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>
<a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>’s share price is up more than 6% today following the yesterday’s strong Q4 results with 2021 EBITDA surpassing the November 2021 guidance by ¥17.6bn (11.3%).</li>
<li>The China business is still not completely out of the woods, although the like for like growth rate accelerated from 2.0% YoY in 3Q21 to 7.0% by 4Q21.</li>
<li>Nonetheless, strong performance across skin and beauty care in all regions suggests that the company is on track to become the world’s number 1 skin and beauty care brand.</li>
</ul>



Shiseido Company (4911 JP)’s share price is up more than 6% today following the yesterday’s strong Q4 results with 2021 EBITDA surpassing the November 2021 guidance by ¥17.6bn (11.3%).
The China business is still not completely out of the woods, although the like for like growth rate accelerated from 2.0% YoY in 3Q21 to 7.0% by 4Q21.
Nonetheless, strong performance across skin and beauty care in all regions suggests that the company is on track to become the world’s number 1 skin and beauty care brand.


Shiseido: China Is Still a Question Mark But The Rest of The Business Deserves Plaudits

<ul>
<li>Considering the geopolitical relationship over the last 100 years, it doesn’t take much for Chinese people to start developing an anti-Japan sentiment.</li>
<li>The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics.</li>
<li>We think the Japanese government’s decision to not send a government delegation to the Winter Olympics could be all that is needed to spark an anti-Japan sentiment among Chinese consumers.</li>
</ul>


Considering the geopolitical relationship over the last 100 years, it doesn’t take much for Chinese people to start developing an anti-Japan sentiment.
The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics.
We think the Japanese government’s decision to not send a government delegation to the Winter Olympics could be all that is needed to spark an anti-Japan sentiment among Chinese consumers.


Japan’s Boycott of Winter Olympics Could Be the Tipping Point

<ul>
<li>With life getting back to the usual ways following changes due to COVID-19, the Japanese cosmetics sector was expected to experience an uplift in earnings, mainly through inbound demand.</li>
<li>However, the extension of China’s common prosperity crackdowns to the live-streaming e-commerce business, could more than offset a possible recovery in inbound demand.</li>
<li>Thus, we fear that there is additional downside risk to Japanese cosmetics multiples in the short term.</li>
</ul>


With life getting back to the usual ways following changes due to COVID-19, the Japanese cosmetics sector was expected to experience an uplift in earnings, mainly through inbound demand.
However, the extension of China’s common prosperity crackdowns to the live-streaming e-commerce business, could more than offset a possible recovery in inbound demand.
Thus, we fear that there is additional downside risk to Japanese cosmetics multiples in the short term.


Crackdown on Live-Streaming E-Commerce Could Derail The Recovery of Japanese Cosmetics

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>’s share price fell as much as 5% in early trading today after delivering weaker than expected 3Q21 results on 10th November 2021.</li>
<li>Despite the weak performance in the third quarter, Shiseido increased its 2021 OP guidance by ¥5.0bn to ¥32.0bn.</li>
<li>There's upside potential to earnings and current multiples are also towards the low side. However, risks rewards are not that great with a possible slowdown in the Chinese cosmetics market.</li>
</ul>



Shiseido Company (4911 JP)’s share price fell as much as 5% in early trading today after delivering weaker than expected 3Q21 results on 10th November 2021.
Despite the weak performance in the third quarter, Shiseido increased its 2021 OP guidance by ¥5.0bn to ¥32.0bn.
There's upside potential to earnings and current multiples are also towards the low side. However, risks rewards are not that great with a possible slowdown in the Chinese cosmetics market.


Shiseido: There’s Upside to Consensus Estimates But China Slowdown Is a Too Big of a Risk

<ul>
<li>
<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 share price is up 5.1% today compared to 3.6%, 4.9%, 4.2%, 2.8% and 2.2% for <a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 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>, <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 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> and the Topix Index respectively despite an underwhelming quarter ending September 2021 results release on 29<sup>th</sup> October 2021 (aftermarket) with revenue declining 1.7% (adjusted for changes in accounting standards) from the same period of the previous year.</li>
<li>Quarterly revenue increased 9.2% (adjusted) on a QoQ basis. The OP increased 86.2% YoY and 54.3% QoQ (adjusted) on cost controls.</li>
<li>In addition, the company has lowered its revenue and OP guidance for the 9 months from April-December 2021 by ¥14.0bn (5.9%) and ¥4.0bn (20%) respectively to ¥224.0bn revenue and ¥16.0bn OP, which implies a full-year revenue of ¥299.3bn and an OP of ¥18.2bn in CY2021 compared to ¥282.8bn revenue and ¥13.5bn OP in CY2020.</li>
</ul>



Kose Corp (4922 JP)’s share price is up 5.1% today compared to 3.6%, 4.9%, 4.2%, 2.8% and 2.2% for Shiseido Company (4911 JP), Pola Orbis Holdings (4927 JP), Fancl Corp (4921 JP), Kao Corp (4452 JP) and the Topix Index respectively despite an underwhelming quarter ending September 2021 results release on 29th October 2021 (aftermarket) with revenue declining 1.7% (adjusted for changes in accounting standards) from the same period of the previous year.
Quarterly revenue increased 9.2% (adjusted) on a QoQ basis. The OP increased 86.2% YoY and 54.3% QoQ (adjusted) on cost controls.
In addition, the company has lowered its revenue and OP guidance for the 9 months from April-December 2021 by ¥14.0bn (5.9%) and ¥4.0bn (20%) respectively to ¥224.0bn revenue and ¥16.0bn OP, which implies a full-year revenue of ¥299.3bn and an OP of ¥18.2bn in CY2021 compared to ¥282.8bn revenue and ¥13.5bn OP in CY2020.


Further Downside Is Possible As Kose Keeps Losing Ground in Japan

Japan

Shiseido Company, Limited manufactures cosmetics. The Company develops, produces, and distributes toners, masks, face creams, sun creams, and more. Shiseido also conducts beauty drinks, beauty salons, and other businesses.

Kao Corporation is a manufacturer of household and chemical products. The company produces cosmetics, laundry and cleaning products, hygiene products, fatty chemicals, edible oils, and specialty chemicals.

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.

Kao Corporation is a manufacturer of household and chemical products. The Company produces cosmetics, laundry and cleaning products, hygiene, fatty chemicals, edible oils, and specialty chemicals.

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.

KOBAYASHI PHARMACEUTICAL CO., LTD. manufactures and wholesales pharmaceuticals and medical equipment.  The Company also develops and manufactures fragrances, deodorant, sanitary products, and ointment for stiff shoulders, as well as exports to Southeast Asia and the US.

FANCL CORPORATION produces and sells additive-free skin care cosmetics for both women and men.  The Company's products include cleansing creams, hair care goods such as shampoos and conditioners, and facial make up products.  Fancl also makes and distributes dietary supplements including royal jelly and various tablets with extracted essence from mushrooms, garlic, ginseng, and soy beans.

Rizap Group Inc provides low calorie foods including soy milk cookies, diet drinks, and supplements.  The Company sells its products through mail order.

Noevir Holdings Co., Ltd. manufactures and sells a variety of cosmetic products. The Company's products include skin care and make-up.  Noevir also manufactures and sells medicines, nutritional supplements and apparel.

Milbon Co., Ltd. manufactures hair care products for beauty salons.  The Company produces chemicals for permanents, hair coloring, shampoos, rinses, and hair growth stimulant products.

Dabur India Ltd. manufactures soaps, detergents, hair oils, tooth powders, antacids and processed foods. The Company sells its products worldwide.

Colgate-Palmolive (India) Ltd. manufactures consumer products in the oral care and body care area. The Company's products include soaps, cosmetics, toilet preparations, toothpaste, toothbrushes, shaving brushes, and glycerin.

Coty Inc. manufactures and distributes beauty products. The Company offers fragrances, color cosmetics, hygiene, sun care, and skin treatment products. Coty supplies its products to department stores, specialty retailers, mass-market retailers, and duty free shops in airports worldwide.

Marico Limited manufactures consumer products and services in the beauty and wellness space. The Company is known for its presence in the following categories: Coconut Oil, Hair Oils, Anti-lice Treatment, Premium Refined Edible Oils and Fabric Care. Marico Limited is present in the Skin Care Services segment through Kaya Skin Clinics.

Amorepacific Corporation develops, manufactures, and exports skin care, make-up, and fragrance products. The Company also produces and markets personal care and health-related products, such as shampoos, soaps, toothpastes, and health teas.

e.l.f. Beauty, Inc. operates as a cosmetic company. The Company offers beauty products for eyes, lips, and face. e.l.f. Beauty provides eyeliners, lipsticks, lip care and brushes, powder, and skin care products.

Godrej Consumer Products Limited manufactures personal care, hair care, household care and fabric care products. The Company's products include toilet soaps, cosmetics, shaving creams, talcum powder, household cleaners and fabric detergents.

Procter & Gamble Hygiene and Healthcare Limited manufactures personal & beauty care and healthcare products. The Company's products include menthol, dementholised peppermint oil, cosmetics, personal care products, toilet preparations, soaps and detergents.

Procter & Gamble Hygiene and Healthcare (PG IN)

Proya Cosmetics Co., Ltd. operates as a cosmetics products manufacturing company. The Company researches and markets skin care products, make up, body wash, and other related products. Proya Cosmetics markets its products throughout China.

Hengan International Group Company Limited, through its subsidiaries, manufactures and sells personal hygiene products such as sanitary napkins and disposable baby diapers in China.  The Company's products are sold under the Anerle brand name.

Shiseido Company, Limited manufactures cosmetic and toiletry products. The Company offers an array of makeup and skin-care products, toiletries, beauty salon, pharmaceuticals, foodstuffs, and fine chemicals.

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Shiseido Company (4911 JP)

Shiseido: China Is Still a Question Mark But The Rest of The Business Deserves Plaudits

The strong performance across skin and beauty care categories in all regions suggests that Shiseido could be on track to become the world’s number...

Oshadhi Kumarasiri

Japan’s Boycott of Winter Olympics Could Be the Tipping Point

The relationship between the two countries was already reaching nervy levels, before Tokyo’s decision to snub the 2022 Winter Olympics. With the...

Oshadhi Kumarasiri

Crackdown on Live-Streaming E-Commerce Could Derail The Recovery of Japanese Cosmetics

Valuation multiples of Japanese cosmetics makers more than doubled during the last 6-7 years alongside the growth driven by the China expansion and...

Oshadhi Kumarasiri

Shiseido: There’s Upside to Consensus Estimates But China Slowdown Is a Too Big of a Risk

Even though the valuation multiples are currently towards the low side, we think risks rewards are not that enticing as the China slowdown risk...

Oshadhi Kumarasiri

Further Downside Is Possible As Kose Keeps Losing Ground in Japan

The share price and valuation multiples have come down by around 25% and 35% respectively over the last three months as the market started reacting...

Oshadhi Kumarasiri

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