Hoshizaki Earnings: Favorable Product Mix in Japan to Contribute to High Margins for 2024

Hoshizaki’s March-quarter operating income of JPY 15.2 billion was stronger than expected, mainly due to a favorable product mix contributing to the Japan segment’s high operating margin of 17.6%, which was 2.8 percentage points above our estimate. The company has been providing solutions comprising products and equipment from other manufacturers, but is now focusing on the sales of its own manufactured products to increase profitability. We expect this to improve Hoshizaki’s margins in the near term, assuming much of the sales growth will come from existing restaurants amid the surge in inbound demand. However, over the longer term, we forecast the mix to revert from increased sales to larger commercial facilities/new restaurants, which will require solutions that also include non-Hoshizaki products like gas equipment, work tables, kitchen sinks, and so on. Therefore, we raise our fiscal 2024 operating income projection by 11% to JPY 49 billion, but our medium-term outlook and fair value estimate of JPY 5,500 remain unchanged. We believe Hoshizaki’s shares are fairly valued.