EUR 850.00 For Business Accounts Only

Morningstar | Revise Hoshizaki’s Stewardship Rating to Poor; It Needs to Establish Sufficient Corporate Governance

We revise Hoshizaki’s stewardship rating to Poor from Standard. We are concerned that the company lacks sufficient discipline and corporate governance, as Hoshizaki postponed its earnings report twice in fiscal 2018. However, we retain our wide moat and stable moat trend ratings, as we believe that Hoshizaki’s economic moat, which stems from the strong brand name and its nationwide distribution channels, is intact. As Hoshizaki forecasts that the investigation by the third-party committee will be completed by the end of April, its 2018 earnings results will be disclosed by May 7, which is approximately a three-month delay. Hoshizaki’s share has dropped approximately 30% since the company disclosed the misconduct by its subsidiary.  While we view that the direct impact from the fraud will be limited, it will take some time for the company to restore reliance from the market.

To recap, in November 2018, Hoshizaki postponed reporting its September quarter results, as one of its 15 distribution subsidiaries, Hoshizaki Tokai, exaggerated its revenue in order to meet challenging sales targets. Following an internal investigation, Hoshizaki concluded that the direct impact from the fraud was limited. However, in February 2019, Hoshizaki identified the same fraud again, which forced another delay in the earnings reporting deadline, leading to two consecutive quarters of delays. This not only suggests the lack of control by Hoshizaki over its subsidiaries’ practices but also casts serious doubt whether its initial investigation had been done properly, as independent third-party committees were not used for the inspection as would be preferred.