Hoshizaki Likely to Recover From First-Quarter Slump, Maintaining Our JPY 9,600 Fair Value Estimate

Hoshizaki’s 2022 first-quarter companywide revenue increased by 5.8% year on year, but domestic sales (which is its largest market with above 60% of revenue) declined by 5.6% year on year, due mainly to procurement issues from the material shortage problem and a change in the accounting method, which is a one-time issue lowering domestic sales by approximately 3%. However, we retain our fair value estimate of JPY 9,600 on the expectation that sales will undergo a stronger recovery in the second half. Shares have fallen recently because of the negative surprise in domestic sales, which increased concerns over a recovery since the latest quasi-state of emergency was lifted in Japan, and potential impact of headwinds ranging from lockdowns in China to rising components/logistics costs. While we expect these headwinds to affect short-term sales and profitability, we think there is still pent-up demand remaining, as restaurant sales in key markets like Japan and the U.S. have yet to fully recover to precoronavirus levels. Therefore, our view on the mid- to long-term prospects of Hoshizaki is not influenced by this quarter’s results and we maintain our view that the stock is undervalued.