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Sanyei Corporation (JP-8119) TSE JASDAQ ( I )

2019-01-10  提供機構:FISCO  作者:FISCO  點閱次數:4

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◆Summary

Reduced forecasts for FY3/19 to net sales of ¥44.0bn and ordinary income of ¥0.85bn Forecasts were impacted by sales declines in Europe and North America and price increases at subsidiary BENEXY Established new plant for furniture and interior goods in Malaysia

Sanyei Corporation <8119> is a trading company specializing in high-value-added products with a history of over 70 years. It carries a full range of consumer lifestyle products and covers an expansive supply chain spanning manufacturing, imports and exports, wholesale, and retail. It has 19 overseas locations and 84 domestic directly managed retail stores. The Company stands out in terms of its coverage of products with high added value, including the introduction of differentiated European brands to Japan and OEM supply of unique products to customers, such as Ryohin Keikaku Co., Ltd. <7453>, which operates MUJI. It has three main business segments – Furniture and Houseware Business (49.0% of overall sales), Fashion Accessories Business (33.2%), and Home Appliance Business (13.2%).

1. Business description

The Furniture and Houseware Business is the Company’s largest business segment. In this segment, OEM business represents a very large percentage of segment sales at about 93%, and growth has been driven by expansion in business at major customers, such as Ryohin Keikaku (MUJI). Sales increased from ¥17,007mn in FY3/13 to ¥27,431mn in FY3/17. Recently, sales have decreased due to the non-recurrence of spot orders by a major European customer, shrinkage of sales to a US volume retailer and other impacts, but the OEM business should remain the core component. The Company’s own MINT e-commerce brand is a fast-growing brand. The Company started handling Villeroy & Boch as a new housewares brand in October 2017. This is a traditional German tableware brand coming up on its 270th year in business. The Company took over the sales business for Villeroy & Boch—a business that possesses sales channels to department stores, specialty shops, hotels and restaurants. It has taken time for the Villeroy & Boch brand to contribute to business performance because the Company has been implementing measures upfront to reshape the brand portfolio, reduce costs and tackle other priorities. However, the Company remains determined to steadily nurture Villeroy & Boch into a core brand in the housewares business.

The brand business is highly profitable and has a substantial presence in the Fashion Accessories Business, representing about 57% of segment sales. The largest brand the Company handles is BIRKENSTOCK, which is managed by subsidiary BENEXY CORPORATION. BIRKENSTOCK makes sandals and comfort shoes with excellent functional beauty and has a tradition of more than 240 years in Germany. It is supported by an enthusiastic fan base even with a price range of about ¥10,000. The products are sold via 62 directly managed stores and e-commerce. The Company offers after-sales services because many customers use the products for lengthy periods. Sales and profits have recently declined due to the impact of the boom in BIRKENSTOCK footwear settling down, and the brand’s policy to raise prices globally. Kipling is a brand of nylon bags that originated in Belgium in 1987, and together with the Kipling monkey keychain (its mascot), it is famous throughout the world as a playful, casual brand. The brand operates this business via 12 directly managed stores and at about 60 major department stores across Japan. Business has performed favorably owing to the development of new sales channels in FY3/19.

2. Results trends

The Company reported lower sales and profits in 1H FY3/19. Net sales decreased 4.3% YoY to ¥20,842mn and operating profit decreased 96.2% YoY to ¥29mn. Ordinary profit declined 87.4% YoY to ¥107mn. The Company posted a loss attributable to owners of parent of ¥12mn, compared with profit of ¥487mn in 1H FY3/18. One major factor behind the lower sales and profits was a sharp decrease in sales of housewares for Europe and North America in the OEM business, which accounts for about 70% of net sales. A closer look at these sales shows that trading with Europe was impacted by a client company’s loss of a tender for a major project for promotion merchandise. In trading with North America, a client volume retailer saw e-commerce enterprises such as Amazon (Amazon.com <AMZM>) make inroads into its market. In response, sales to this retailer were curtailed because of diminishing profitability for the Company. Other factors behind the lower profits were lower sales and smaller profit margins at subsidiary BENEXY. Turning to BIRKENSTOCK, the Company’s core brand, the boom in this brand that began in North America a few years ago has subsided. In addition, price increases in the Japanese market that were implemented as part of BIRKENSTOCK’s global pricing policy pushed down product sales, and combined with the impacts of higher costs and expenses, led to a decrease in profits.

The Company has reduced its forecasts for FY3/19 and now expects to post lower sales and profits for the fiscal year. The Company is forecasting a decrease of 1.6% YoY in net sales to ¥44,000mn, a decrease of 49.5% YoY in operating profit to ¥850mn, a decline of 53.6% YoY in ordinary profit to ¥850mn and a decrease of 52.0% YoY in profit attributable to owners of parent to ¥400mn. The net sales forecast has been revised down to a level on par with the previous fiscal year. The negative impact of the drop in sales in markets in Europe and North America recorded in 1H FY3/19 is expected to be offset by increases in revenue in the Fashion Accessories Business and Home Appliance Business. In the Fashion Accessories Business, a strong performance is expected in the OEM business for Japanese and foreign clients and in the Kipling business, in which the Company has successfully developed new sales channels. In the Home Appliance Business, the OEM business is expected to drive higher sales. The Company has sharply reduced its operating profit forecast from the initial forecast. The segment that will likely experience the largest drop in profits from the previous fiscal year is the Furniture and Houseware Business, which is forecast to post a ¥556mn decrease in operating profit. This projected decrease reflects sluggish sales in the European and North American markets, plus upfront investment to establish a furniture plant in Malaysia. Although the decrease in profits in the Fashion Accessories Business is small, this segment is expected to be heavily impacted by a drop in sales and increased costs due to the settling down of the boom in BIRKENSTOCK brand and the price increases for BIRKENSTOCK products. Overall, sales have declined due to deterioration in the external environment in the European and the North American markets. However, with firm trends in market conditions and customers in Japan, the deviation from the revised forecasts is expected to be small.

3. Growth strategy and topics

The Company has established a plant to manufacture furniture and interior goods in Malaysia, in order to enhance the furniture business, one of its core operations. It plans to start operating the plant from the beginning of 2019. The Company has furniture customers in Japan and other parts of the world. To deliver a standard of quality that satisfies the requests of its customers and to meet their deadlines, the Company has accumulated expertise by maintaining an active presence on the manufacturing floor on a daily basis. The Company has decided to begin internally operating its own furniture and interior goods plant in order to enhance its development capabilities and responsiveness to customers. The Company believes that this move will further harness its expertise and propel it onto the next stage of business development. Incidentally, the Company has built up a lot of experience in plant management through the operation of a home appliances plant in Guangdong Province, China over the past 30 years. The Company plans to invest about ¥0.5bn in the new plant in Malaysia and is forecasting sales of around ¥2.0bn in several years.

4. Shareholder return policy

The Company has adopted a policy that targets a roughly 30% dividend payout ratio, taking into consideration the need to implement stable, continuous dividends along with securing internal reserves to lay a stronger business foundation. The interim dividend for 1H FY3/19 was set at ¥60 per share, the same as in 1H FY3/18, and the year-end dividend is forecast at ¥100 per share (the same as the end of FY3/18). The Company is thus forecasting an annual dividend of ¥160 per share. The dividend payout ratio will be high at 93.8%, because the annual dividend will be maintained at ¥160 per share, unchanged from the previous fiscal year, despite the reduced profit forecast. The Company has raised or sustained the dividend for 21 consecutive years. As a trading company in the whole­saling sector, the Company’s operating results can be volatile at times. In this environment, we highly commend management’s commitment to maintaining stable shareholder returns even during a downturn in operating results.

◆Company profile

A multi-functional trading company specializing in high-value-added products based on the concept of “bringing fabulous products from the world to the world”

1. Company profile and history

Established in Osaka in 1946 as an exporter of accessories, the Company has a history of more than 70 years. Today, it carries a full range of consumer lifestyle products and covers an expansive supply chain spanning manufacturing, imports and exports, wholesale, and retail. It has grown to be a multi-functional trading company with 19 overseas locations and 84 domestic directly managed retail stores. The Company stands out in terms of its coverage of products with high added value, including the introduction of differentiated European brands to Japan and OEM supply of unique products to clients, such as Ryohin Keikaku (MUJI). The Company is a global enterprise that manufactures products at overseas sites and sells them in overseas markets, based on the concept of “bringing fabulous products from the world to the world.”

2. Business composition

The Company operates under the following business segments – Furniture and Houseware Business, Fashion Accessories Business, Home Appliance Business, and Others. The Furniture and Houseware Business mainly procures OEM products for major Japanese and foreign companies, with the proprietary e-commerce brand MINT also gaining momentum. This segment provided 49.0% of overall sales and 57.5% of operating profit in 1H FY3/19. The Fashion Accessories Business covers import sales of brand products with sales rights, such as BIRKENSTOCK (sandals) and Kipling (bags), and domestic and overseas OEM business. It contributed 33.2% of sales and 49.9% of operating profit. The Home Appliance Business handles OEM product procurement and brand business. Major brands are Vitantonio (cooking appliances) and mod’s hair (beauty appliances). This segment generated 13.2% of sales. The Others segment handles pet goods and other items and was at 4.6% of sale.

The Company has two business models: brand business and OEM business. The brand business mainly promotes wholesale and retail activity in Japan for overseas brands and the Company’s own brands. It has a generally higher profitability than the OEM business because it carries excellent brands with strong histories that have not yet been introduced in Japan. The Company aims to expand the brand business from 28.7% of total sales in 1H FY3/19 to about 40% in future years. The OEM business provides various procurement services, such as review of product specifications for products that meet the needs of client companies, plant selection, price negotiation and production schedule adjustment, production management, and export/import and logistics. The Company has strengths in the manufacturing network in Asia built through overseas initiatives over many years and production management by its own staff. The OEM business contributes 71.3% (1H FY3/19) of net sales. Historically, the Company has developed its brand business using the knowledge and experience of overseas business it cultivated in the OEM business, and currently there are synergistic effects in various aspects.

◆Business overview

Primarily OEM business for major Japanese and foreign clients in the mainstay Furniture and Houseware Business. Villeroy & Boch, which the company started to handle in 2017, is still under the investment term. In the Fashion Accessories Business, the Kipling brand is performing favorably.

1. Trends in the Furniture and Houseware Business

The Furniture and Houseware Business is the Company’s largest business segment. In this segment, the OEM business represents a very large percentage of segment sales at about 93%, and growth has been driven by expansion in business at major clients, such as Ryohin Keikaku (MUJI). Sales increased from ¥17,007mn in FY3/13 to ¥27,431mn in FY3/17. Recently, sales have decreased due to the non-recurrence of spot orders by a major European customer, shrinkage of sales to a US volume retailer and other impacts, but the OEM business should remain the core component.

The Company’s own MINT e-commerce brand is a fast-growing brand sold via the Company’s shopping sites on, Rakuten and Yahoo! and posted a vibrant 1.5-fold increase YoY in FY3/18 sales, albeit at a relatively small scale. At the same timing as expiration of exclusive import agent contracts with two brands (WMF and Silit) in the Furniture and Houseware Business, the Company started handling Villeroy & Boch as a new housewares brand in October 2017. This is a traditional German brand coming up on its 270th year in business. The Company took over the sales business for Villeroy & Boch in Japan—a business that possesses sales channels to department stores, specialty shops, hotels and restaurants. It has taken time for the Villeroy & Boch brand to contribute to business performance because the Company has been implementing measures upfront to reshape the brand portfolio, reduce costs and tackle other priorities. However, the Company remains determined to steadily nurture Villeroy & Boch into a core brand in the housewares business.

2. Trends in the Fashion Accessories Business

The brand business has a substantial presence of around 57% in the Fashion Accessories Business and exhibits high profitability.

The largest brand is BIRKENSTOCK. The retail business for BIRKENSTOCK is managed by the subsidiary BENEXY. BIRKENSTOCK provides sandals and comfort shoes with excellent functional beauty and has a tradition of more than 240 years in Germany. It is supported by an enthusiastic fan base even with a price range of ¥10,000. The products are sold via the 62 directly managed stores and e-commerce. The Company offers after-sales services because many customers use the products for lengthy periods. The directly managed stores are opened in shopping centers capable of attracting large numbers of customers. Sales and profits have recently declined due to the impact of the boom in BIRKENSTOCK footwear settling down, and the brand’s policy to raise prices globally.

Kipling is a brand of nylon bags that was created in Belgium in 1987, and together with the Kipling monkey (its mascot), it is famous throughout the world as a playful, casual brand. The brand operates this business via 12 directly managed stores (including the Ginza store and outlet stores) and at about 60 major department stores across Japan. Business has performed favorably owing to the development of new sales channels in FY3/19.

 

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