Equity Analyst, LightStream Research

Oshadhi Kumarasiri

An equity research analyst with over 7 years of experience in multiple sectors. Previously worked for one of the world's largest asset managers with about USD2.5trn in AUM, covering small and micro-cap companies in the consumer sphere across Europe and developed Asia. Also experienced in covering multiple industries including banking, insurance and asset management, retail, tech, telco and REIT.

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 Capital Markets

Shinnihonseiyaku Co Ltd / Equity Capital Markets

Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company's returns over the medium to long term.<table class="table table-striped"><tbody>
<tr>
<td>IPO Details</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Book Building</td>
<td colspan="3">From 2019/06/11 to 2019/06/17</td>
</tr>
<tr>
<td>Offer</td>
<td colspan="3">From 2019/06/19 to 2019/06/24</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Selling Shareholders</td>
<td>4,570,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Overallotment Option</td>
<td>730,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>New Issue</td>
<td>300,000</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Existing Shares</td>
<td>20,581,300</td>
<td></td>
<td></td>
</tr>
<tr>
<td>Shares Outstanding Post IPO</td>
<td>20,881,300</td>
<td></td>
<td></td>
</tr>
<tr>
<td></td>
<td>Low</td>
<td>High</td>
<td></td>
</tr>
<tr>
<td>Price Range</td>
<td>1,350</td>
<td>1,470</td>
<td></td>
</tr>
<tr>
<td>Expected Market Cap - in ¥m</td>
<td>28,190</td>
<td>30,696</td>
<td></td>
</tr>
<tr>
<td>Expected EV - in ¥m</td>
<td>20,121</td>
<td>22,596</td>
<td></td>
</tr>
<tr><td colspan="4">*based on March 2019 debt and cash and IPO proceeds</td></tr>
<tr>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Implied Multiples- FY2018 </td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>EV/Sales</td>
<td>0.6x</td>
<td>0.7x</td>
<td></td>
</tr>
<tr>
<td>EV/EBIT</td>
<td>8.1x</td>
<td>9.1x</td>
<td></td>
</tr>
<tr>
<td>P/E</td>
<td>16.1x</td>
<td>17.5x</td>
<td></td>
</tr>
</tbody></table>Source: Company Disclosures

Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company's returns over the medium to long term.

IPO Details





Book Building
From 2019/06/11 to 2019/06/17


Offer
From 2019/06/19 to 2019/06/24








Selling Shareholders
4,570,000




Overallotment Option
730,000




New Issue
300,000




Existing Shares
20,581,300




Shares Outstanding Post IPO
20,881,300





Low
High



Price Range
1,350
1,470



Expected Market Cap - in ¥m
28,190
30,696



Expected EV - in ¥m
20,121
22,596


*based on March 2019 debt and cash and IPO proceeds







Implied Multiples- FY2018 





EV/Sales
0.6x
0.7x



EV/EBIT
8.1x
9.1x



P/E
16.1x
17.5x


Source: Company Disclosures

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall