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Main Surfactant Producer with Asia Progress Tailwinds Buying and selling at 110% NCAV – Kenkyo Investing Get hold of US

Pondering factors

  • Matsumoto Yushi-Seiyaku (TSE: 4365) is a small oleochemical producer, holding a number one market share in surfactants for textiles and thermo-expandable microcapsules in Japan.
  • Key challenges embody downward stress on earnings from rising costs of crude oil-derived uncooked supplies and the rising stress from purchasers and shareholders to satisfy ESG calls for.
  • Key alternatives embody the corporate’s dominant place in area of interest areas within the oleochemical business, and entry to quickly rising APAC markets together with Indonesia and Taiwan, whereas avoiding publicity to geographical dangers surrounding mainland China.
  • At JPY14,300 per share, MFS trades at an adjusted P/NCAV of 110.6% with a market capitalization of JPY64.5bn.
  • Assuming a good worth P/NCAV of 80~120%, traders can count on an funding CAGR of between -1.5% and +6.2%, together with shareholder returns, over the subsequent 5 to eight years.

Introduction

Matsumoto Yushi-Seiyaku Co., Ltd. (“MFS”) is a small surfactant producer headquartered in Osaka, Japan. It instructions a number one share in Japan for surfactants for textiles and thermo expandable microcapsules, that are primarily utilized in industrial processes.

MFS discloses regional segments solely by manufacturing base, with Japan accounting for 98% of complete income and Asia (excl. Japan) accounting for the remainder. Alternatively, by product sort, its enterprise is roughly categorised into surfactants,  which account for 73% of complete income, and polymer & inorganic merchandise similar to thermo-expandable microcapsules, which account for 27%. By gross sales vacation spot, non-Japan revenues have already surpassed Japan revenues (Asia: JPY21bn, Japan: JPY12bn, and the others: JPY4bn).

Surfactants are supplies with features similar to emulsifying difficult-to-mix substances, foaming and defoaming, and eradicating grime. They’re utilized in a variety of purposes, together with for paper pulp, cleansing, rubber, and textiles, in addition to cleaning soap and detergents. Within the textile business specifically, surfactants are used within the processes of spinning, weaving, scouring, dyeing and ending.

Thermo-expandable microcapsules are a kind of foaming agent that expands many instances its quantity when heated, and are utilized in automotive (undercoating, inside supplies similar to ceiling supplies) and building (sealing supplies) purposes.

Supply: Kenkyo Investing, based mostly on firm knowledge

Enterprise & working setting

Firm Historical past

MYS was based in 1926 initially to fabricate and promote textile industrial oils wanted for the weaving course of. It was included in 1939, and commenced producing and promoting methylcellulose in 1957, adopted by thermo-expandable microcapsules in 1979. In 1970, the corporate established Nipon Quaker Chemical as a three way partnership with US-based Quaker Houghton (NWSE: KWR) to fabricate industrial oils and fat. By way of abroad growth, MFS established joint ventures in Taiwan and Indonesia in 1969 and 1992, respectively. The corporate listed its shares on the JASDAQ (present TSE Commonplace) in 2004.

Enterprise Overview

Headquartered in Osaka, MFS handles spin finishes and spinning oil, functionalizing brokers, sizing brokers for weaving, knitting and weaving oil, scouring brokers, and dyeing and processing brokers for the textile business. It additionally manufactures thermo-expandable microcapsules, microbeads, beauty and toiletry merchandise, and civil engineering and building associated merchandise. The corporate has a big share particularly in surfactant and thermo-expandable microcapsules markets. 

The Japanese surfactant market in 2022 was estimated to be value JPY320bn, of which MFS held a 9% share. This made it the fifth when it comes to market share, behind Kao (TSE: 4452), Adeka (4401), Toho Chemical (4409), and DKS (4461). When restricted to textile purposes, the market measurement is JPY32~45bn (10~15% of the overall surfactant market), and MFS instructions the most important share at round 20~30%.

As for thermo-expandable microcapsules, the worldwide market measurement amounted to JPY27bn in 2016, based on Fuji Chimera Analysis. MFS was the second largest participant behind Akzo Novel (Euronext: AKZA), and is the market chief in Japan.

The worldwide surfactants market is predicted to develop at a CAGR of 4.9% from USD43.5bn in 2022 to USD57.8bn by 2028, owing to the rising want for surfactants in private care, dwelling care, and industrial and institutional cleansing, stemming from the rising inhabitants and rising dwelling requirements particularly within the APAC area (supply: Global Information). In the meantime, the market of thermo-expandable microcapsules can be anticipated to develop at a CAGR of round 10% till the latter half of the 2020s.

Though MFS efficiency fell briefly in FY2021 because of the drop in attire demand attributable to COVID-19, its gross sales have continued to develop at a 12-year CAGR of three.4%. Progress is especially robust in Asia (excl. Japan) at +6.3% in addition to the remainder of the world at +9.8%, and MFS’ core technique is aimed toward capturing development in Asia.

Main Surfactant Producer with Asia Progress Tailwinds Buying and selling at 110% NCAV - Kenkyo Investing Get hold of US Obtain US
Supply: Kenkyo Investing, based mostly on firm knowledge

By way of income, the corporate maintains a excessive revenue margin because of its robust market share in area of interest markets similar to surfactants for textiles and thermo-expandable microcapsules. Its common OPM during the last decade is 15.5%, even greater than that of friends as illustrated within the chart beneath.

Main Surfactant Producer with Asia Progress Tailwinds Buying and selling at 110% NCAV - Kenkyo Investing Get hold of US Obtain US
Supply: Kenkyo Investing, based mostly on firm knowledge
Main Surfactant Producer with Asia Progress Tailwinds Buying and selling at 110% NCAV - Kenkyo Investing Get hold of US Obtain US
Supply: Kenkyo Investing, based mostly on firm knowledge

Shareholders

As of the top of March 2023, the corporate had 4,512,651 shares issued and 1,610,915 shares in treasury, placing excellent shares at 2,901,736. Overseas shareholders accounted for about 9.66% of complete. Main shareholders are as follows. 

Main Surfactant Producer with Asia Progress Tailwinds Buying and selling at 110% NCAV - Kenkyo Investing Get hold of US Obtain US

Supply: Kenkyo Investing, based mostly on firm knowledge

Matsumoto Kousan is an asset administration firm of the founding household.

Yoshiki was the corporate’s government and appears to be a member of the founding household as he was assigned as a director simply after graduating from college. The present president, Naoki Kimura, additionally seems to be a member of the founding household as he has held his place since 1986. Kimura ltd is presumably their asset administration firm, which might imply that the founding household could also be holding over 35% of excellent shares.

The Dai-ichi Life Insurance coverage is without doubt one of the largest life insurers and institutional traders in Japan, and the core enterprise of Dai-ichi Life Holdings (TSE: 8750). Nippon Shokubai (TSE: 4114) is a big chemical producer specializing in ethylene oxide and acrylic resin.

The corporate has paid a dividend of round 20% of working revenue for the previous 5 years, and plans to pay a dividend of round 17% in FY2023. In March 2023, the corporate additionally accomplished a JPY5bn share buyback.

Financials & valuation

  • Matsumoto Yushi-Seiyaku (TSE: 4365) is a small oleochemical producer, holding a number one market share in surfactants for textiles and thermo-expandable microcapsules in Japan.
  • Key challenges embody downward stress on earnings from rising costs of crude oil-derived uncooked supplies and the rising stress from purchasers and shareholders to satisfy ESG calls for.
  • Key alternatives embody the corporate’s dominant place in area of interest areas within the oleochemical business, and entry to quickly rising APAC markets together with Indonesia and Taiwan, whereas avoiding publicity to geographical dangers surrounding mainland China.
  • At JPY14,300 per share, MFS trades at an adjusted P/NCAV of 110.6% with a market capitalization of JPY64.5bn.
  • Assuming a good worth P/NCAV of 80~120%, traders can count on an funding CAGR of between -1.5% and +6.2%, together with shareholder returns, over the subsequent 5 to eight years.

Because of its persistently excessive profitability, MFS has been working fully debt-free since FY03/15. Over the previous 10 years, its money & equal place has risen at a CAGR of 8.3%, leading to its robust 84% fairness ratio as of March 2023. Though the corporate plans to keep up its dividend per share at JPY350 in FY2023, it’s seemingly that the corporate will execute share buybacks occasionally.

A number of the challenges the corporate faces embody a downward stress on earnings from rising costs of crude oil-derived uncooked supplies and stress from sustainability-minded purchasers and stakeholders to shift from carbon-intensive to environmentally-friendly merchandise, so their provide chain carbon emission might be curbed. 

By way of alternatives, it’s honest to count on MFS’s international area of interest chief technique to contribute to secure revenues and excessive margins. Moreover, MFS is just not overly depending on the Chinese language market, and is accessing Asian markets from Indonesia and Taiwan subsidiaries, which lowers its publicity to geopolitical danger.

At JPY14,300 per share, MFS at the moment trades at an adjusted P/NCAV of 110.6% with a market capitalization of JPY64.5bn. Assuming a good worth P/NCAV ratio of 80% to 120%, traders can count on an funding CAGR of between -1.5% and +6.2%, together with shareholder returns, over the subsequent 5 to eight years.

The underside line

Matsumoto Yushi-Seiyaku is a small industrial chemical producer specializing in surfactants for textiles and thermo-expandable microcapsules. Though the corporate faces some challenges similar to danger of crude oil-derived uncooked materials worth hikes and stress to satisfy ESG calls for, it additionally has tailwinds such because the profitable execution of its international area of interest chief technique in quickly rising industries, which may result in excessive profitability. Shopping for in at JPY14,300 per share, traders can count on an funding CAGR of between -1.5% and +6.2%, together with shareholder returns, over the subsequent 5 to eight years.

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