Company Reports

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.

Hoshizaki’s fiscal 2024 operating income guidance of JPY 44 billion aligns with our projection but falls short of market expectations. Our 2024 operating income estimate is unchanged; however, we raise our medium-term projection based on a more robust outlook from consolidating Turkey-based Ozti in the second quarter of 2024. While the combination of fixed costs from Ozti’s capacity expansion and one-time cost accounting treatments from the company will limit the profit contribution in 2024, we expect the company will utilize Ozti’s established channels to increase sales in growing markets in Europe, Middle East, and Africa over the longer term. As such, we expect capacity utilization to improve and revise our 2027 operating income estimate to JPY 54 billion, up from JPY 50 billion, thus raising our fair value estimate of Hoshizaki to JPY 5,500 from JPY 5,200. We believe shares are fairly valued.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its vast service network to allow the company to maintain the leading domestic share and prevent competitors from making a material impact on its incumbent status in future.

Hoshizaki’s September-quarter revenue of JPY 98 billion, up 11% year on year, and 12.8% operating margin were better than expected, mainly due to strong sales of its high-margin ice makers in the Americas region, which grew 40%. A better product mix from weaker sales of low-margin refrigerators, due to continued inventory adjustments by distributors in the U.S. and refrigerator production issues in Europe, also pushed margins higher. As these issues will last longer than previously expected, we now expect the better product mix to continue until the first quarter of 2024. We raise our 2023 revenue growth projection by 2 percentage points to 15.5% year on year and operating margin assumption to 11.3% from 10.9%, but our 2024 projection remains unchanged. We expect operating margin to be flat in 2024, despite a 4% revenue growth, as increased production/sales of refrigerators in the Americas/Europe will offset the impact of operating leverage in Asia. With our outlook intact, we maintain our fair value estimate at JPY 5,200, suggesting Hoshizaki’s shares are fairly valued.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

While Hoshizaki’s June quarter sales of JPY 93 billion, up 20% year on year, were largely in line with our expectations, its operating margin of 12.0% exceeded our forecast of 9.8% due to progress in cost pass-throughs in the domestic market. In addition, the product mix was better than expected, as sales of low-margin refrigerators were lower due to a production issue in Europe and inventory adjustments in the Americas; further, this shortfall was offset by better-than-expected sales of high-margin ice dispensers. Although we expect the product mix to revert to normalized levels in the second half of the year, we raise our operating margin assumptions for 2023 and 2024 by 0.4% and 0.5%, respectively, given the better-than-expected margin recovery in the first half. However, we maintain Hoshizaki’s fair value estimate of JPY 5,200 as sales forecasts and profit margin assumptions are largely unchanged after 2025. We view its shares as currently fairly valued.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

Hoshizaki’s March quarter revenue growth of 25% year on year was better than our forecast of 17% growth, which was mainly from price increases and strong demand in Japan. According to the Japan Food Association, while the number of restaurants declined 1.3% year on year, the number of customers increased by 8% in March. Moreover, we were pleasantly surprised by the faster-than-expected recovery of the number of customers in pubs and dinner restaurants, which grew 66% and 26% year on year respectively, for the same month. Considering the strong recovery in the number of restaurant customers, we expect increases of both inbound and domestic consumers will lead to further capital investments in existing facilities, despite the inflationary headwinds. As such, we revise our 2023 revenue growth projection to 13.4% year on year, up from 10.1% previously (with Japan sales growing 9.5%, up from 5.0%), and raise our fair value estimate to JPY 5,200 from 5,000. We think shares are fairly valued.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

Hoshizaki’s fourth-quarter revenue, ending December, was slightly above our expectations, up 23.9% year on year, supported by postpandemic demand for commercial kitchen equipment worldwide and the acquisition of Italy-based Brema. In the company’s largest market, Japan, investments by restaurants especially picked up, and according to the Japan Food Service Association, domestic chain restaurant sales have finally recovered to 2019 levels in the fourth quarter. While capital investments by pubs/bars remain low compared to restaurants, we expect related investments to pick up in 2023, supported by the recent reopening of borders. Our outlook remains largely unchanged and we maintain our fair value estimate at JPY 5,000. We believe the company’s shares are fairly valued, as expectations of postpandemic growth are priced in.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

Based on the stronger outlook for domestic sales, we raise Hoshizaki’s fair value estimate to JPY 5,000 from JPY 4,800. We think Hoshizaki has been able to resume production more swiftly than its domestic peers and can pass over higher component costs faster than previously expected. We believe these factors are testaments of Hoshizaki’s wide economic moat stemming from its intangible assets. As restaurants in Japan will likely increase investments in light of the reopening of borders and expected inbound demand, we expect solid sales and operating margins in the domestic market in the midterm. However, we view these factors as mostly priced in and Hoshizaki’s shares are currently fairly valued, after the share rally following the announcement.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

We retain our JPY 4,800 fair value estimate for Hoshizaki, following the recent 2-for-1 stock-split, as the increase in the sales forecast is mostly offset by a decline in the operating margin forecast. The company’s stock price rose after the June-quarter earnings announcement as a result of stronger-than-anticipated revenue growth. However, shares are still undervalued, and we think the wide-moat domestic market leader is well-positioned for medium-term, top-line growth in its largest market, as both the pandemic and the components shortage ease.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

Hoshizaki’s 2022 first-quarter companywide revenue increased by 5.8% year on year, but domestic sales (which is its largest market with above 60% of revenue) declined by 5.6% year on year, due mainly to procurement issues from the material shortage problem and a change in the accounting method, which is a one-time issue lowering domestic sales by approximately 3%. However, we retain our fair value estimate of JPY 9,600 on the expectation that sales will undergo a stronger recovery in the second half. Shares have fallen recently because of the negative surprise in domestic sales, which increased concerns over a recovery since the latest quasi-state of emergency was lifted in Japan, and potential impact of headwinds ranging from lockdowns in China to rising components/logistics costs. While we expect these headwinds to affect short-term sales and profitability, we think there is still pent-up demand remaining, as restaurant sales in key markets like Japan and the U.S. have yet to fully recover to precoronavirus levels. Therefore, our view on the mid- to long-term prospects of Hoshizaki is not influenced by this quarter’s results and we maintain our view that the stock is undervalued.

As the largest commercial kitchen equipment manufacturer in Japan, the company utilizes its domestic network of 440 offices/branches to not only sell its products but to promptly provide maintenance services to its customers throughout Japan. This allows Hoshizaki to have a competitive advantage with scale in Japan, where the majority of its total sales are generated. Hoshizaki’s sales is mainly done directly, which allows the company to maintain relationships with its customers. These factors have allowed the company to attain the leading market share with its key products such as commercial refrigerators, ice machines, and beer dispensers, as well as a brand (known for its penguin logo in Japan) in the "cold" kitchen equipment space. We expect the company’s strong reputation and its competitive advantage in scale to allow the company to maintain the leading share and prevent competitors from making a material impact on its incumbent status in future.

Hoshizaki’s fiscal 2021 results were largely in line within our expectations. Total revenue amounted to JPY 274 billion, up 15.2% from last year, while the operating margin was 9.1% (up 1.4% during the same period). After taking into account its recent mergers and acquisitions and Hoshizaki’s midterm business plan, our midterm outlook remains relatively intact, and we maintain our fair value estimate of JPY 9,600. We think shares are currently undervalued, due to a number of reasons: 1) concerns over procuring components as well as rising prices amid the material shortage problem, 2) the extension of the quasi-state of emergency as omicron spreads in Japan, and 3) the poor reaction to the overly ambitious midterm plan.

Wide-moat Hoshizaki’s third-quarter earnings, ending in September, for fiscal 2021, showed year-on-year sales and operating income growth since the company was particularly impacted by the coronavirus pandemic last year. We maintain our fair value estimate at JPY 9,600, after raising our 2021 assumptions and broadly maintaining projections from 2022 onwards. The recovery in the domestic market was higher than expected and pent-up demand overseas seems to be strong. Nonetheless, Hoshizaki’s stock price fell around 10% following the announcement of third-quarter results. We believe shares are slightly undervalued currently, while investors are likely concerned about the drop in profitability due to material shortage. However, we believe the negative impact on margins can be partially offset by the company’s strong growth in sales, efforts in price negotiations and cost-cutting practices. In our opinion, the material shortage is a one-off incident and should not affect the medium/long-term growth forecast of Hoshizaki.