tabio (2668, jp) · tabio plans to develop small outlets at near terminal station that is easier...

METRICAL INC. Suite 3113, 28-10 Ebisu 2 chome, Shibuya-Ku, Tokyo 150-0013 Japan Phone: +81-3-4405-6223 Email: [email protected] http://www.metrical.co.jp/

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Date:4/22/2018

Tabio(2668,JP) Recommendation:OUTPERFORMExchange:TSE SharePrice:JPY1,075(4/20/2017)Sector:Retail TargetPrice:JPY1,597MarketCap:JPY7.3billion P/E:19.1x(2/19CE)P/B:1.3x(2/18act) Div.Yield:2.7%(2/19CE)

‘Kutsushitaya’store

‘Tabio’store

Highlight–Storesaleimprovesunderstructurereform-METRICALmaintainsTabio(2668,JP)asOUTPERFORM.Thestructurereformisunderway,buttheuniqueSocks&Hosieryspecialtyretailerhasalreadypositivelyresponded,pushingitsstoresalehighersincetheimplementation.NewlyintroducedOmni-Channelmarketinghasnotexpandedtoallstoresfor5-monthperiod,butthestorespromotedthismarketingchannelreceivedpositiveoutcomeamidstoresale.Tabioplanstoenhanceittoallstoresseriouslyforthisfiscalyearandthisisverylikelytoaffectthesalepositively.BesidesTabioaimsatincreasinge-Commercesalefrom3.9%ofstoresalesforFY2/2017toover10%innearfuture,risingfrom4.8%forFY2/2018.ForFY2/2018duetoupgradingitssystemthechannelsalewillremainonlyslightincrease.PositivestoresaleledbyOmnichannelwouldhelpitsprofitability,asasmalloutletthatownssmallstockswillreplacefromalargeoutleteventually.Thesharepriceplungedafterglobalstockmarketturmoilfromthebeginningoftheyear.Itsvaluationremainslow.EV/EBIDAis8.8xforFY2/2018andisexpectedtodeclineto7.6xforFY2/2019(E),7.5xforFY2/2020(E)and7.0xforFY2/2021(E).SOTPvalueusing7xofnormalizedEBITDAfromFY2/2013toFY2/2021(E)addingnon-businessassetwouldbeJPY1,598.DCFvaluationshowsmuchhighertargetpriceofJPY1,806fromtheclosingpriceonApril20th2018.BusinessDescriptionTabiowasfounded1968byNaomasaOchi(chairmanatpresent)andhasopenedsocks&hosieryspecialtyoutlets‘Kutsushitaya’and‘Tabio’asdirectrunandfranchise(FC)storesacrossthenationwideandexpandeditsdirectrun‘Tabio’storestooverseasmarketinUKandFrance.Socks&hosieryaresellingatawiderangeofretailerssuchasdepartmentstores,supermarketandothershopsandmustbeanecessaryitem,butmanyshopsarelikelytofocusmoreonpricethanqualityorfashion.However,apersonwhoismoresensitivetofashiontendstofocusonhis/herbottomsfromtopsandlooksforitsqualityorsenseoffashion.Tabiohasfocusesonsuchaneedandprovidedhigh-qualityofmade-in-Japanproductsatitsspecialtystores.Asshownthechartonleft,thesalesofwomen’ssocksaccountsfor57.8%,hosieryaccountsfor14.3%andmen’ssocksaccountsfor18.5%asof2017.Thisisslightlydifferentfromthedomesticsalesbyproductthatshows36.4%forwomen’ssocks,18.7%forhosieryand32.9%formen’ssocks(pleaseseethechartonleft).Tabio’ssalessignificantlyreliesonwomen’sitemsthanmen’sone,althoughthecompanyhasreinforcedmen’sitems,raisingfrom4.5%forFY2/2011to18.5%ofitstotalsalesforFY2/2017.


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IndustryOverviewandCompetitivePositioningIndustryOverviewThedomesticsock&hosierymarkethasnotgrown,andlow-pricedimportshaveincreasinglycomeintothemarket,asshownthechartsontheleft.Forinstance,inparticularlysockscategory,theimportsaccountsfor88.5%ofshipmentinJapan,accordingtodatabyTabio.Duetodeflationeconomy,thelow-pricedimportsareincreasingyearbyyear,whereasdomesticproductionhasbeenshrinkingduetolackofsuccessoroffactoryownersaswellashighersaleprice.Also,ittookyearsforthehosierymarketbeforetherecoveryinthisyearasyoungwomendonotliketowearhosieryforapastyears.Onthismarkettrend,manyretailershavefocusedonsellinglow-pricedgoods,asthesalepricehasnotincreasedduetosoggyconsumerspendingunderdeflationenvironmentinJapan.However,theconsumerbehaviorischangingandislikelytobedivergingrightnow.Consumersarereluctanttospendmoneyforeverydaycommoditygoodsandlookingforashopthatofferslowerprice,whereastheyoftenspendforluxurygoodsorservicesonspecialevent.SoTabiobelievesthatthiswouldbethecaseforsock&hosierymarketandthedivergencewouldbeanopportunityfortheuniqueretailertoenhancemarketpenetrationinitsdifferentiationstrategy.Tabiouniquelyfocusesonhigh-quality(andhigh-priced)made-in-Japanproductsthroughitsspecialtystores.Onlythecompanycanprovidemade-in-Japanproducts,asthecompanycontactswithallfactoriesinJapanforproducinghigh-qualitysocks&hosieryexclusively.CompetitivePositioningBuyers(Middlerisk):Consumerexpenditureisverylikelytocontinueslowertorecoverduetoslowgrowthofrealwageandincreaseinsecurityinsurancecostledbyacceleratingagingsociety.Allconsumerdonotspendforlow-pricedcommoditygoods.Asmentionedearlier,theyspendmoneyforluxurygoodsorserviceonspecialoccasion.Lately,suchaconsumerbehaviourisoftensaidastheconsumptionischangingfrom‘what’basedto‘need’based.Deflationeconomyisaheadwindforthecompany,butspreadof‘need’basedconsumtionwouldbeatalewindforthecompany,ascustomersotherthanapersonwithasenseofhigh-fashinaremorelikelytobuyhigh-qualitysock&hosieryonspecialoccasion.ThiswouldbeverifiedasthesaleofTabiostoreatGinza-SixthatisperformingwellinapopularluxuriousshoppingbuildinginGinza.Consumerswhovisittheluxurybuildingtendtobuyhigh-qualitysocksfortheirownorgiftforspecial.Suppliers(Low-Middlerisk):TabioisonlythecontractorwithJapan’ssocksandhosierymkers.TheproductwillbesuppliedtoonlythecompanybutthereisariskthatitwouldnotbeeasytoraiseproductionfromotherregionincaseofnaturalcasualityinthefactoriesinJapan.Additionally,lackofsuccessoroffactoryownerwouldbeanotherriskforthesupplyofgoods.Duetoqualityofgoods,itrequiressometimetoprepareforincreaseproductionbyinstallationofmachineandtrainingofproductionprocess.


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Competition(Low-Middlerisk):Tabioisonlythehigh-pricedmaid-in-Japansocks&hosieryspecialtyretailer,differentiatingotherretailersinmarket.Competioonriskshouldbelowifthecompanycandeliveritsvaluetocustomerssuccessfully.TheissueishowTabiocandeliverthevaluetocustomersasnotmanyconsumersknowTabiorightnow.NewEntry(Lowrisk):DuetolimitedproductioncapacityoffactoriesinJapanallofwhichcontractwiththecompanyrightnow,thereishighbarrierfornewentrant.Tabioisestablishingpremiumbrandinthemarketsegment.Substitution(Middlerisk):TheriskwouldbecomehigherifhighqualitysockandhosieryatlowerpriceareprovidedfromotherproductionregionthanJapan.Thereisnotalternativeatthismoment.Ontheotherhand,retailchannelwouldbesubstitutedgoingforward.E-Commercechannelwillbeincreasingfromrealstoresaleeventually.TabiohasjustresumedOmni-chanelbycombiningbothfunctionofe-Commerceandrealstore,beforeonlineshoppingofsockandhosieryisinfullswinginnearfuture.BusinessOutlookNewstrategy:OmniChannelandmerchandizingTabioslimeddownitsunprofitablestoresandstoresalehasturnedpositiveafter2-yearnegativesalegrowthinYoYbasis.ThecompanyhasimplementeditsnewmarketingstrategysuchasOmnichannelsaleandnewmerchandizing.TabioplanstodevelopsmalloutletsatnearterminalstationthatiseasieraccessforacustomerpicksitemsupattheoutletafterbuyingTabioSEARCHorTabioappliondevices.Of12,000Omnichannelsale,90%weredeliveredatstoreascustomerspicksitemsatstoreinterminalbuildingwhereiseasilyaccessforcommuteto/fromworkorschool.Only10%ofthesaleisdeliveredtocustomer’shomedirectly(shippingcostisowedbyTabio).ItemsdeliveredtostoressavesshippingcostratherthanshippingtohomeandifcustomersaremoreusedtoOmnichannel,storeswouldreducestore-stocksandsmalloutletinterminalbuildingwouldbemorefavorableforcustomers.Consequently,SGAexpenseinstoresisverylikelytodecreaseanditsprofitabilitywillimprovefurther.Tabioplanstoenhanceitscustomerserviceforthenewmarketingandstoremanagementordevelopment.Thecompanyalsoprojectse-Commercesaleraisedfrom3.9%ofitsstoresaleforFY2/2017to4.8%forFY2/2018andplansfurtherincreasefrom4.9%forFY2/2019afterupgradeofitssystem.ThesaleofthischannelwillcontinuegrowingsteadilyandincreasefurtherafterupgradeofsystemforFY2/2019.Inaddition,TabiohasenteredintoUSmarketthroughonlinesalesincelastSeptember,whereastheHosieryandSocksspecialtystoreshavebeenrunformorethanadecadeinEurope.ForUSmarket,manyretailersandshoppingmallshavehardtime,ascustomersaremorelikelytoswitchtoonlineshopping.Tabiowillsellitsitemsonitsweb-sitebyusinginfluencermarketingandalignwithlocalpartnersuchasdepartmentstoresifneededbutwillnotdevelopitsrealstoresinthemarket.Tabioplansunifiese-CommerceplatforminUSandEurope.


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CompanyOutlookforFullYearFY2/2019Tabiopostedfullyearoutlook.Salewillbeup3.7%YoYtoJPY16,989millionandOP,RPandNPareexpectedtofell36.5%YoYtoJPY642million,32.6%YoYtoJPY654millionand246.9%YoYtoJPY383millionrespectively,assumingitsexistingstorekeepsup+4.4%YoYfrom+4.1%YoYofthepreviousyear.METRICALforecastforFY2/2019Basedonpositiveoutlookofmonthlysale,METRICALexpectsstoresaletomovehigherto+5.4%YoYfortheyear.Salesareexpectedtorise3.5%YoYtoJPY16,956millionandOP,RPandNPareexpectedtogain29.8%YoYtoJPY610million,23.3%YoYtoJPY608millionand226.5%YoYtoJPY362millionrespectively(seethetableonappendix).Mid-TermOutlookMid-termoutlookisexpectedbasedonpositiveexistingstoresalegrowthinYoYbuoyedbyOmniChannelandsteadyexpansionofe-Commercesale.SalesareexpectedtogrowtoJPY16,970millionandOP,RPandNPareexpectedtogaintoJPY696million,JPY694millionandJPY414millionrespectivelyforFY2/2021(E).AlthoughTabioplansmoreaggressivetargetofOPmarginraisingto7.5%ande-Commercesaleto10%ofitsstoresaleforFY2/2020(E),METRICAlbasedonmoreconservativeassumptions.ValuationOnEV/EBIDAmultiple,theclosingpriceonApril20th2018looksrelativelycheap.OnSum-of-the-Partsvaluation,theNAVisestimatedtobeJPY1,589forFY2/2021(E)basedon7xofEBITDAandnon-businessasset.DCFvaluationshowsimplicationoncertaintyoffutureearnings/cashflows.TheequityvaluationpershareisestimatedtobeJPY1,806basedonitsfuturefreecashflows,whichisfairlyhigherthanitsclosingprice.IfDCFvaluationfreecashflowmodifiedbyusingMontecarloSimulationisestimatedtobeJPY1,116.


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EV/EBITDAEV/EBITDAis8.8xforFY2/2018butisexpectedtodecreasealongsidetheriseinaleandprofits.EV/EBITDAforFY2/2019(E)isexpectedtodeclinefrom7.6xforFY2/2019(E)to7.0xforFY2/2021(E).

SOTPNAVSTOPNAVforFY2/2019(E)isestimatedtobeJPY1,589andJPY1,598forFY2/2021(E)thatis7xEBITDAaddingtoitsnon-businessassets.BothNAVsaremorethan20%higherthantheclosingpriceonApril20th2018.

DCFDCFvaluationisapprisedtobeJPY1,806basedonpresentvalueofsumoffuturefreecashflowsdividedbyWACCandnon-businessassets.ThevaluationisestimatedtobeJPY1,806.ThereisalargegapbetweenDCFvalueandtheclosingprice.Thiswouldbebecausefewinvestorsbelievethefreecashflowsfullyonthestructurereformand/oronlyfewcoversthecompanyandmanyofthemignoreitintheinvestmentuniverse.IftheformerhypothesisisamajorfactorduetouncertainFCFsofthecompany,theDCFvaluationismodifiedby10,000passesbyMontecarloSimulation.ThemodifiedDCFvaluepershareisestimatedtobeJPY1,116,whichisclosertotheclosingpriceonApril20th2018.Asstoresalegrowsandprofitmarginimprovesforthisyearandcashflowsareexpectedtoincreasemorecertainly,thevaluationwouldapproachthebaseDCFvaluationtoJPY1,806.FinancialAnalysisTabiodoesnotneedlargeinvestmentasthecompanyhasnoproductionfacilityanditsinvestmentismainlyfocusesonstore.Theinvestmentofe-Commerceisnotrelativelylargeforsystemdevelopmentexpensesofweb-site,applicationetc.Theriseinprofitabilitywillimproveitsfinancialstabilityfromrelativelystablepositivecashflowsandbalancesheetfurthergoingforward(pleaseseethetablebelow).


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InvestmentRisksSlowerconsumerspending(VeryLikely,MiddleRisk)Consumerspendinghasbeenflatformorethanadecadeandisunlikelytogrowatfasteronthedecreaseofpopulation.Thiswouldputdownwardpressureonentireretailindustryinthiscountry.However,consumerspendingismorelikelytobedivergingandchangingfrom‘what’basedto‘need’basedspendingonspecialoccasion,althoughbudget-mindandenvironmental-mindhasspreadoverconsumers.Theexpanding‘need’basedspendingwouldincreasetheopportunityforthecompanywhichprovidepremiumsocksandhosiery.Naturalcasualty(Likely,Middle-HighRisk)Naturalcasualtysuchasearthquake,floodandtyphooncomesacrossalloverthiscountry.Tabiodoesnotoperatefactorybutwouldhaveproblemofprocurementofproductsiffactoriesaredamaged.However,allfactoriesareinonlyaplaceandthecompanyholds3-monthinventory.Theissuewouldbehowlongthesupplychainwillrecover.Innovationinindustry(LessLikely,Middle-HighRisk)Duetodifferentiationstrategyinthenichemarket,premiumsocks&hosieryretailerisonlythecompanyandtherewouldbelessriskofnewentryandnoonecouldproducesuchahigh-qualitymadeinJapanproductsotherthanTabiorightnow.However,incasetechnologywouldmakesomeoneproducehigh-qualitysocksandhosierywithoutskillfulmanufacturingprocessinfuture.

AkiMatsumoto,[email protected]


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Appendix

IncomeStatementAnalysis


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CashFlowAnalysis

DCFAnalysis


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BalanceSheet

tabio (2668, jp) · tabio plans to develop small outlets at near terminal station that is easier...

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