Shiseido Earnings: Profits Tumbled on China’s Boycott of Japanese Products and Daigou Crackdown

Narrow-moat Shiseido’s downward profit revision is no surprise given the impact of Hainan’s daigou crackdown on rivals’ profits and Chinese consumers’ boycott of Japanese products after the release of wastewater from Fukushima. We have slashed our net profit forecasts, particularly for 2023 and 2024, to reflect impacts of boycotts and the daigo crackdown as well as additional restructuring charges for China, which lead to a new fair value estimate of JPY 5,800, reduced from JPY 6,100. After more than 25% correcting since mid-August, we view shares, trading at a 16% discount to our intrinsic value, as undervalued. We anticipate a V-shape profit recovery in 2025 when sales rebound in China and the restructuring plans for Japan and China are executed.