Hoshizaki Earnings: Expecting Further Domestic Sales Growth Supported by Inbound Demand

Hoshizaki’s 6465 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.

March quarter operating margin increased by 2.7 percentage points to 13.1%, which surpassed our expectation as well as the PitchBook consensus, but we do not think the high margin is maintainable for 2023. While price increases in Japan contributed to the profitability, temporary factors also caused a favorable product mix from higher ice maker sales relative to refrigerators. Due to production problems of refrigerators in Europe/Americas and large-scale ice maker purchases by select Indian customers, the proportion of overseas ice maker sales increased year on year from 28% to 36% of total overseas revenue, which was particularly high for the March quarter. We reflect the stronger than expected results and raise our 2023 operating margin projection to 10.5% margin from 10.0%. However, as we expect non-ice maker sales to proportionally increase, supported by a production recovery of refrigerators, we forecast overseas margins will revert to normalized levels going forward.