๐ฏ๐ต๐ฏ๐ต ๐จ๐๐๐๐๐๐๐๐๐๐๐๐๐๐๐๐ ๐ฏ๐ต๐ฏ๐ต
Unicharm
JP3951600000
๐ช๐๐๐๐๐๐รผ๐๐พ๐๐๐๐๐พ๐ ๐บ๐๐ ๐ฉ๐บ๐๐บ๐ - ๐ญ๐บ๐ผ๐๐๐บ๐ ๐๐๐๐๐พ๐๐ ๐๐บ๐ผ๐ ๐ฝ๐พ๐ ๐ช๐๐-๐ฒ๐พ๐ ๐ณ
Unicharm engages in the manufacture and sale of baby, feminine, pet, and health care products, and provides industrial and food packaging. The personal care segment includes baby care, feminine care, health care, and clean-and-fresh products. It includes the moony, Natural moony, MamyPoko, Center-in, Kiyora, Sofy, Lifree, Charm Nap and Silcot brands. The Pet Care segment is engaged in the manufacture of pet food and pet toiletries. This includes the Aiken Genki, Neko Genki, Gin no Spoon, Deo-Sheet, Deo-Manner-Wear, Deo-Sand, and Deo-Toilet brands. The Other segment manages commercial products that use nonwovens. [1]
Sales per segment [1]:
Personal Care (body care): 85.86%.
Pet Care (pet care): 13,35%
Other (miscellaneous): 0.79%
Sales per region [2]:
Japan: 37.67%
China: 14.26%
Asia: 32.2%
Others: 15.87%
However, the focus on emerging markets seems to be very important for Unicharm to generate growth in the long term. Specifically, Asia, the Middle East, North Africa and South America are designated focus markets.
"...In those regions, we are setting up our own manufacturing and sales operations and transferring management authority to local subsidiaries, giving us the ability to respond rapidly to changes in local consumer needs. By contrast, in the large but maturing markets of North America and Europe, we are generating stable earnings by minimizing our investment outlay through technology licensing agreements with local partners. In addition, we are rapidly expanding our sales areas overseas by building strong networks with leading wholesalers in local markets and promoting early uptake of our products."
๐ฒ๐๐-๐บ๐๐ ๐จ๐๐๐๐๐๐๐:
In all of its expansion efforts, Unicharm is pursuing a very particular strategy, that of kyo-sei. Translated into German, Kyosei means "living and working for the common good." The three pillars of Kyo-Sei are to reduce the impact on the climate, create offerings for sustainability, and social participation [4].
Thus, Unicharm has launched a Kyo-Sei Life Vision 2030 [5]:
"At Unicharm, we are committed to helping solve environmental and social issues as we work together to realize a cohesive society. With that in mind, we have put forward Unicharm Group's mid-to-long term environmental, social, and corporate governance (ESG) goals in a document called "Kyo-sei Life Vision 2030 - For a Diverse, Inclusive, and Sustainable World."
We will probably only be able to make a final assessment of Unicharm's Kyo Sei Vision in a few years' time, as it was only launched a year ago. Basically, the approach (see also pictures below the post) seems reasonable to me at first glance. Because Unicharm is sustainable not only since yesterday, what the following news confirm:
"Unicharm selected in stock composites of "SOMPO Sustainability Index", 11 years in a row".
https://www.unicharm.co.jp/en/csr-eco/education.html
In the pictures, I have attached you an overview of the strategy of Kyo Sei of Unicharm.
Strategy according to company homepage [3]
"Unicharm will strive for appropriate collaboration with its stakeholders and aim to be a fair and highly transparent company that is well-regarded and trusted by society. We believe that doing so in an effort to achieve sustainable growth and creation of corporate value over the medium- to long-term will lead to "sound corporate management" through the "pursuit of proper management which collectively accomplishes corporate growth and development, associates' well-being and fulfillment of social responsibilities" as stated in our corporate ideals. In addition, we aim to create an environment in which happiness for each employee can be made a reality through the promotion of diversity management and human resource development."
๐๐ฒ๐ป๐ป๐๐ฎ๐ต๐น๐ฒ๐ป ๐จ๐ป๐ถ๐ฐ๐ต๐ฎ๐ฟ๐บ[๐ณ]*:
-KGV 2021: 41
-KGV 2022e: 36.5
-KGV 2023e: 32.7
-KGV 2024e: 29.9
-PEG 2022e (P/E/growth rate): = 4.86 (rule of thumb: < 1 = very favorable)
-PEG 2023e: = 4.36
-Sales growth: 2022: 8.9%; 2023: 5.8%; 2024: 6.1%
-EBIT growth: 2022: 1.7%; 2023: 10,5%; 2024: 8,4%
-Dividend yield 2021: 0.72%
*As of 07/20/22
๐๐ฒ๐ป๐ป๐๐ฎ๐ต๐น๐ฒ๐ป ๐๐ฎ๐ฝ๐ฎ๐ป [๐ด]:
-GDP Japan (excluding banking sector/financials): 14.05
-Growth Japan (excl. banking sector/financials): 7%**
**This is not about Japan's economic/GDP growth but about the growth of Japanese companies, which also generate large growth abroad.
-KGV Healthcare products: 34.80
-PEG Healthcare products: 1.18 (growth next 5 years 29.57%)
-P/E ratio household products: 31.49
-PEG Household Products: 2.13 (Growth next 5 years 14.78%)
-Inflation: 2.4% [9]
-Lead interest rate: 0 to -0.1% (since 01/02/2016) [10]
-Government debt: 263% of GDP [11]
-->Growth rate Unicharm:
Based on the Japanese economy and Unicharm's sales, or EBIT forecasts, I assume average growth of 7.5% p.a.
In the feminine hygiene sector, where Unicharm has a strong presence, scientific surveys also assume sales growth of 6.4%, in the Asia Pacific region. [12]
๐ฅ๐๐ฏ๐ฟ๐ถ๐ธ - ๐ช๐ฎ๐ ๐รผ๐ฟ๐ฑ๐ฒ ๐๐๐ณ๐ณ๐ฒ๐ ๐๐ฎ๐ด๐ฒ๐ป (data from Annual Report 2021 [1]):
Criteria to be read in detail:
https://app.getquin.com/activity/XcuRrJwmyP
Income Statement:
-Net Margin: 2021: 10.68%, 2020: 8.6% -->negative! (Buffet's target: >20%) -Unilever: 12.6%, Johnson & Johnson: 22.26%)
--Gross margin: 2021: 40%, 2020: 40% --> positive! (Buffet's target: min. 40%) - Unilever approx. 42%, Johnson & Johnson approx. 68%)
-Sales/Administration. and other overhead: 24.42% of sales -->positive! (Buffet's target: 30-40% max.)
-Interest expense: 1.2% of operating profit -->positive! (Buffet's target: <15%) -->Debt seems to be very low (see also Balance Sheet)!
Balance Sheet:
-Treasury Shares: Yes! Share buybacks available -->positive!
Debt: < 4xEBIT: Ja! -->very positive!
-Short-term debt to short-term assets ratio: 0.5 -->very positive! Ideally <1 -->The cash position alone covers 68%. One could therefore immediately pay 68% of the current liabilities (including the outstanding receivable <1)!
-EK Quote: 64,33% (2021), 62,97% (2020) -->positive
Key Note Balance: Very low debt with sufficient cash and therefore flexibility with good EK ratio!
Cash Flow Statement:
Overview 2021 in million yen, previous year (2020) in parentheses:
Operating cash flow 139.073 (170.252)
-Cash flow from investing activities -79,837 (-41,698)
=Free cash flow 59,236 (128,554)
-Cash flow from financing activities -45,180 (-35,239) --> Dividends paid, loan repayments, employee stock options
Investments: 95% of net income (Buffet's goal: <50%) -->negative! However, the low debt situation allows for high investments. So I don't see this position quite as negative.
๐๐ฒ๐ ๐ก๐ผ๐๐ฒ:
-->margin analysis!
At Unicharm, I would like to take a closer look at margin. Unlike my last ideas of Maxar (debt) or Alfen (turnover rate), the margin is the sticking point for me here. This is, compared to the competition, still in need of minimal improvement, to then still find the hair in the soup. So how has the margin developed and in which area do we have potential for development?
Margin on operating profit (EBIT) by region [14]:
-Japan: 19.7% -->Volatile, fluctuating in the range of 15.8% to 21.7% since 2016.
-Asia: 14% -->Trending steadily upward (from 11% in 2016 increasing year over year)
-Other: 10.3% -->Trending steadily upward (from 4.6% in 2016 increasing year over year)
The development in Asia, China and "Others" (mainly Middle East, North Africa and South America) is to be seen positively. Thus, Unicharm has increasing margins especially in the selected growth markets. This gives me confidence that Unicharm will show even better margins in the future. Exactly this potential is also reflected in the development of the gross and net margin:
Gross margin (sales less production costs):
-2021: 40,07%
-2020: 40,22%
-2019: 37,35%
Net margin:
-2021: 10,68%
-2020: 8,6%
-2019: 7,37%
The margins show an increasing trend and are mainly driven by the growth markets. For example, Unicharm states the following in its 2021 annual report, which again shows the sustainability mindset:
"In doing so, we will secure a high degree of competitiveness and profitability by
investing management resources in growth markets and businesses. By reinvesting the cash generated through these activities in new growth markets and businesses, we will create a virtuous cycle and enable sustainable growth and high profit."
๐จ๐ป๐๐ฒ๐ฟ๐ป๐ฒ๐ต๐บ๐ฒ๐ป๐๐ฒ๐ถ๐ป๐ผ๐ฟ๐ฑ๐ป๐๐ป๐ด ๐ป๐ฎ๐ฐ๐ต ๐ฃ๐ฒ๐๐ฒ๐ฟ ๐๐๐ป๐ฐ๐ต [๐ญ๐ฎ]:
-->moderate growth (>5%, max. 12%) -->classic consumer goods stock. Growth comparable to Unilever (7-12%), Johnson & Johnson, P&G, etc.
๐ฃ๐ฒ๐ฒ๐ฟ ๐๐ฟ๐ผ๐๐ฝ/๐๐ผ๐ป๐ธ๐๐ฟ๐ฟ๐ฒ๐ป๐ [๐ฒ]:
-Unilever (GB) - mainly due to focus on emerging markets.
P/E RATIO: 19.57
-Johnson & Johnson (USA)
P/E RATIO: 21.91
-Essity AB (Sweden)
P/E RATIO: 21.97
-Kimberly-Clark
P/E RATIO: 24.70
-VVF:
Sales $901 million
-Natura Brazil:
Sales $1 bn.
-Bidco Africa:
Sales $848 mn
๐ช๐ฒ๐๐๐ฏ๐ฒ๐๐ฒ๐ฟ๐ฏ๐๐๐ผ๐ฟ๐๐ฒ๐ถ๐น:
I don't see a direct competitive advantage. The competition is far too big for that. However, due to the financial situation and strategic orientation in the Asian region, I definitely see a pricing power and cultural advantages over the Western competition.
๐ฅ๐ถ๐๐ถ๐ธ๐ฒ๐ป:
1) I see a similar risk in Unicharm as in Unilever. The focus on the growth markets of Asia, Middle East, North Africa and South America creates a currency risk that could weigh on margins. This is exactly the "problem" Unilever also has. I think the focus on these markets is good, but it goes hand in hand with the currency risk. Growth, in particular of the net margin, which I already explained in the key note, could falter as a result.
2) China represents around 14% of total sales. There is also a certain risk here in the field of political tension between China and Japan.
๐๐ฎ๐๐ถ๐:
Unicharm is a very interesting stock from Japan. So thank you first of all to @Divmann for the suggestion. For those who want to invest in the Japanese market, Unicharm offers a solid alternative to the well-known players from the US and Europe (Unilever, Johnson & Johnson, Essity AB, Kimberly-Clark). Unicharm is deeply anchored in the Asian market. Nevertheless, they will have to compete against the aforementioned Western competitors, who will also share in the growth forecasts (see above) in the Asian region. Financially, the company is in a very good position and does not have to hide at all. However, the gross and net margins are in need of minimal improvement, but are within the range of the peer group. Whoever wants to invest in Unicharm can do so, in my opinion, with a first, small tranche. However, the price is still a bit too expensive for a larger position (as of 22.07.22).
Also exciting is the Kyo-Sei approach, which stands for sustainable management. This seems to me to be in line with the Japanese culture, as I have come to know it. Perhaps Unicharm thus also offers a sympathetic side effect and causes less stomach ache for some than with the well-known "villains" of the industry (Nestle..cough..).
What I also particularly like is the very clear and transparent annual report, with lots of graphics. Since I have already seen a lot of reports, also from the Asian region, this was still worth a mention to me :)
I hope you enjoyed it! In this sense, I would like to conclude with a Japanese proverb from the Sumarais:
"๐๐ฎ๐ท๐ด๐ฎ ๐ผ๐ฌ๐ฑ๐ช๐ป๐ฏ ๐ท๐ช๐ฌ๐ฑ ๐พ๐ท๐ญ ๐ฎ๐ท๐ฝ๐ผ๐ฌ๐ฑ๐ฎ๐ฒ๐ญ๐ฎ ๐ฒ๐ท๐ท๐ฎ๐ป๐ฑ๐ช๐ต๐ซ ๐ฟ๐ธ๐ท ๐ผ๐ฒ๐ฎ๐ซ๐ฎ๐ท ๐๐ฝ๐ฎ๐ถ๐รผ๐ฐ๐ฎ๐ท."
But I hope your purchase decision will take a little longer ;)
A sake on that for now, Kanpai ไนพๆฏ!
As always, no investment advice!
Sources:
[1]
https://aktienfinder.net/dividenden-profil/Unicharm-Dividende
[2]
https://diyinvestor.de/peter-lynch-6-kategorien-fuer-die-einordnung-von-unternehmen/
[3]
https://www.unicharm.co.jp/en/csr-eco/special04.html
[4]
https://www.crevelt.de/2021/09/02/kyosei-leben-und-arbeiten-fuer-das-allgemeinwohl/
[5]
[6]
https://www.zoominfo.com/c/unicharm-corporation/347154294
[7]
https://de.marketscreener.com/kurs/aktie/UNICHARM-CORPORATION-115884907/fundamentals/
[8]
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html
[9]
https://www.global-rates.com/de/wirtschaftsstatistiken/inflation/inflation.aspx
[10]
https://www.finanzen.net/zinsen/leitzins/japan
[11]
[12]
https://diyinvestor.de/peter-lynch-6-kategorien-fuer-die-einordnung-von-unternehmen/
[13]
[14]
Graphic:
history of corporate growth:
https://www.unicharm.co.jp/en/ir/financial/growth.html
Company homepage:
https://www.unicharm.co.jp/en/home.html
