EUR 850.00 For Business Accounts Only

Morningstar | Hoshizaki Solid Revenue Growth and Cost Control Absorbs Negative Impact of Increasing Material Costs

Wide-moat Hoshizaki’s June quarter operating income of JPY 10.6 billion was broadly in line with our forecast of JPY 10.9 billion. Domestic revenue grew 2.1% from the previous year, slowing down from the 7.3% growth in the March quarter. We are not concerned, however, as we assume that the slowdown is due to the completion of a large order of dish washers, and going forward, we expect that sales for ice makers will pick up in the September quarter because of the fierce heat in Japan. While increasing material cost continued to drag down its gross margin in the first half to 38.3% from 39.4% on the previous year, Hoshizaki succeeded in controlling its costs, and as a result, improved its operating margin to 14.3% from 14.1%. In summary, we believe that its solid results support our view that Hoshizaki will benefit from its strong brand name and nationwide network, which is the source of its wide moat rating. We thus retain our operating income forecast of JPY 37.4 billion for this fiscal year, along with our fair value estimate of JPY 11,100.

In addition, we are encouraged by the revenue growth on overseas business. Revenue in the United States increased 2.1% in the June quarter, improving from the 8.6% decline in the March quarter, and revenue in Europe and Asia segment increased 15.2%, which is driven by: 1) the robust growth of refrigerators, ice makers, and dish washers; and 2) recovery from the stagnation caused by the European business integration. Overall, we consider Hoshizaki’s long-term target to earn 50% of its revenue from overseas (which was 32% in fiscal 2017) is reasonable, and consider that acceleration on the revenue growth in overseas, in particular in the U.S., may lift our fair value estimate in the future.