Shiseido's Guidance Cut No Surprise; Pumping Up Investment for Profitable Long-Term Growth

It is no surprise that narrow-moat Shiseido lowered its full-year guidance (dividends maintained) given lockdowns in China, slow recovery in Japan, and suspended shipment to Russia. The degree of the downward revision for profit was greater than our expectation due to an additional JPY 10 billion for strategic investment in brand-building and talent development—which we deem necessary for strengthening its brand equity, a key moat source, and generating profitable growth over the long term. We have accordingly lowered our profit forecasts mainly for 2022, which, offset by increased time value of money, leaves an immaterial impact on our fair value estimate of JPY 6,600. We continue to view shares as undervalued but acknowledge that China remains a key downside risk to our midterm forecasts.