Hoshizaki Earnings: Expect Moderate Growth in the Second Half Amid Macroeconomic Headwinds

While Hoshizaki’s 6465 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.

We forecast Hoshizaki’s 2023 sales to grow 13.5% from the previous year, with 7.5% growth in the domestic market and 21.7% growth in the overseas market. Driven by the reopening after the pandemic, domestic sales achieved 13.9% growth in the first half of the year. Although the growth rate should decline in the second half due to the negative impact of inflation and economic slowdown, we expect the recovery of inbound demand to support domestic sales. In August, China lifted its ban on group travel to Japan for the first time in three-and-a-half years, which would provide a tailwind for Hoshizaki’s domestic customers. On the other hand, the weaker Japanese yen and recent acquisitions are contributing to higher sales growth in the overseas market, though we expect some dealers will need to adjust inventories in the second half. As a result, we expect Hoshizaki’s sales growth rate to decline to 5.7% in the second half from 22.3% in the first half, and then return to a 3%-4% growth trajectory after 2024.