Description<\/p>\n\n\n\n
Keeper provides car coating services to car owners throughout Japan via directly owned stores as well as franchise stores (mainly gas stations)<\/p>\n\n\n\n
What’s great about the Company<\/p>\n\n\n\n
Revenue will more than double from 8.7bn JPY in FY 20\/Jun to 20.5bn JPY in FY 24\/Jun (estimated).<\/p>\n\n\n\n
For the same period, operating profit increased from 1.4bn JPY to 6.1bn JPY, meaning OP margin improved from about 15% to 30%. <\/p>\n\n\n\n
The company’s store counts are still growing, opening 1-2 stores every month, totaling 117 stores in May 2024. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Keeper’s OPM has improved as it has added high-end coating products to lift pricing with productivity improvement. <\/p>\n\n\n\n
Growth Opportunity<\/p>\n\n\n\n
Firstly, expansion of directly owned stores that bring higher priced services and profitability. <\/p>\n\n\n\n
<\/p>\n\n\n\n
Concerns<\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
Management<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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?<\/p>\n\n\n\n
Valuation<\/p>\n\n\n\n
Market cap – 113bn JPY (share px 4,000 yen)<\/p>\n\n\n\n
P\/E 26x, ROA 24% and ROE 32%<\/p>\n\n\n\n
Free Cash Flow FY23 was 2bn JPY with OPCF of 3.6bn JPY. <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
As of writing, the P\/E doesn’t look very cheap compared to some other insanely cheap stocks, yet it is worth following.<\/p>\n\n\n\n
<\/p>\n\n\n\n
<\/p>\n\n\n\n
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