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/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a> delivered 3QFY21 results today, (28<sup>th</sup> January 2021) which saw operating profit increase by 6.5% YoY to ¥3.8bn (consensus ¥3.97bn). The company’s revenue was down 2.1% YoY, compared to consensus estimated growth rate of 0.7% YoY. Fancl lowered its FY21 revenue and OP guidance by 4.2% and 11.5% respectively, because of the additional measures introduced to curtail the rapid spread of COVID-19.</li>
<li>These negative factors are likely to impact the entire domestic cosmetics industry. However, Fancl is better placed among other Japanese cosmetic players, perhaps excluding <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a>, to face these challenging times, through Fancl's significantly greater exposure to the online and catalogue retail sales channel and diversification into the nutritional supplements business.</li>
</ul>



Fancl Corp (4921 JP) delivered 3QFY21 results today, (28th January 2021) which saw operating profit increase by 6.5% YoY to ¥3.8bn (consensus ¥3.97bn). The company’s revenue was down 2.1% YoY, compared to consensus estimated growth rate of 0.7% YoY. Fancl lowered its FY21 revenue and OP guidance by 4.2% and 11.5% respectively, because of the additional measures introduced to curtail the rapid spread of COVID-19.
These negative factors are likely to impact the entire domestic cosmetics industry. However, Fancl is better placed among other Japanese cosmetic players, perhaps excluding Kao Corp (4452 JP), to face these challenging times, through Fancl's significantly greater exposure to the online and catalogue retail sales channel and diversification into the nutritional supplements business.


FANCL: Lowers FY21 Guidance Amidst Rising COVID Cases, Still Outperforming Peers

Event-Driven

<p><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>, Japan’s biggest cosmetics company with annual revenue and OP of ¥1,131.5bn and ¥113.8bn respectively in 2019, said that it is considering selling its personal care business, which includes famous brands like TSUBAKI, SENKA, SEA Breeze, Ag DEO 24, AQUAIR and Uno, to CVC Capital Partners in the first half of 2021. This sale comes as a part of Shiseido’s 2023 transformation plan which targets 15% operating margin (an increase of 5 percentage points from 2019 level) by 2023.</p>

Shiseido Company (4911 JP), Japan’s biggest cosmetics company with annual revenue and OP of ¥1,131.5bn and ¥113.8bn respectively in 2019, said that it is considering selling its personal care business, which includes famous brands like TSUBAKI, SENKA, SEA Breeze, Ag DEO 24, AQUAIR and Uno, to CVC Capital Partners in the first half of 2021. This sale comes as a part of Shiseido’s 2023 transformation plan which targets 15% operating margin (an increase of 5 percentage points from 2019 level) by 2023.

Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit

<p>Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/876/original/image_56442858141611229982276.png?1611229987" class="editor-image img-responsive" data-smartkarma-image-id="183876"></figure><p>COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.</p><p>In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.</p>

Since lifting the state of emergency towards the end of May 2020, Japan relied on mask-wearing and social distancing to curtail the spread of COVID-19. It was successful for about five months as Japan’s new COVID cases remained under control until the end of October 2020. Since then, COVID cases have spiralled out of control due to cold weather and pandemic fatigue. In November 2020, the seven-day average of COVID cases rose from about 500-600 cases per day at the beginning of November to over 2,000 cases per day by the end of the month. Seven-day average of COVID cases rose to around 6,500 cases per day by early January 2020, just before Japan declared a state of emergency in the capital Tokyo and three surrounding prefectures.COVID-19 has a significant impact on the domestic cosmetics market. The domestic cosmetics sector earnings declined by 68% and shares underperformed TOPIX by 10 percentage points during the last 12 months due to the ongoing COVID-19 crisis.In this insight, we analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance.

Japanese Cosmetics Industry: Statistics Update – October & November 2020

Japan Specialist

Mark Chadwick

<div><p><span xml:lang="EN-US" data-contrast="none">There has been growing awareness of the business case for inclusion and diversity (I&amp;D) in the workplace. In Japan, Prime Minister Suga has pledged continued government support for corporate governance reform and he would like to see more </span><span xml:lang="EN-US" data-contrast="none">women</span><span xml:lang="EN-US" data-contrast="none"> and foreigners in key positions. While many companies cite I&amp;D as a source of competitive advantage and a key enabler of growth, few academic studies have been able to prove a direct link between I&amp;D and financial performance. Our analysis on Japan’s larger companies suggests the following:</span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></div><div><ol style="list-style-type: decimal;" role="list" start="1"><li role="listitem" data-leveltext="%1." data-font="Calibri" data-listid="1" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><p><span xml:lang="EN-US" data-contrast="none">Most Japanese companies have very low levels of diversity. Although the participation of women on the boards of Japanese companies is expanding, those with higher levels of diversity are yet to see any improvement in financial metrics or stock performance. </span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></li></ol></div><div><ol style="list-style-type: decimal;" role="list" start="2"><li role="listitem" data-leveltext="%1." data-font="Calibri" data-listid="1" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><p><span xml:lang="EN-US" data-contrast="none">Our broad composite index of board entrenchment also bears little correlation with key metrics. However, boards that are younger on average do appear to be more effective, and are correlated with a broad range of operating metrics. </span><span data-ccp-props='{"201341983":0,"335551550":6,"335551620":6,"335559739":160,"335559740":259}'> </span></p></li></ol></div>

There has been growing awareness of the business case for inclusion and diversity (I&amp;D) in the workplace. In Japan, Prime Minister Suga has pledged continued government support for corporate governance reform and he would like to see more women and foreigners in key positions. While many companies cite I&amp;D as a source of competitive advantage and a key enabler of growth, few academic studies have been able to prove a direct link between I&amp;D and financial performance. Our analysis on Japan’s larger companies suggests the following: Most Japanese companies have very low levels of diversity. Although the participation of women on the boards of Japanese companies is expanding, those with higher levels of diversity are yet to see any improvement in financial metrics or stock performance.  Our broad composite index of board entrenchment also bears little correlation with key metrics. However, boards that are younger on average do appear to be more effective, and are correlated with a broad range of operating metrics.  

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/683/original/2020-12-01_09-00-54.png?1606780869" class="editor-image img-responsive" data-smartkarma-image-id="175683"></figure></section><div class="content-caption">Source for all charts &amp; tables: Japan Analytics </div><p><strong>FOUR QUADRANTS</strong> - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-</p><div>
<ul style="list-style-type: disc;">
<li>
<strong>CONTRARIAN BUYS</strong> - Low Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>CONTRARIAN SELLS</strong> - High Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>TURNAROUND BUYS </strong>- High Results &amp; Revision Scores &amp; low Relative Price Scores</li>
<li>
<strong>EX-GROWTH SELLS</strong> - Low Results &amp; Revision Scores &amp; high Relative Price Scores</li>
</ul>
<p>The Ex-Growth Sells quadrant offers more fertile ground for shorting as the decline in earnings momentum is already clear, however, in many cases, the market is reluctant to sell the 'darlings' of the past. Examples of profitable Ex-Growth Sells from 2020 are <a href="https://www.smartkarma.com/entities/kyudenko-corp" target="_blank" data-smartkarma-citation="entities:5414:1" rel="noopener">Kyudenko(1959 JP)</a>, <a href="https://www.smartkarma.com/entities/ariake-japan-co-ltd" target="_blank" data-smartkarma-citation="entities:4908:1" rel="noopener">Ariake Japan (2815 JP)</a>, and <a href="https://www.smartkarma.com/entities/santen-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:8602:1" rel="noopener">Santen Pharmaceutical (4536 JP)</a>. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/693/original/2020-12-01_10-13-31.png?1606785235" class="editor-image img-responsive" data-smartkarma-image-id="175693"></figure></section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/699/original/2020-12-01_10-22-36.png?1606785767" class="editor-image img-responsive" data-smartkarma-image-id="175699"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/175/700/original/2020-12-01_10-23-41.png?1606785833" class="editor-image img-responsive" data-smartkarma-image-id="175700"></figure></section><p><strong><a href="https://www.dropbox.com/s/7b61jl02dh0pzno/2020-11-25_12-43-55.png?dl=0" target="_blank" rel="noopener">EX-GROWTH SELLS</a></strong> - In the <strong>DETAIL</strong> section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series. The first three Insights can be found at - <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-buys" target="_blank" data-smartkarma-citation="insights:45688" rel="noopener">Contrarian Buys,</a> <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-sells" target="_blank" data-smartkarma-citation="insights:45725" rel="noopener">Contrarian Sells</a>, and <a href="https://www.smartkarma.com/insights/japan-four-quadrants-turnaround-buys" target="_blank" data-smartkarma-citation="insights:45829" rel="noopener">Turnaround Buys</a>.   </p></section>
</div>

Source for all charts &amp; tables: Japan Analytics FOUR QUADRANTS - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-


CONTRARIAN BUYS - Low Results &amp; Revision and Relative Price Scores

CONTRARIAN SELLS - High Results &amp; Revision and Relative Price Scores

TURNAROUND BUYS - High Results &amp; Revision Scores &amp; low Relative Price Scores

EX-GROWTH SELLS - Low Results &amp; Revision Scores &amp; high Relative Price Scores

The Ex-Growth Sells quadrant offers more fertile ground for shorting as the decline in earnings momentum is already clear, however, in many cases, the market is reluctant to sell the 'darlings' of the past. Examples of profitable Ex-Growth Sells from 2020 are Kyudenko(1959 JP), Ariake Japan (2815 JP), and Santen Pharmaceutical (4536 JP). 
EX-GROWTH SELLS - In the DETAIL section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series. The first three Insights can be found at - Contrarian Buys, Contrarian Sells, and Turnaround Buys.   


🇯🇵 JAPAN • Four Quadrants - Ex-Growth Sells

Japan

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)

FANCL: Lowers FY21 Guidance Amidst Rising COVID Cases, Still Outperforming Peers

Fancl delivered 3QFY21 results today, which saw operating profit increase by 6.5% YoY to ¥3.8bn (consensus ¥3.97bn). The company’s revenue was down...

Oshadhi Kumarasiri

Shiseido’s 2023 Transformation Plan Kicks Into Gear With The Proposed Sale of The Personal-Care Unit

Shiseido could generate over ¥100bn through the proposed sale of the personal care business unit and the company could use that cash proceeds to...

Oshadhi Kumarasiri

Japanese Cosmetics Industry: Statistics Update – October & November 2020

We analyse Japan’s cosmetic industry performance during the first two months of 4Q20, using the monthly data released by the Ministry of Economy,...

Oshadhi Kumarasiri

Japan Governance - Diversity Matters

Japanese companies have very low levels of board diversity. Participation by women is too low to see any tangible results yet, but more youthful...

Mark Chadwick

🇯🇵 JAPAN • Four Quadrants - Ex-Growth Sells

EX-GROWTH SELLS - In the DETAIL section below, we shall review the current Ex-Growth Sells. The is the last Insight in this four-part mini-series.

Campbell Gunn

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