Description
Keeper provides car coating services to car owners throughout Japan via directly owned stores as well as franchise stores (mainly gas stations)
What’s great about the Company
Revenue will more than double from 8.7bn JPY in FY 20/Jun to 20.5bn JPY in FY 24/Jun (estimated).
For the same period, operating profit increased from 1.4bn JPY to 6.1bn JPY, meaning OP margin improved from about 15% to 30%.
The company’s store counts are still growing, opening 1-2 stores every month, totaling 117 stores in May 2024.
Surprisingly, there is almost no competitor in the coating market – every coating service I find at gas stations is provided by Keeper; otherwise, car dealers provide the service. Car owners only go to dealers when they buy a car or do a car inspection.
Keeper’s OPM has improved as it has added high-end coating products to lift pricing with productivity improvement.
Growth Opportunity
Firstly, expansion of directly owned stores that bring higher priced services and profitability.
Concerns
Consumers are very price-sensitive in Japan in general. Keeper increased prices multiple times in the last 5 years, including a significant hike in the price of car wash service (i.e. previously 2,990 JPY to 5,150 JPY for L size car) in Sep 2023, on the back of a wage increase in their employees. After that, the number of customers dropped as expected.
If you believe in an inflationary environment in Japan, this wouldn’t be a big issue. Their price hikes are even a testimony that Keeper has a strong pricing power.
Management
The founder, Mr. Tani sits as CEO and is the largest shareholder of the Company. The 72-year-old guy founded the Company when he was 32. Before that, he had worked for a gas station and gotten an idea of coating service.
The second largest shareholder is VT Holdings (7593), an operator of dealerships for Honda and Nissan. By the way, five years ago, VT only spent 4bn JPY to acquire a 20% stake in Keeper, which is valued at roughly 22bn JPY now. VT’s market cap is around 60bn JPY, would you be interested in digging into it too?
Valuation
Market cap – 113bn JPY (share px 4,000 yen)
P/E 26x, ROA 24% and ROE 32%
Free Cash Flow FY23 was 2bn JPY with OPCF of 3.6bn JPY.
As the shift from growth to value stocks, Keeper’s share px considerably dropped from a high of 7,000 yen to 4,000 yen. A plunge in the number of customers after the price hike in Sep 2023 may be another reason.
As of writing, the P/E doesn’t look very cheap compared to some other insanely cheap stocks, yet it is worth following.