BRIDGE REPORT
(6498)

東証1部

KITZ Corporation (6498)
President Yasuyuki Hotta
President
Yasuyuki Hotta
Corporate Profile
Company
KITZ Corporation
Code No.
6498
Exchange
TSE 1st Section
Industry
Machinery (Manufacturing)
HQ
1-10-1 Nakase, Mihama-ku, Chiba, Japan
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥904 95,341,783 shares ¥86,189 million 8.7% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥19.00 2.1% ¥73.84 12.2x 793.25 1.1x
Note: Share price is as of closing on November 7, 2018.
Number of shares outstanding is as of the end of the most recent quarter, and does not include treasury shares.
ROE and BPS are from the last year-end.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Income
Ordinary
Income
Net
Income
EPS (¥) Dividend (¥)
March 2015 117,036 6,886 7,581 6,881 63.22 13.00
March 2016 117,278 7,245 7,300 4,915 45.50 13.00
March 2017 114,101 8,929 8,799 5,400 51.43 13.00
March 2018 124,566 10,117 9,733 6,518 65.50 17.00
March 2019 Est. 132,000 11,200 10,900 7,100 73.84 19.00
Note: Estimates are those of the Company. From the fiscal year ended March 2016, the definition of net income has been changed to net income attributable to parent company shareholders (the same goes for the rest of the report).
 
This Bridge Report presents details and analysis of KITZ Corporation's earnings results for the first half of fiscal year ending March 2019 and earnings estimates for the fiscal year ending March 2019.
 
Key Points
 
 
 
Company Overview
KITZ is an integrated manufacturer of valves and other fluid control equipment and devices. In valve manufacturing, it ranks highest in Japan and within the top 10 worldwide. Valves are made of various materials depending on their application, including bronze, brass, cast iron, ductile cast iron (cast iron with greater strength and ductility) and stainless steel. KITZ in principle assumes integrated production (casting, processing, assembling, inspecting, packaging and shipping) of products from raw materials. The KITZ Group consists of 36 domestic and overseas subsidiaries. In addition to the production and sale of brass bars used for valves, water faucets and gas equipment (KITZ is ranked among the top manufacturers of brass bars within Japan), the Group also operates a hotel business. [Corporate Philosophy: To contribute to the global prosperity, KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services.] KITZ believes that corporate value is equivalent to shareholder value from a medium- to long-term perspective. To continue increasing this value, it says that it must achieve sustained growth accompanied by earnings through earning the trust of customers. And by improving corporate value, the Company desires to help create a more prosperous and fulfilling society by providing many types of benefits to its shareholders, customers, employees, business partners, and society. Setting these goals in the KITZ Statement of Corporate Mission, the Company seeks to further progress in the future.
Action Guide Do it KITZ Way Do it True (Sincerity and Honesty) Do it Now (In a Timely Manner) Do it New (Unique and Challenge) KITZ'Statement of Corporate Mission To contribute to the global prosperity, KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services.
Do it True In human relationships, one must be sincere to the other. The pursuit of the essence of things is important; not of superficial things. "Do it True" are words that are designed to remind employees of these basic principles when conducting corporate activities. Do it Now "Do it Now" expresses the image of dynamic employees who lose no time in obtaining information, making prompt decisions, and putting them into practice with certainty. Do it New "Do it New" expresses the image of employees who think outside the box to show creative ways forward and take on new challenges in response to changes. <Overview of KITZ's Business Segments> KITZ's businesses consist of the valve manufacturing, brass bar manufacturing and other (including hotel and restaurant management) segments. During the fiscal year ended March 2018, these segments accounted for 78.8%, 18.9%, and 2.3% of total sales, respectively. Valve Manufacturing Business Valves are used to pass, stop and adjust the flow of fluids in various pipe systems (water, air, gas and other substances). They are used in building facilities, residential utility systems, water supply facilities, fresh water and sewer systems, fire prevention equipment, machinery and industrial equipment manufacturing facilities, chemical, medical, and petrochemical product manufacturing facilities, semiconductor manufacturing facilities, oil refineries and other industrial complexes, among other applications. The Company operates an integrated production system that begins with the casting process (KITZ was the first Japanese company to acquire ISO 9001 international quality standard certification). The Company's product offerings include commercial valves, which are made of corrosion-resistant bronze and highly economical brass for use in the building construction sector, including building facilities and residential utility systems, and industrial stainless steel valves such as high-value-added ball valves. The Company has a high share of the domestic market in these mainstay product areas. Regarding sales activities within Japan, the Company's sales bases in major cities and meticulous network of distributors leave no part of the country unattended. For overseas sales, the Company has established representative offices in India, the U.A.E and Philippine. KITZ also has a global sales network, with bases in China, Hong Kong, South Korea, Singapore, Malaysia, Thailand, the United States, Brazil, Germany and Spain. With regard to production, in addition to domestic plants, the Company has production sites (China, Taiwan, South Korea, Thailand, India, Germany, Spain and Brazil), constituting a global production network to realize global costs and production at the optimum location. Brass Bar Manufacturing Business Copper alloy can take many different shapes, including sheets, strips, pipes, bars and wires through hot or cold deformation processing such as dissolution, casting, rolling, extruding, and forging. It can be made with a range of different materials, including brass (copper with zinc), phosphor bronze (copper with tin and phosphorous), and nickel silver (copper with nickel and zinc). The KITZ Group's brass bar manufacturing business is led by KITZ Metal Works Corporation and Hokutoh Giken Kogyo Corporation. These companies manufacture and sell brass bars, which are used not only as material for valves, but also in the manufacture of water faucets, gas equipment, electrical appliances and other brass-derived items. Other KITZ subsidiary Hotel Beniya Co., Ltd., operates a resort hotel in the city of Suwa, Nagano Prefecture. The hotel is located in a highly picturesque setting close to Lake Suwa with hot spring bathing facilities with sunset views and has a number of small and large banquet halls. The hotel also has a large convention hall, giving it the capacity to hold international conferences.
 
 
First Half of Fiscal Year Ending March 2019 Earnings Results
Sales and operating income increased 13.7% and 34.7%, respectively, year on year. Sales grew 13.7% year on year to 67,781 million yen. The sales of the valve manufacturing business were 53,844 million yen, up 14.7% year on year, the sales of the brass bar manufacturing business were 12,237 million yen, up 10.8% year on year, and the sales of other business were 1,698 million yen, up 6.5% year on year. The sales of the valve manufacturing business exceeded the initial estimate, as it performed well inside and outside Japan, and the sales of the brass bar manufacturing business exceeded the initial estimate, due to the rise in selling prices caused by the increase in copper price. Overseas sales ratio was 29.4% (28.0% in the same period of the previous year). Operating income was 5,813 million yen, up 34.7% year on year. The profit of the brass bar manufacturing business dropped 44.1% year on year, due to the fluctuation in the copper market, and the operating income of the valve manufacturing business rose 30.3% year on year, due to the sales growth and the improvement in profitability. Net income grew 48.6% year on year to 3,926 million yen, as the company posted foreign exchange gains of 41 million yen (foreign exchange losses of 134 million yen in the same period of the previous year) and its tax burden ratio declined from 37.0% to 30.6%. Valve Manufacturing Business Domestic sales grew 11.6% year on year to 34,259 million yen. While the sales of valves for building facilities, which are mainstay, increased 9%, mainly thanks to redevelopment projects in the Tokyo Metropolitan Area, the sales of valves for semiconductor-manufacturing equipment grew 25% year on year. The sales of industrial valves rose 16%, thanks to the demand for maintenance and renewal and the investment in capability enhancement by chemical manufacturers, etc. On the other hand, the sales of valves for the water market declined 5% due to the downturn in sales to municipalities. The sales of valves for semiconductor manufacturing equipment remained large until the second quarter, but the number of orders is decreasing currently. Overseas sales increased 20.5% to 19,584 million yen. The sales in Asia, including the Middle East, grew 20%, thanks to the favorable sales of valves for semiconductor manufacturing equipment mainly in South Korea and China (though the number of orders is currently declining as in the domestic market) and the delivery of products for the large-scale project Bid Boland in Iran (amounting to about 1.9 billion yen). In China, commercial valves sold well especially for data centers in addition to the good performance of valves for semiconductor manufacturing equipment, and as for industrial valves, whose sales had been sluggish, the company succeeded in receiving large-scale orders, showing a recovery trend. In ASEAN countries, the company's performance was unchanged from the same period of the previous year, and the company established marketing bases and found new distributors. In the Americas, sales increased 17%. The company's performance is recovering due to the increase in oil price, and the sales to pipeline companies, too, grew. In Europe, sales bottomed out, and distributors restarted placing orders for replenishing stocks. Operating income rose 1.7 billion yen (30.3%). The factors in increasing the profit include sales growth (+ 2.4 billion yen), cost reduction (+ 550 million yen), and foreign exchange rates (+ 200 million yen), while the factors in decreasing the profit include the market conditions of raw materials, including copper (- 350 million yen) and increase of SG&A (-1.1 billion yen). Main factors of the increase are the augmentation of the cost for acquiring Cephas Pipelines Corp. (hereinafter called "Cephas"), which is a butterfly valve manufacturer in South Korea, (expenses for human resources, goodwill amortization, and M&A), and rise in R&D expenses. Brass Bar Manufacturing Business The market prices of raw materials, which affect selling prices, dropped at the beginning of the term, but increased until June, but started dropping again in July. Sales grew 10.8% year on year to 12,237 million yen, as the fluctuations in market prices produced positive effects, but operating income dropped 44.1% year on year to 191 million yen, as the drops at the beginning of the term and from July produced significant adverse effects. Other As for the hotel business, sales grew 6.6% year on year to 1,698 million yen, as the company attracted domestic tourist groups in the second quarter, which is a busy season, and operating income rose 114.5% year on year to 120 million yen, thanks to sales growth and cost reduction. Total assets as of the end of the first half were 132,756 million yen, down 788 million yen from the end of the previous term. In the debit side, inventory assets, tangible assets, and goodwill increased due to the acquisition of Cephas, and intangible assets grew due to the investment in IT systems. On the other hand, cash and deposits declined due to M&A, equipment investment, acquisition of treasury shares, payment of income taxes, etc. In the credit side, income taxes payable, accrued consumption taxes and net assets declined. Equity ratio was 57.0% (57.1% at the end of the previous term). Acquisition of treasury stock At the meeting of the board of directors on July 30, 2018, the company resolved to acquire treasury stock for increasing capital efficiency, taking flexible capital measures in response to the changes in the business environment, and returning more profits to shareholders. Based on the resolution, the company finished acquiring treasury stock, by buying 2,000,000 shares at around 1,949 million yen during a period from August 6 to September 12. Details of resolution Category of shares to be acquired: common shares Total number of shares that can be acquired: up to 2,000,000 (whose ratio to the total number of outstanding shares, excluding treasury shares, is 2.05%) Total acquisition price: up to 2,000 million yen Acquisition period: Aug. 6, 2018 to Dec. 20, 2018
 
 
Fiscal Year Ending March 2019 Earnings Estimates
There is no revision to the earnings forecast, and it is estimated that sales and operating income will increase 6.0% and 10.7%, respectively, year on year. Both the valve manufacturing and brass bar manufacturing businesses are expected to see sales growth. In the valve manufacturing business, the sales of valves for semiconductor manufacturing equipment will slow down, but the total sales are estimated to mark a record high, due to the recovery in the Americas and the healthy performance in China in addition to the favorable demand of valves for building facilities and industrial valves in domestic market. As for profits, the profitability of the valve manufacturing business is expected to increase, but the profit from the brass bar manufacturing business, which is affected by the copper market, is conservatively estimated. The company plans to post an equipment investment of 10.5 billion yen, and depreciation is to be 5 billion yen. Valve Manufacturing Business The sales of valves for building facilities, which are mainstay, are estimated to slow down slightly due to backlash from the temporary demand after the price revision on May 1 and advance orders due to the anxiety over delivery dates, but the company will keep delivering products for redevelopment projects in the Tokyo Metropolitan Area, and healthy performance is expected as a whole. Industrial valves are forecasted to continue to sell well, as there will be investment for enhancing capabilities in the chemical field, etc. For butterfly valves, which are focused products, the company will boost the production output of Ina Plant, to promote sales further. On the other hand, the number of orders for valves for semiconductor manufacturing equipment is currently declining, as there are no longer advance orders from SPE manufacturers. The sales of valves for the water market are estimated to increase from the first half due to seasonal factors, although the sales for public works are sluggish. The sales for water treatment equipment remain healthy. In overseas, the sales of valves for semiconductor manufacturing equipment are slowing down like in Japan. North American market is seeing the growth of demand due to the rise in oil price and the recovery of the number of orders from distributors, although the demand is not so strong. The company will promote sales targeting pipeline companies, from which the number of orders is increasing. In the South American market (Brazil), sales have bottomed out, and are on a recovery track. The performance in Europe is sluggish, but it has apparently bottomed out. Valves which were manufactured in Europe for Bid Boland(Iran) have completed shipping and depositing. In ASEAN countries, the sales of some commercial valves are expected to grow thanks to price revision. The company will develop commercial valves tailored for each region, while concentrating on the establishment of marketing bases and the increase of distributors in each country. In China, the performance of commercial valves for building facilities, including data centers, remains healthy, and the sales of industrial valves are recovering. As for profit, the full-year estimate has been revised upwardly, considering the performance in the first half better than expected. Brass Bar Manufacturing Business Considering the results in the first half, the profit estimate has been revised downwardly. In the second half, profit is projected to drop due to the augmentation of depreciation and labor cost, etc. It is expected that the productivity improvement due to equipment investment will lead to cost reduction in the next term or later. Other As for the hotel business, sales and profit are projected to decline from the first half, due to seasonal factors.
 
 
Topics
(1) Delivery of high-pressure valves of Toa Valve Engineering Inc. (hereinafter called "TVE") to biomass power station The company formed a capital alliance with TVE in 2016. As a result of this alliance, TVE delivered high-pressured valves, which are core products of it, to the project which KITZ had received. The biomass power station uses palm shells as fuel, and received the gate valves and glove valves produced by TVE as well as the cast carbon steel valves, ductile cast carbon steel valves, and stainless steel valves produced by KITZ, with the cylinders of YKV, which is a group company. The company plans to cement the cooperation between the two companies and increase orders for high-temperature, high-pressure valves. (2) Enhancement of the production capacity for butterfly valves at Ina Plant As the policy of the domestic sales division in 2018, the company "aims to improve the strengths as all-round valve manufacturer and become a truly No.1 valve manufacturer." Under this policy, the company invested in equipment at Ina Plant, for the purpose of enhancing the competitiveness of butterfly valves, whose market is expected to grow. While shortening lead time by enhancing production capacity, the company will make efforts to reduce costs and improve quality. (3) KITZ Corporation of Asia Pacific Pte. Ltd. (hereinafter called "KAP") established a representative office in Indonesia. In the ASEAN region, which is one of focused areas, the company is increasing marketing bases, and in June 2018, the company established a representative office of KAP in Jakarta, the capital of Indonesia, as the seventh marketing base. (The seven marketing bases are composed of 4 sales companies and 3 representative offices).
Sales companies KITZ Corporation of Asia Pacific Pte. Ltd. KITZ Valve & Actuation Singapore Pte. Ltd. KITZ Valve & Actuation (Thailand) Co., Ltd. KITZ Valve & Actuation (Malaysia) Sdn. Bhd. Representative offices Representative office of KAP in Vietnam Representative office of KAP in the Philippines Representative office of KAP in Indonesia
(4) "Aqua Rescue" was installed in the area devastated by the torrential rain in July 2018. From June 28 to July 8, a record-breaking torrential rain inflicted grave damage on various places, mainly in western Japan. Shimizu Alloy MFG Co., Ltd., which is a group company, set "Aqua Rescue," portable all-in-one high-performance water purification equipment, in 3 devastated areas, to support water supply. This activity for supporting devasted areas with "Aqua Rescue" is the second one after that for the Kumamoto Earthquake in 2016. The company will keep developing emergency support systems. (5) Renewal of the design of the company's signboard The signboards set at JR Tokyo Station, JR Kaihin-makuhari Station, and JR Kami-Suwa Station have been renewed. The new design depicts a child peering at a bright future through a valve. The copy "KITZ Valves, links to the future" extends toward the blue sky. This kid is featured for representing "a bright future and hope." This new design includes a "valve," which is indispensable for realizing a bright future, and implies a message that "KITZ hopes to be an essential company for society."
 
 
Future remarkable points
In the next term, the business performance of KITZ is expected to remain healthy, mainly thanks to strong demand of valves for building facilities, but there are some concerns. For example, we are concerned about the recoil from the large-scale project Bid Boland in Iran, the semiconductor-related business, whose order quantity took a downward turn, the effects of the trade friction between the U.S. and China, etc. Bid Boland is a large-scale project, but the sales from it are around 1.9 billion yen, which is not significant compared with the consolidated sales of the company in this term exceeding 130 billion yen. It seems that the profit from that project was not significant, considering the business scale of KITZ. On the other hand, the trend of the semiconductor-related business, which is profitable, is attracting our attention. The number of orders in this domain has already started declining, and this decline is estimated to be reflected in sales from around December. The company expects that performance will recover around next summer, considering the opinions of semiconductor manufacturing equipment manufacturers, etc., and assumes the possibility that sales will drop by up to 20 to 30% on a monthly from January 2019. Unless the recovery is delayed, it is expected that sales will not decline so much from this term, because sales will decrease in the second half of this term. Since part of valves for oil refinery for the U.S. are manufactured in China, there are concerns over the trade friction between the U.S. and China, but competitors, too, manufacture their products in China, so the effects of the trade friction are considered to be limited. Due to the 25% taxation, the orders received at distributors decreased temporarily, but the number of orders is reportedly recovering currently. The burden of depreciation due to the operation of IT systems (to be started in January 2019) will augment, but the effects of price revision in the valve business are expected to remain in the first half of the next term. Accordingly, it is estimated to be offset by the sales growth with the improvement of profitability in the primary business. As for the brass bar manufacturing business, depreciation is forecasted to augment due to the operation of equipment for manufacturing brass bars (to be started in June 2019) after KITZ Metal Works Corporation invested 5.3 billion yen, but the new equipment is expected to solve the problems of maintenance cost augmentation and poor production efficiency due to the old equipment that has been operated for a long period of time. In addition, the lead regulations for copper alloy, which is used for parts of automobiles and electronic components in Europe, are projected to be tightened several years later, and the demand for more environmental materials is expected to grow around the world.
 
 
<Reference: Concerning corporate governance>
◎Corporate governance reportUpdated on: June 26, 2018 Basic policy Our corporate ethos is to continuously improve our corporate value by offering creative, high-quality products and services. Under this ethos, we strive to achieve business administration that takes care of the interests of shareholders and all other stakeholders as a socially responsible company. In addition, we aim to "make our business administration healthy by enhancing our compliance with laws" and "streamlining our business administration by promoting the improvement of our corporate competitiveness" by implementing a variety of measures while recognizing that corporate governance is based on "compliance" and "management." <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> We undertake all principles of the Corporate Governance Code. <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)> 9. Policy for Constructive Dialogue with Shareholders (Principle 5-1) We recognize that, in order to achieve sustainable growth and enhance medium- to long-term corporate values, it is important to be aware of the accountability as a trustee of management, disclose information to stakeholders such as shareholders and investors in a timely and appropriate manner, and maintain fairness and transparency in management. We also believe that it is important to provide necessary information on an ongoing basis and also to conduct IR activities to utilize opinions and requests from external viewpoints for management improvement. Therefore, in order to promote constructive dialogue with shareholders and gain their understanding regarding management strategies and plans, the Company has established an IR system centered around the representative director and IR executive officer, and is implementing the following policies: 1) The Company appoints an executive officer to be in charge of IR. As a rule, the head of the IR department responds to shareholders' requests for consultations, but either the representative director or IR executive officer may respond depending on the purpose of the consultation and the number of shares held. 2) With a focus on IR executive officers, the Company seeks to coordinate and collaborate with its departments, and holds meetings with the IR department, management planning department, accounting department, general affairs and human resources department, legal department, etc. as necessary. 3) The Company conducts meetings for institutional investors and analysts each quarter, with financial results briefings in March (end of the term) and September (2nd quarter), and analyst meetings regarding financial results in the 1st and 3rd quarters. In addition, company briefings for individual investors are held every year. At these company briefings, explanations are given by the president himself. In addition to information regarding financial results, such as summary of financial results and securities report, other information is also disclosed on the Company website, regarding IR topics such as management information, information on shares and shareholders meetings, and reports on corporate governance. 4) The Company periodically reports opinions gathered from dialogue with institutional investors and analysts to the representative director and IR executive officer. If necessary, the representative director will inform the Board of Directors and management committee. 5) The Company pays close attention to managing insider information, and considers the executive officer in charge of the accounting department to be responsible for handling information. The accounting executive officer, IR department, and management planning department discuss details regarding information disclosure prior to opening a dialogue with institutional investors and analysts. 6) The Company examines the status of practical shareholders from the shareholder registry at the end of March and September every year, and uses this information for IR activities. 7) The Company drew up a long-term management plan and medium-term management plan, and established target figures for items such as sales, operating income, ordinary income, the ratio of overseas sales, the amount of interest-bearing debt, equity ratio and return on equity (ROE). The Company discloses these values on its website, etc. and at financial results briefings, explains in detail what steps must be taken to achieving these goals. In addition, the medium-term management plan has been appropriately reviewed based on business performance, social conditions, economic conditions, etc. When changes occur, the reasons and details regarding the change will be explained at general shareholders' meetings and financial results briefings.
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2018 Investment Bridge Co.,Ltd. All Rights Reserved.
 
 
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