|TYO : 1375|
|65,214 million yen|
|Agriculture and Forestry|
The second largest mushroom manufacturing and sales company in Japan. Relisted in September 2020.
Since the IPO in September CY2020 the stock price has fallen and is trading at ca 30% below the initial public offering price of 2200 yen, in spite of a small pickup at the moment. Clearly, the IPO price was set too high. PBR remains high at around 7x book, but PER has settled down at just under 14 times. As per the real business, the biggest attraction should be the strong and predictable cash flow generation. Long-term investors such as Hikari Tsushin (TYO9435), who like the ability to generate cash flow, may well buy the shares eventually. In addition, the company’s return on capital is way above that of Hokuto (TYO1379) in the same mushroom industry, and some investors may consider switching into the shares of Yukiguni Maitake. Furthermore, the parent company Shinmei Holdings (unlisted and owns 50.0% stake), which intends to go public, could take over Yukiguni Maitake at some stage in future to make it private. It is felt that share price is approaching a stage where declines start to cease rather than not.
The company is Japan’s second largest mushroom manufacturing and sales company with an estimated market share of 15%. The mainstay mushroom is Maitake, whose unit price is remarkably higher than those of other mushrooms. It is the only mushroom whose sales are growing unlike others. The company commands a top market share of 57% in the Maitake market, whilst selling Eringi, Bunashimeji and other mushrooms as well. The biggest mushroom company in Japan is HOKUTO (TYO1379), which has an estimated market share of 20%. Their mainstay is Bunashimeji. In 2013, accounting fraud was detected at Yukiguni Maitake, and the business was seriously disturbed. In June 2015, the company was delisted as a result of the TOB by Bain Capital, a US investment fund. Five years later, it was re-listed on September 17, 2020. The public offering price was 2200 yen and the initial price in the market was 2100 yen. Prior to the listing, Shinmei Holdings Co., Ltd., a major rice milling wholesaler, acquired a 49% stake in September 2017, bringing Bain Capital’s stake down to 51%. Back in long-time history the inception of Yukiguni Maitake’s business was the start of production and sales with the establishment of the company in 1983. As of now the Ohira family, who was the founder and the biggest shareholder, is non-existent in the business. Shinmei HD is a holding company headquartered in Kobe City, Hyogo Prefecture. It is a long-established wholesale rice milling company founded in 1902. (Table 4)
Business Segments (million yen)
|FY2020||Revenue||% Mix||Op Income||% Op Margin||Assets||Capex|
Japan Mushroom Sales (oku-yen, 100mn yen)
Current ROE is over 50% and ROIC is running at 15% in this fiscal year to March 2022. Perhaps, no investor thinks that this is sustainable. After five years of structural reforms under Bain Capital, the company must have re-listed in an extremely lean state, with all the inefficiencies removed. The 20% operating profit margin and the rich operating cash flow generation are quite impressive. The key to calculating the fair value of the shares is how well the return on capital will hold up in the long term. If the profitability of P/L is maintained in the future, equity will build up rapidly, financial leverage will drop sharply, and ROE should drop precipitously. Also, ROIC will go down. Ten years out, our long-term simulation indicates that ROE will decline to a little less than 13%, and then will converge to 10% over a longer period. Put more simply, the easy solution to this query is the net profit margin of 13.0% x asset turnover of 0.8 ≒ ROE of 10%, assuming no leverage and the sustained P/L profitability. The expected ROIC after ten years is 11.2%. Current share price implies PBR of 1.5 times and PER of 11.8 times ten years out. Some investors may already think the shares trade in the reasonable price range.
10 Year ROE Simulation
Balance sheet has yet to stablise and our assumption of sustained profit margins should be a little too unrealistic. In fact, the management states that they want to take expansive actions such as M&A and overseas business. Though none of them are clearly defined yet, it is safer to anticipate that somewhat return on capital will be traded for business scale-up. Various inefficiencies should emerge in the process of redeveloping the core business, which has once been made extremely lean. On the contrary, the rapid buildup of equity capital should encourage the management to consider borrowings and raise ROE, while at the same time lowering WACC. The timing is thought to be three years later when the equity ratio hits around 50%. WACC goes down as invested capital increases, and it will be possible to stop a large decline in economic profit *. In addition, if the company’s IR, which seems to be a little weak at present, is improved, it will also help lower WACC.
* Economic profit: ROIC spread (ROIC –WACC) x Invested capital
The company has few analyst coverage. It should be an interesting stock to look for nice buying opportunities for long-term investment by carefully monitoring how the business develops going forward.
Share price observation
Current share price is 30% below the IPO price. This is very poor performance being in the bottom quartile amongst all IPOs since the outset of CY2020. From January 2020 to the end of July 2021, 148 companies went public in the Japanese equities market. At present, the stock prices of 52 of these companies trade below the IPO prices, averaging decline of 19.9%. Dropping 30% vis-a-vis the IPO price, Yukiguni Maitake shares are the worst 19th out of 148 companies. The share price rebounded in early 2021 following the declaration of state of emergency on January 7, which made some investors expect that people would eat at home and that sales of mushrooms such as Maitake, which were at the top of the demand season, would increase. Currently, top management states that the demand was one-off and can no longer be expected.
Total Shareholder Return
|1M||3M||6M||YTD||1Y||IPO (Dec 2011)|
The shares of Hokuto, which runs a very similar business model to that of Yukiguni Maitake, trade at PBR of 1.1 times and PER of 19 times. Considering ROE of ca 5% to 6%, the shares look sensibly valued. The share price firmed last year on the expectations of special demand due to the spread of corona infection.
|vs TOPIX (%^)||–||–||–||-11.0|
|Div Yield (%)||–||–||–||2.6|
|EPS (Dil) (Y)||110.1||109.1||119.0||114.8|
|Divs PS (Y)||–||–||42.00||42.00|
|Shs Out (Dil)||40||40||40||–|
|Cash&ST Inv (Y-mn)||6,617||4,461||3,777||–|
|Net OP CF||7,994||4,891||8,204||–|
|Gross Margin %||42.8||54.2||46.9||–|
|EBITDA Margin %||26.0||24.5||28.4||–|
|EBIT Margin %||20.7||19.4||22.6||21.0|
|Net Margin %||14.0||10.2||13.7||12.9|
Before mentioning Bull / Bear, the company discloses the details of its mushroom business by sales value and production volume, whilst Hokuto does by in-house production volume. Therefore, the precise unit sales price is not known to each other. For this reason, the comparison of the mushroom businesses of both companies in this paper is no more than a rough estimate.
Graph1：Japan Mushroom Sales (oku-en, 100mn yen)
Graph2：Price of Mushroom – TTM (Y/kg)
Current shareholders consist of insiders 51.5 %, institutional investors 14.0% and the unknown remainder. The breakdown of the insiders is Shinmei HD (50.0%), Bain Capital Snow Hong Kong (1.3%), and Iwao Ashikaga, the current president (0.1%). Directors other than President Ashikaga do not hold shares. Besides these, Houtoku Inari Taisha owns 1.0%. It is a religious corporation of a Shinto shrine in Nagaoka City, Niigata Prefecture. The company explains that there is no relation with them.
Institutional investors are diverse including domestic and foreign. Somewhat surprising is that there are many value investors. The stake of value style investors is 7.6% and that of growth investors is 0.4%. The biggest institutional investor is Impax Asset Management Ltd in London. The company manages almost all the FUM of 3.5 trillion yen in equities.
The stake of foreign investors is 14.5% as of the end of March 2021 according to the Toyo Keizai Shikiho. Foreign investors have been net buyers in the last six months, and at least six new foreign institutions held the shares. As a result, 9 out of the top 15 institutional shareholders are foreign institutional investors. Impax Asset has continued to build positions since the IPO. A certain foreign investor disposed of some positions they bought at the IPO, albeit slightly.
In 2015, Bain Capital acquired all the shares in the TOB, and Yukiguni Maitake was closed to the public. The company was originally held 67.3% by the founding family, including the founder Yoshinobu Ohira, the former president, so any attempt of TOB was considered impossible. However, the banking group cooperated with the management team, which took over presidency from Mr.Ohira, and the US investment fund, and the takeover was made possible. Specifically, the founder had borrowings from multiple banks, including the Daishi Bank, the main bank, with his company’s stocks as collateral. The collateral value decreased as share price fell due to poor business performance, and loan repayment was delayed. The banking group exercised the security interest and acquired the shares of the founder, and then tendered those shares to the TOB by Bain Capital. In September 2017, rice wholesale giant Shinmei Holdings Co., Ltd. acquired a 49% stake, and Bain Capital’s stake became 51%.
Useful Stats of HOKUTO (1379)
Table 1： HOKUTO (1379) – Business Segments
|FY2020||Revenue||% Mix||OP Income||% OP Margin||Assets||Capex|
|Mushroom – Japan||50,538||68.4%||6,939||13.7%||73,658||2,713|
|Mushroom – Overseas||5,074||6.9%||589||11.6%||10,612||63|
|Chemicals (Wrapping Sheet)||10,001||13.5%||-102||-1.0%||8,310||372|
Graph 3 : HOKUTO (1379) – ROE, Capital
Graph 4：HOKUTO (1379) – Dupont
Table 2：HOKUTO (1379) – Overseas Mushroom Segment
|OP Margin %||-3.2%||3.9%||2.5%||7.3%||11.4%||11.6%|
Table 3：HOKUTO (1379) – Price, Ratios
|vs TOPIX (%^)||6.5||5.9||-39.5||-27.9||0.3||43.6||-15.3||-6.0|
|Div Yield (%)||–||2.8||2.9||–||–||–||3.1||2.9|
|3/2016||3/2017||3/2018||3/2019||3/2020||3/2021||5Yr CAGR (%)|
|EPS (Dil) (Y)||81.1||88.1||75.2||90.5||42.2||111.9||6.6|
|Divs PS (Y)||60.00||60.00||60.00||60.00||60.00||60.00||0.0|
|Shs Out (Dil)||32||32||32||35||36||36||2.4|
|Cash&ST Inv (Y-mn)||5,212||6,047||8,508||9,055||12,178||13,891||21.7|
|Net OP CF||8,744||8,000||9,938||9,572||10,778||10,471||3.7|
|3/2016||3/2017||3/2018||3/2019||3/2020||3/2021||5Yr Avg (%)|
|Gross Margin %||27.4||27.8||27.1||27.1||28.0||29.6||27.9|
|EBITDA Margin %||14.6||15.4||14.9||15.4||15.6||17.6||15.8|
|EBIT Margin %||5.6||5.4||4.8||5.0||5.5||8.1||5.8|
|Net Margin %||4.3||4.5||3.6||4.5||2.1||5.5||4.1|
Useful Stats of Shinmei Holdings (not listed)
Table 4：Shinmei HD – Price, Ratios
|Gross Margin %||17.0||18.4||16.4||16.2||17.1|
|EBITDA Margin %||–||–||–||–||–|
|EBIT Margin %||2.7||2.8||1.2||1.0||0.6|
|Net Margin %||3.3||1.5||0.6||1.9||2.4|