SHOEI Co., Ltd. (7839)
Masaru Yamada Chairman
Masaru Yamada
Hironori Yasukochi President
Hironori Yasukochi
Corporate Profile
SHOEI Co., Ltd.
Code No.
First Section, TSE
Masaru Yamada
Hironori Yasukochi
Ueno 5-8-5, Taito-ku, Tokyo
Year End
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,619 13,771,898 shares ¥22.297 billion 21.0% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥62.00 3.8% ¥124.89 13.0x ¥723.10 2.2x
*Share price as of close on May 2, 2016. Number of shares outstanding at end of the most recent quarter excluding treasury shares.
Consolidated Earnings Trends
Fiscal Year Sales Operating Income Ordinary Income Net Income EPS(¥) DPS(¥)
September 2012 8,606 97 143 65 4.78 2.00
September 2013 11,158 1,340 1,299 799 58.04 29.00
September 2014 13,406 2,765 2,646 1,669 121.20 60.00
September 2015 14,244 3,210 3,092 1,996 145.00 72.00
September 2016 Est. 14,420 2,500 2,550 1,720 124.89 62.00
* Estimates are those of the Company. From the current fiscal year, the definition for net income has been changed to net income attributable to parent company shareholders (Abbreviated as Parent Company Net Income)
This Bridge Report discusses the first half of fiscal year September 2016 earnings results for SHOEI Co., Ltd.
Key Points
Company Overview
SHOEI is the world's number one helmet manufacturer. While motorcycle helmets are its primary product, the Company also manufactures aircraft and military use helmets supplied to private industry and the government. At the same time, SHOEI boasts of an extensive sales network not only within Japan, but also in about 70 countries throughout various regions around the world including Europe and North America. The "SHOEI" brand is recognized around the world for its high levels of safety and functionality, beautiful appearance, and it is now synonymous with premium grade helmets. Superior design is a key strength of SHOEI. Furthermore, SHOEI endeavors to raise the satisfaction levels of its customers, shareholders and employees through the implementation of a comprehensive three-pronged strategy that covers "product strategy," "manufacturing strategy" and "market strategy." The group consists of the SHOEI and five other consolidated subsidiaries in the United States, Germany (two), Italy and France.
Management Policy:                   Achieve World's Top Levels in Three Realms
"World's Top Product Quality":   Global brand that is made in Japan
"World Top Competitiveness in Cost"   World's only helmet maker to utilize the Toyota Production System for cost management
"World Top Delightful Company"   Achieve highest levels of satisfaction of customers, shareholders and employees
<Business Description>
Motorcycle use helmets account for about 90% of total sales. SHOEI focuses upon high value added "premium helmets" that are manufactured at its two plants in Ibaraki (Inashiki City) and Iwate (Ichinoseki City) Prefectures in Japan. The Company is able to maintain high quality levels and prevent the leakage of its technology by maintaining manufacturing facilities within Japan.
<Overseas Sales Account for 75% of Total>
<Focus Upon Craftsmanship to Maintain Top Market Share - Two Domestic Plants in Ibaraki and Iwate Manufacture 100% of Products>
SHOEI produces premium brand helmets that are recognized as the highest quality products by motorcycle riders around the world. Their helmets boast of extremely intricate designs that provide not only superb functionality with superior wind resistance characteristics, but also very fashionable looks. SHOEI's persistence in its pursuit of helmet designs that are "comfortable to their users" is the driving force behind its top market share.
Different safety regulations designed to protect the lives of helmet users exist in the respective markets of Japan, Europe and North America. Therefore, the Ibaraki plant chiefly produces helmets for Japan, while the Iwate plant mostly for overseas markets. In the pursuit of this specialization strategy, SHOEI is able to achieve high levels of manufacturing efficiencies.
<Corporate History>
SHOEI was established as polyester processing manufacturer in 1954. In March 1959, SHOEI Kako Co., Ltd. was turned into a corporation and it used its polyester processing technologies to enter the helmet market. In January 1960, production of helmets for motorcycle riders was started, and in July 1968 a subsidiary was established in the United States, entering an overseas market. In July 1987, entry to the French market was launched along with the establishment of a local subsidiary. However, the bursting of the bubble economy within Japan forced SHOEI to file for corporate reorganization in May 1992. In September 1992, the current Chairman Masaru Yamada, who was working at Mitsubishi Corporation, took on the task of administrator task of the corporate reorganization. During the reorganization process, SHOEI also entered the German market with the establishment of a German subsidiary in March 1994 made possible by the smooth reorganization efforts. The reorganization was successfully completed in a relatively short period of time of four years and three months in March 1998 and along with the completion of the reorganization, the Company name was changed to SHOEI Co., Ltd. in December 1998. In July 2004, SHOEI listed its shares on the JASDAQ Market. Then SHOEI moved its listing to the Second Section of the Tokyo Stock Exchange in September 2007 (JASDAQ listing was eliminated at the same time), and moved to the First Section of the Tokyo Stock Exchange in October 2015. Currently, SHOEI's name is recognized globally as the top manufacturer of premium helmets.
<Maintaining Basic Policy for Medium and Long Term Stable Growth and Stable Profit>
1. Protect Own Company by Ourselves
2. Made in Japan and maintaining constant employment (Transmission of Manufacturing)
3. Maintain healthy financial positions
4. Continuation of Investment (Development of new products, Cost saving, Improvement of quality, Firm safety)
5. Targeting #1 in All Premium Helmet Markets in the World
6. Development of New Markets and Deepening of Existing Markets
7. Fair distribution of retained earnings (50% dividend of profit after tax, distribution to employees and distribution to company (proper retained earnings kept))
At the end of fiscal year September 2015, current ratio, which reflects the Company's ability to meet its short-term payment commitments, stood at 533.5%; fixed ratio, which reflects the Company's long-term financial safety, stood at 21.3%; and capital adequacy ratio stood at 78.5% with no outstanding debt. SHOEI's balance sheet proves that its management philosophy is successful in achieving its goals of (1) defending our own Company and (3) maintaining healthy financial conditions.

With the manufacture of all its products at two domestic plants in Ibaraki and Iwate, SHOEI (5) strives to achieve the number one position in the global premium helmet market by (2) maintaining manufacturing functions and high levels of employment in Japan (Carrying on the craftsmanship tradition), (4) conducting ongoing investments (New product development, cost reductions, product quality improvements, higher levels of safety), and (6) developing new markets and strengthening its positioning in existing markets through the coordinated effort with its overseas subsidiaries.

With regards to (4) ongoing investments (New product development, cost reductions, product quality improvements, higher levels of safety), the second round of large capital investments was started in fiscal year September 2015 for the purpose of achieving stable operations over the long term. Following the first round of large capital investments for growth between fiscal years September 2006 to 2009, which centered on the large wind tunnel testing facility, the total investment is expected to be ¥4 billion over 5 years. Capital investments in fiscal year September 2016 are expected to amount to ¥1.113 billion, and the estimate of ¥2.456 billion in operating cash flow is expected to absorb this large investment and enable SHOEI to secure free cash flow of ¥1.306 billion.
ROE (Return on Equity) is calculated by multiplying three factors of "net profit to sales margin (net profit/sales)," times "total assets turnover (sales/total assets)" times "leverage (total assets/equity capital, inverse of equity capital ration.)" ROE = net profit to sales x total assets turnover x leverage.
The figures above are calculated using earnings results and assets data from official financial reports (i.e. earnings digest and securities report). Total assets and equity are averages of the balance during the term (average of balance at the end of previous term and current term). Capital ratio on earnings results and assets security reports is calculated based on balance at the end of term. Therefore, its reverse and above leverage may vary.
In the aftermath of the Lehman Shock, a sudden decline in the mainstay European market and the rapid strengthening of the yen relative to the euro contributed to a deterioration in earnings, but a "V" shaped recovery in earnings recorded in fiscal year September 2012 is also reflected in the rise in ROE from that period onwards.

According to a large United States information services company, the average ROE for Tokyo Stock Exchange First Section listed companies stood at 8.15% at the end of fiscal year March 2015, compared with 8.56% at end of fiscal year March 2014. While SHOEI has a fiscal year that lags the companies listed in this survey by six months, it has been able to achieve much higher ROE than the average for the First Section companies in fiscal year September 2015.

SHOEI's levels of leverage are low due to its strong financial foundations, and profitability has a room for rapid improvement when higher sales is achieved based upon the high margin of profitability of its high value-added premium helmets. Total asset turnover ratio may decline over the near term due to the start of "the second round of large investments to achieve stable management over the long term" during fiscal year September 2015.
First Half of Fiscal Year September 2016 Earnings Results
Sales Declined by 2.3%, Ordinary Income Rose by 3.4% Year-On-Year
Sales declined by 2.3% year-on-year to ¥6.386 billion. Despite a 27.3% year-on-year rise to ¥1.9 billion in sales within Japan, sales in overseas markets declined by 11.1% year-on-year to ¥4.485 billion due to the stronger yen relative to the euro and US dollar, and to adjustments by local sales distributors.

Within Japan, the main driver of growth of domestic demand was a recovery in senior motorcycles enthusiasts demand (Recovery of demand from enthusiasts who had been away from motorcycles for a while) and some strength in inbound demand (3-4% of the total). Furthermore, fitting services offered in selected sales outlets was also favorably received (Measurements taken in stores to adjust helmet linings to fit customers).

In overseas markets, on the other hand, an increase in sales in China due to fortified sales channels could not offset declines in sales in Europe and North America. Sales in Europe fell by 5.1% year-on-year to ¥2.854 billion. Despite a 2.8% year-on-year increase in sales volumes in Europe, which absorbed adjustments of a major dealers in Germany, the stronger yen relative to the euro had a large negative impact (Effect of -¥205 million). Inventory adjustments by local sales distributors caused sales in North America to decline by 34.7% year-on-year to ¥1.092 billion. South America's stagnant economies also negatively impacted on SHOEI's North American sales due to shipments to South America via North America. However, these difficult conditions had been factored into earnings estimates already. Sales in other regions rose by 48.5% year-on-year to ¥538 million.

With regards to profits, operating income declined by 6.7% year-on-year to ¥1.487 billion due to a 3.7% year-on-year decrease in gross profit arising from the stronger yen and despite of a slight decline in selling, general and administrative expenses,. However, an improvement in foreign exchange translation loss on foreign exchange reserves for the euro (-¥95 million to ¥53 million) allowed ordinary income to increase by 3.4% year-on-year to ¥1.547 billion. Extraordinary income also improved, allowing parent net income to rise by 10.5% year-on-year to ¥1.024 billion.

SHOEI's foreign exchange rate assumptions were ¥116.96 to the US dollar (¥118.80 in the previous term) and ¥130.53 to the euro (¥139.24 in the previous term). Foreign exchange rates for overseas subsidiaries as of December 30, 2015 were ¥120.61 to the US dollar (¥120.55 in the previous term) and ¥131.77 to the euro (¥146.54 in the previous term). With regards to the euro, SHOEI has reserved large portion of its anticipated needs for euros at ¥135.62 per euro at the beginning of the term.
(2) Introduction of "X-14 (North America, Japan) / X-Spirit III (Europe)" "J-O" for the 2016 Motorcycle Riding Season
"X-14 (North America and Japan) and X-Spirit III (Europe)" models were newly introduced for the 2016 motorcycle riding season to the three geographic regions of Japan, North America and Europe. The "J-O" products were introduced in Japan and Europe to help create a new product category for SHOEI.
X-14 (North America, Japan)/ X-Spirit III (Europe)
"X-14 (North America and Japan) and X-Spirit III (Europe)" models are products which pursue racing performance to the utmost limit, and
both are full face on-road type helmets positioned to become the flagship models for SHOEI. MOTO GP motorcycle racing champion Marc Marquez and other main motorcycle racers sponsored by SHOEI participated in the development of these new helmets and had nothing but praise to say about them. In particular, Marc Marquez had strong words of praise about its aerodynamic performance. Moreover, participants at the American International Motorcycle Expo (AIM Expo) held in Florida, United States in October last year also expressed their strong support of these products.

"X-14" went on sale in Japan from April at a suggested retail price of ¥60,000. Also, "X-14" went on sale in North America at a suggested retail price of between 681.99 and 839.99 US dollars (Excluding tax). "X-Spirit III" went on sale in Europe at a suggested retail price of between 699.00 and 869.00 euros (Germany and France, including tax). The model name in North America and Japan is different from that in Europe because the existing model series names were continued to be used.
ENJ·OY THE RIDE! Is a new and fashionable small jet helmet that combines functionality and safety. "J·O" is an open face type helmet with an inner compartment shield that targets riders of custom and classic motorcycles. It has been developed in response to the trend for motorcycle manufacturers to release new models that are reminiscent of older style motorcycles models made in the past. They are described as "lightweight, compact and fashionable" and maintain the key concepts of all SHOEI products. This series of helmets are designed to become a new category of products for SHOEI, and they have been received with surprise and enthusiasm at the "EICMA Show" held in Milan, Italy in November.

J·Os have been released sequentially in Europe since March 2016 at a suggested retail price of between 329.00 and 379.00 euros (Germany and France, including tax). Sales in Japan are expected to begin from spring 2016 (Suggested retail price of ¥32,000). The product will not be introduced in North America due to difficulty in making lightweight and compact helmets comply with unique United States safety standards.
Total assets rose by a small margin of ¥61 million from the end of the previous first half to ¥12.929 billon at the end of the current first half on the back of increases in inventories and accounts payables due to favorable orders and despite a decline in cash and deposit and accounts receivables. In addition, tangible assets rose on the back of capital investments. Current and capital adequacy ratios declined to from 533.5% and 78.5% in the previous term end to 488.0% and 77.0% at the end of the current term respectively, while noncurrent ratio rose from 21.6% to 23.0%.
Fiscal Year September 2016 Earnings Estimates
Sales Expected to Rise by 1.2 %, Ordinary Income to Decline by 17.5%
SHOEI's earnings estimates remain unchanged due to "foreign exchange rates, sales trends and others have uncertainties anticipated during the second half " and despite the strong performance that exceeded first half earnings estimates. Capital investments and depreciation are expected to amount to ¥1.113 and ¥0.630 billion respectively.

Furthermore, reductions in inventories, short-term collection of accounts receivables and reductions in tax expenses are expected to allow the net inflow of operating cash flow to rise above the previous year's level of ¥2.005 to ¥2.456 billion, and despite anticipation of a decline in operating income of 22.1% year-on-year. Investing cash flow is expected to see a net inflow of ¥1.150 billion (A net outflow of ¥916 million during the previous term) due to an increase in capital investments. Consequently, the net inflow of free cash flow is expected to rise to ¥1.306 billion (¥1.089 billion during the previous term). Based on these earnings estimates, a dividend of ¥62 per share is anticipated.
Attainment rates of the full year estimates for sales, operating income, and ordinary income are favorable at 44.3%, 59.5%, and 60.7% respectively. In the main market of Europe, adjustments by large scale German distributors are expected to be almost completed by December, and should be on track to recover from January despite the decline in sales in overseas markets recorded during the first half of fiscal year September 2016 (Sales are made to large scale German dear sales agents through subsidiaries, which end their fiscal year in June). Moreover, premium helmets in China were very popular among high-end consumers and due in part to strengthened sales channel. SHOEI maintains high factory capacity utilization rates due to favorable trends in Japan, Europe, and other regions. The impact of a sharp strengthening of the yen has been factored into relatively cautious forecasts for North America and high levels of production due to higher volume may offset any appreciation of the yen relative to the US dollar.
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.
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