Shiseido Earnings: China's Recovery Is on the Way; 2024 Is a Restructuring Year to Rebuild Margins

Narrow-moat-rated Shiseido beat its profit guidance as we had expected. Still, the core operating profits came in 10% above our expectations thanks to solid growth in Europe and rigorous cost control, as well as improved sales in China. While we have reduced our fair value estimate to JPY 5,600 from JPY 5,800 after adjusting assumptions and rolling the model, we predict management will beat the JPY 55 billion core operating profit guidance for 2024. We continue to view shares, trading at a 24% discount to our fair value estimate, as undervalued. Apart from China and the travel retail recovery, whether management can rebuild its domestic margins by rightsizing its cost structure in 2024 will be the key to turning around the struggling luxury beauty firm.