be our favorite areas to overweight (i.e., Energy, Materials, Manufacturing, and Transportation), while defensive Sectors also continue to be worth a look (i.e., Staples, Health Care, and Real Estate). 

Global Equity Strategy: Value Remains Leadership But Defensives Improving

<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> delivered strong 1Q21 results today with revenue and operating profit surpassing consensus estimates by ¥16.7bn and ¥4.6bn respectively.The company’s revenue grew 7.5% YoY (6.0% YoY excluding the FX impact) in 1Q21, compared to -17.1%, -34.4% and -16.3% and -6.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively.There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number one pick to get exposed to the margin growth theme.Please refer, <a href="https://www.smartkarma.com/insights/long-shiseido-short-kose-as-japanese-cosmetics-shift-focus-to-margin-expansion" target="_blank" rel="noopener">Long Shiseido/​Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion</a> and <a href="https://www.smartkarma.com/insights/shiseido-s-2023-transformation-plan-kicks-into-gear-with-the-proposed-sale-of-the-personal-care-unit" target="_blank" rel="noopener">Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit</a> for more details.

Shiseido Company (4911 JP) delivered strong 1Q21 results today with revenue and operating profit surpassing consensus estimates by ¥16.7bn and ¥4.6bn respectively.The company’s revenue grew 7.5% YoY (6.0% YoY excluding the FX impact) in 1Q21, compared to -17.1%, -34.4% and -16.3% and -6.2% in 1Q20, 2Q20, 3Q20 and 4Q20 respectively.There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number one pick to get exposed to the margin growth theme.Please refer, Long Shiseido/​Short KOSE As Japanese Cosmetics Shift Focus to Margin Expansion and Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit for more details.

Shiseido's 1Q21 Results Beat Consensus But Try to Play Safe With Conservative 2021 Guidance

<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

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)

POLA Launched on Hainan Island: Valuation Could Expand As China Becomes POLA’s Center of Attention

As the China growth story becomes Pola Orbis’ center of attention, we think the stock’s current bull run could continue despite peak valuation...

Oshadhi Kumarasiri

China’s Three Child Policy Beneficiaries Part 2 Kao Corporation: Finally Off The Leash?

While cosmetics is on the path to a steady recovery, the hopes of returning revenue growth in Merries Diapers could help Kao to break the current...

Oshadhi Kumarasiri

Global Equity Strategy: Value Remains Leadership But Defensives Improving

Cyclical value Sectors continue to be our favorite areas to overweight, while defensive Sectors also continue to be worth a look (i.e., Staples,...

Vermilion Research

Shiseido's 1Q21 Results Beat Consensus But Try to Play Safe With Conservative 2021 Guidance

There is a margin story at play in the Japanese cosmetics sector through moving to an online-focused business model and Shiseido remains our number...

Oshadhi Kumarasiri

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

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