Shiseido Earnings: Profit Rebounds Strongly but Still Far Below Pre-COVID-19 Level; Top Line a Focus

Narrow-moat Shiseido’s first-quarter profit rebound seemed strong, but the amount of profits remains significantly below the 2019 level, estimated at around 25%, despite the fact that the top line has fully recovered. Sales grew 6.6% year on year (like-for-like, reported 2.6% growth) while core operating profits nearly tripled from a fairly low base, boosted by strong top-line growth in Western markets and narrowed losses in Japan and China. Given increased marketing investment from the second quarter to capture China and Japan’s reopening demand, we have maintained our forecasts and fair value estimate of JPY 6,100. As a step-up of investment will weigh on profits in 2023, we will focus on tracking its sales progress, especially in the once-lucrative China and Japan markets. We view shares as modestly overvalued, indicating 7% downside to our intrinsic value.