Thursday, January 4, 2018

Japanese Companies: Ito En, Ltd. (TYO: 2593) and Seven & I Holdings Co.,Ltd. (TYO:3382)

From Wikipedia:

Ito En, Ltd. (Kabushiki Gaisha Itō En) (TYO: 2593) is a Japanese multinational drinks company specializing in tea production, distribution, and sales. Ito En is the largest green tea distributor in Japan. The Ito En Group includes subsidiaries based in Japan, the United States, and Australia. Its products include unsweetened, bottled green tea and loose leaf tea. Ito En is currently the fourth largest soft drink producer in Japan, after Coca-Cola, Suntory, and Kirin Beverage. Ito En also produces private label drinks for Seven & I Holdings Co. in Japan.
7&I is Japanese 7-11, which provides a much different store experience in Japan than we are accustomed to in the U.S. [See 1, 2, 3 for more on this.] From Wikipedia also:
Seven & I Holdings Co., Ltd. (Kabushiki-gaisha Sebun ando Ai Hōrudingusu, Seven-i) (TYO: 3382) is a Japanese diversified retail group headquartered in Nibancho, Chiyoda, Tokyo, Japan. Seven & I was founded in 1920 as Ito-Yokado, and is now the fifth largest retailer in the world, with 54,000 stores in approximately 100 countries. Seven & I Holdings was established on September 1, 2005 as the parent company of the 7-Eleven Japan chain of convenience stores, the Ito-Yokado grocery and clothing stores, and the Denny's Japan family restaurants. In November 2005, it completed the purchase of US-based 7-Eleven Inc. On December 26, 2005, the company announced its acquisition of Millennium Retailing holding company, parent of the Sogo and Seibu Department Stores chains. The acquisition makes Seven & I Holdings the largest distribution and retailing business in Japan.
I know Ito En from seeing their ready-to-drink green tea beverages carried at stores like Whole Foods.They are also sold on Amazon.

The Tokyo Stock Exchange website has a variety of information for each listed company. Here is the page for Ito, En. Click on the "basic information" tab to access more data, starting with basic information. Note the "trading unit" is 100 shares.

You can also see there are 89,212,380 shares outstanding. From Yahoo Finance Japan we see that the Ito En share price most recently closed at 4,410 ¥. That is a market capitalization of 393 billion yen. The exchange rate is currently 113 yen to the dollar, so the market capitalization is $3.5 billion.

Scrolling down, we see there's a PDF of consolidated financial results for the fiscal year ended April 30, 2017, in English.

Operating income was 21.2 billion yen on 476 billion yen of sales, a smallish 4.5% margin. The market capitalization is 18.5x the operating income. Not super cheap or super expensive.

Book value per share is $1,100. So it trades at about 4x book.

The PDF of results has some interesting commentary about the business:
  • "Our Beverage Division's production strategy is based on what is termed a fabless (fabrication-less) system which means that ITO EN does not have its own production."
  • "As a top manufacturer of green tea, ITO EN handles approximately 25. 2% of the green tea leaves harvested in Japan and uses its extremely strong purchasing power to secure a stable supply of high-quality plucked tea leaves that can be purchased at a reasonable price as a result of relationships built on trust with producers over many years. Over those years, ITO EN has also accumulated a high level of production expertise, making it the beverage company that can self -produce high-quality green tea leaves for beverages. Furthermore, in Japan, the aging of agricultural workers and the lack of young people willing to inherit and carry on work in the agricultural field, resulting shrinkage of a reduction in tea-producing land and growers. ITO EN is cultivating green tea producing areas in Miyazaki, Kagoshima, Oita, and Nagasaki prefectures for mainly green tea used as a beverage ingredient, for which demand is expected to continue increasing. ITO EN's agro-technicians visit these areas, and leads strictly governed cultivation operations based on cultivation management records and plans. Through our business of cultivating green tea growing areas, we are working to revitalize the tea industry and local communities by utilizing idle agricultural land, creating employment and encouraging young people to inherit and take on the work of agriculture."
  • "With regard to overseas strategies, ITO EN (North America) INC. puts efforts into building strong 'ITO EN' brand awareness in the U.S. and establishing a market for green tea by introducing authentic green tea, expanding its wholesale area, and focusing on the natural food market and national chain stores throughout the U.S.. By adopting ITO EN's specialty sales structure, the 'Route sales system,' in Manhattan, N.Y., where nationwide attention of the U.S. gathers, and operating closely to customers, the market share for green tea beverages is expanding steadily and the presence of 'ITO EN' is being appealed proactively."
I thought it would be neat if this Japanese tea company that I recognized would have a super cheap stock but that's not the case. Let's take a quick look at 7&I then.

It's much larger. The market capitalization is 4.2 trillion yen (that's $37 billion). The share price is 4,767 ¥. Operating income for the fiscal year ended Feb 2017 was 97 billion yen, down precipitously from 161 billion the previous year. So this is trading at 44x a recent bad previous year's income and 24x the projected income for the fiscal year ended Feb 2018.

Not super cheap or super expensive either. If we want super cheap Japanese companies, they probably won't be household names.

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