Thinking Points

  • Frozen food is here to stay, and there are several ways to look at this.
  • Today, we will take a quick look at 3 Japanese refrigeration equipment companies.
  • One traded at negative EV just a short year ago.

A few weeks ago, I published an article explaining that frozen food is the future of food in the first world. In order for frozen food to continue its growth, freezers are needed. Thus, I figured I’d take a quick look at several of the publicly traded Japanese refrigeration equipment companies. Hopefully, this can drum up some investment ideas for you.

Three main companies

First, let’s take a look at surface level metrics of three companies:

Since I have trouble pasting formatted tables in my articles, I usually paste screenshots. Here is a link to the Google Sheet in case you want to copy/paste any of the above information.

Nakano Refrigerators (TSE: 6411) appears to be trading at quite a discount on a purely quantitative basis. I’ve actually been paying light attention to Nakano for over a year now and wrote about the company back in July 2017. Oddly, a 1.9x EV/EBIT multiple is on the high side for Nakano, which has been trading at negative EV since forever ago.

I’m not nearly as familiar with Daiwa Industries (TSE: 6459) and Fukushima Industries (TSE: 6420) as I am with Nakano, but have read a little bit about both.

Overview of each company

Daiwa Industries (TSE: 6459)

Daiwa Industries primarily manufactures, sells, and maintains commercial refrigerators, freezers, and ice makers. The company is focused on a regional strategy, giving it nationwide sales and service capabilities. Key customers include everything from retail level restaurants, convenience stores, liquor stores to commercial level logistics and storage companies.

Fukushima Industries (TSE: 6420)

Fukushima Industries not only manufactures, sells, and services commercial refrigerators and freezers, but also design, constructs, and maintains food processing and logistics facilities. Customers include convenience chains, restaurants, grocery stores, drug stores, logistics companies, food processing companies, and medical companies. Known for strength in engineering.

Nakano Refrigerators (TSE: 6411)

Nakano Refrigerators primarily manufactures, sells, installs, and services commercial refrigerators and freezers. Customers include convenience chains, restaurants, commercial retail centers, and grocery stores. 7-Eleven Japan accounts for nearly half of revenues. Big into showcase freezers. Also known for control systems (for power saving, anti-dew, etc).

A few thoughts

Nakano Refrigerators has a greater focus on refrigeration equipment geared for retailers. Meanwhile, Daiwa and Fukushima are comparatively more focused on commercial customers. In terms of investment quality, Nakano appears to have the leg up with its considerably lower valuation multiples for comparable business performance. In terms of business quality, however, it seems like Fukushima leads the pack with its engineering capabilities that extend into facility construction, maintenance, and medical industry customers.

Fukushima’s business performance has been most stable in the last 10 years among the three, delivering stable revenues as well as relatively stable gross and operating margins (mid 20s gross, 4~10ish operating). In comparison, Daiwa, and particularly Nakano, have had choppy revenues combined with gross and operating margins which have fluctuated considerably.

At first glance, Nakano seems like the safest bet to me. That said, I like what I’m reading about Fukushima so far.

What do you guys think?


Kenkyo Investing
Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.