MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 13 SEPTEMBER 2024

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MILBON CO., LTD (4919 JP)
NO CHANGE IN FY 24 GUIDANC E DESPITE BETTE R-T HAN-EXPECTED 1H RESULTS, THANKS TO SALES GROW TH OF HAIRCARE P RODUCTS

FY24 1H EARNINGS RESULTS SUMMARY
Milbon Co., Ltd (4919 JP) reported FY24 1H (Dec year-end) earnings withgross profit [GP] of ¥15,755mil (+6.4% YoY) and operating profit [OP] of¥3,178mil (+2.8% YoY) on sales of ¥24,526mil (+8.0% YoY). 1H RP improved+6.3% YoY to ¥3,324mil, thanks to net FOREX gains of ¥96mil.
Both sales and OP landed better than the firm expected thanks primarily to:
1. Solid growth in Haircare products sales in Japan. 1H Domestic sales rose
+6.9% YoY to ¥18,367mil.
2. Strong sales in US and Korea offset weakness in China. 1H overseas sales
improved +11.4% YoY to ¥6,159mil.
3. The gross profit margin [GPM] improved from 63.0% in Q1 to 65.4% in
Q2, thanks to the rise in raw material costs easing. As a result, 1H GPM
landed 64.2%.
4. 1H OP overshot the firm’s guidance (NB: the figures in parenthesis show
the improvement vs the firm’s original forecast) as follows: The increase in GP (+¥362mil), Cost reductions in Q1 (+¥125mil), Sales promotion costs delayed to 2H (+¥118mil), and R&D costs pushed back to 2H (+¥115mil).
Milbon (4919 JP): Earnings Summary (Cumulative)
FY23(¥mil)FY24

EXECUTIVE SUMMARY

 Milbon Co., Ltd (4919 JP) reported
FY24 1H (Dec year-end) earnings withgross profit [GP] of ¥15,755mil (+6.4%
YoY) and operating profit [OP] of¥3,178mil (+2.8% YoY) on sales of¥24,526mil (+8.0% YoY). 1H RP
improved +6.3% YoY to ¥3,324mil,
thanks to net FOREX gain of ¥96mil.

 Both sales and OP landed better than
expected thanks to: (1) solid sales
growth in Japan, Korea and US,
offsetting weakness in China, and (2)the surge in raw materials costs eased
off in Q2, which improved GPM fromFY24 Q1’s 63.0% to 65.4% in Q2, taking
the 1H GPM to 64.2%.

 The Overseas business enjoyed an
expanding customer base, and higher
sales volumes, mainly due to solid
growth in South Korea and improved
sales in the US. In Japan, sales growthof premium haircare range offset
sluggish sales of hair colour products.

 Although 1H earnings landed better

1H

FY

1H

YoY (%)

1H CE

1H vs
1HCE(%)

Sales

22,70347,762

24,526

8.0

23,964

2.3

COGS

7,893

18,237

8,770

11.1

N/A

N/A

GP

14,80929,52515,755

6.4

15,4532.0

than Milbon’s forecast, Milbon is
guiding for FY24 GP of ¥32,400mil(+9.7% YoY) and OP of ¥6,600mil(+19.5% YoY) on sales of ¥50,620mil(+6.0% YoY).

GPM (%)

65.2

61.8

64.2

-1.0ppt

64.5-0.3ppt Milbon’s medium-term (FY22~FY26)

SG&A

11,71924,00012,577

7.3

12,845-2.1

SG&A / Sales (%)

51.6

50.2

51.3

-0.3ppt

53.6-2.3ppt

OP

3,090

5,525

3,178

2.8

2,608

21.9

OPM (%)

13.6

11.6

13.0

-0.6ppt

10.9+2.1ppt

RP

3,129

5,586

3,324

6.3

2,561

29.8

RPM (%)

13.8

11.7

13.6

-0.2ppt

10.7+2.9ppt

NP*

2,195

4,001

2,280

3.9

1,823

25.1

targets remain unchanged with OP of¥10,800mil on sales of ¥58,000mil(respective CAGR +25.0% and +6.7%,
for the remaining 3 years of the Plan),on Domestic sales of ¥43,700mil(CAGR +6.1%) and Overseas sales of¥14,300mil (CAGR of +8.3%). Revised
numbers for the medium-term targets
will be disclosed with FY24 full-year
results.

 During

Source: Nippon-IBR based on Milbon's FY23 & FY24 1H earnings presentation materials* NP attributed to the parent's shareholders

FY24 1H OP rose+2.8% YoY / +¥87mil YoY to ¥3,178mil. The +8.0% YoY
increase in sales led to a +¥1,189mil YoY improvement in GP, though it wasslightly offset by rising raw materials costs (-¥189mil) and a change inproduct mix (-¥91mil). However, higher SG&A costs – personnel (-¥388mil)
and physical distribution (-¥124mil) – resulted in a slower pace of growth in
OP (+2.8% YoY) than that of sales.
MILBON CO., LTD (4919 JP)

the medium-term plan,management aims to achieve an ROEof 13.9% and ROIC of 13.6% vs 8.9%
and 8.6% in FY23, respectively. The
firm has not yet disclosed capital costs.
 In FY24, Milbon plans to make anannual dividend payment of¥88.00/share. The firm commits not
to reduce dividend going forward.

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 13 SEPTEMBER 2024

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Earnings by Country
Japan
Milbon reported FY24 1H Domestic [Japan] OP of ¥2,534mil (+5.1% YoY) on sales of ¥18,367mil (+6.9% YoY), which
produced an OPM of 13.8% – just shy of FY23 1H’s 14.0%. In Q2 alone, the firm reported Domestic OP of ¥1,614mil(+5.5% YoY / +75.4% QoQ) on sales of ¥9,995mil (+5.0% YoY / +19.4% QoQ).
FY24 1H Domestic sales were better than Milbon’s expectations thanks to solid sales of haircare products (+9.0% YoY).
In particular, sales of premium haircare products performed well, with premium brand Aujua, for example, enjoying a+7.8% YoY rise FY24 1H sales to ¥5,244mil. Hair colour product sales, however, peaked out (+0.1% YoY). In Q2 alone,hair colour products sales dipped -0.5% YoY.
Sales of Cosmetics Products surged approx. +2.1x YoY thanks to newly launched eyebrow and lash colouring products,
which boosted FY24 1H sales by +¥330mil (sales of eyebrow and lash products were nil in FY23 1H, though Skin Care
product sales fell -3.9% YoY to ¥268mil.
The number of salons that registered with milbon:iD hit 6,292 in FY24 1H, up from 1,300 in FY20, 3,200 in FY21, 4,800
in FY22, and 5,930 in FY23, though the 1H registrations have almost achieved the FY24 target of 6,500. Customers arealso registered with milbon:iD through a QR code provided by their salons. The number of registered customers hit
761,000 in FY24 1H, compared to 670,000 in FY23 and 450,000 in FY22 (only 30,000 in FY20 and 170,000 in FY21).
Consequently, Milbon’s FY24 1H e-commerce revenues reached ¥780mil (+25.1% YoY) vs FY24 sales forecast of¥1,950mil (+18.9% YoY).
The firm estimates that approx. 70% of its Domestic Haircare shipments are from salon sales of haircare products.
Moreover, the spend per person continues to remain above the ¥10,000-mark at approx. ¥12,000, which compares tothe typical charge of ¥7,000~8,000 for a hair cut in a Central Tokyo salon. However, only around 20% of the 761,000
registered users of milbon:iD are active. Mobilising those dormant customers will be the next step for milbon:iD’sfurther success.
Another initiative to promote its haircare products is via its Smart Salons; this is where customers can try out Milbon’s
haircare products and buy trial size products with advice from hairdressers. There are 44 Smart Salons as of the end of
Q2 (up from 23 as of the end of FY23) vs. FY24 target of 100. Smart Salons are increasing especially in regional cities
and most hair salons operating Smart Salons have reported that their in-store product sales do improve after customers
have tried out Milbon’s products.
In FY23, Milbon wrote down costs related to the hair dryer that was co-developed with Panasonic. Hence, there will
unlikely be further write-downs going forward.

Overseas
FY24 1H Overseas earnings outperformed Milbon’s expectations, generating OP of ¥ 643mil (-5.3% YoY% YoY YDB [yendenominated basis]) on sales of ¥6,159mil (+11.4% YoY / +2.8% YoY LCY [local currency basis]). Although there waspositive FOREX impact, the LCY-based sales growth suggests that the firm enjoyed (1) solid sales growth in South Korea
and (2) steady sales growth of haircare products amid increasing number of customers (salons) in the US.

Details by country are as follows:
South Korea: Milbon Korea – the largest part of the firm’s overseas operations comprising 10.8% of FY24 1H total
consolidated net sales – produced FY24 1H OP of ¥743mil (+19.6% YoY) on sales of ¥2,662mil (+16.5% YoY YDB / +7.5%
YoY LCY), with FY24 1H sales surpassing the firm’s expectations by 14.1%.
FY24 1H Haircare product sales improved +17.1% YoY thanks to solid sales of Global Milbon products through the firm’s
local distributors. The Korean operations generated 71.2% of 1H sales from hair colour sales, which were up +2.9% YoY
in FY24 1H. 1H OPM improved by +0.7ppt YoY to 27.9% on the back of delays in recruitment – costs [SG&A] of whichhave been deferred to 2H onwards.

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 13 SEPTEMBER 2024

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US: Milbon USA 1H sales improved +18.5% YoY YDB to ¥922mil, by continuing cultivating new salons with local
distributors. The number of salons selling Global Milbon, one of Milbon’s premium global haircare products, reached9,618, the second largest in number of salons only after Japan (10,555 salons). Although the high YoY growth reflects
the positive impact from the weak yen, US sales rose +5.0% YoY [LCY] thanks to the strong sales performance of haircare
products – comprising 84.9% of the US sales – led by Global Milbon.
Hair colour product Sophistone is also proving popular and has helped cultivate new customers, especially on the West
Coast. However, overall sales of hair colour products remained sluggish due to an apparent lack of variety of colours
compared to products on offer by other brands. Milbon plans to launch new colours sequentially to improve hair colour
products sales. In June 2024, Milbon participated in the largest trade expo in the US to promote its products. Althoughsales have been steadily growing, the FY24 1H operating loss expanded to -¥71mil from loss of -¥30mil in FY23 1H. In
Q2 alone, the operating loss expanded to -¥54mil due to cost associated with the trade show.
China: FY24 1H sales in China were hit by macroeconomic weakness. 1H sales increased +3.5% YoY YDB to ¥1,211mil (6.0% YoY in LCY). 1H OP improved from ¥40mil in FY23 1H to ¥77mil, to produce an OPM of 6.4% (+2.9ppt YoY).
Although consumer sentiment is low, sales of products in the Global Milbon range held up well (+38.6% YoY), comparedto +1.6% YoY [LCY] sales growth in overall haircare products in China. On the other hand, hair colour products sales
declined -17.4% [LCY] as customers were colouring their hair less frequently. In Q2 alone, Milbon’s China business
reported an operating loss of -¥17mil on sales of ¥547mil (-6.0% YoY), down from Q1’s OP of ¥95mil (+4.3% YoY / N/A
QoQ) on sales of ¥664mil (+12.9% YoY / +29.7% QoQ).
Sales and OP Breakdown by Country - Results and Guidance
FY22
1H(¥mil)

Japan

US

China

South
Korea

OthersOverseas
Total

FY

FY23
1H

FY

Q1

1H

FY24
YoY (%) *FYCE

YoY (%) *Sales

16,62735,334

17,17536,502

8,371

18,367

6.9

38,620

5.8

OP

3,201

6,194

2,411

4,231

920

2,534

5.1

5,522

30.5

OPM (%)

19.3

17.5

14.0

11.6

11.0

13.8

-0.2ppt

14.3+2.7ppt

Sales

603

1,328

778

1,624

414

922

18.5

1,811

11.5

OP

-125

-168

-30

-89

-17

-71

N/A

-106

N/A

OPM (%)

-20.7

-12.7

-4.0

-5.5

-4.2

-7.8

-3.8ppt-5.9-0.4ppt

Sales

1,058

2,114

1,171

2,241

664

1,211

3.5

2,460

9.8

OP

-76

-9

40

68

95

77

91.5

197

189.2

OPM (%)

-7.2

-0.4

3.5

3.1

14.3

6.4

+2.9ppt

8.0+4.9ppt

Sales

2,043

4,159

2,286

4,715

1,266

2,662

16.5

4,784

1.5

OP

693

1,351

621

1,284

369

743

19.6

1,068

-16.8

OPM (%)

34.0

32.5

27.2

27.3

29.2

27.9

+0.7ppt

22.3-5.0ppt

Sales

1,133

2,301

1,293

2,678

791

1,362

5.4

2,945

9.9

OP

130

184

48

30

-30

-105

N/A

-81

N/A

OPM (%)

11.5

8.0

3.7

1.1

-3.8

-7.7

-11.4ppt-2.8-3.9ppt

Sales

4,839

9,904

5,528

11,260

3,136

6,159

11.4

12,000

6.6

OP

622

1,357

679

1,294

417

643

-5.3

1,077

-16.7

OPM (%)

12.9

13.7

12.3

11.5

13.3

10.5

-1.8ppt

9.0-2.5ppt

Source: Nippon-IBR based on Milbon's FY22, FY23 & FY24 H1 earnings results material* YoY figures are based on Japanese yen denominated sales and OP numbers

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Net Sales Breakdown by Products (Cumulative)(¥mil)

FY22
1H

FY

1Q

FY23
1H

FY

YoY (%)

Q1

1H

FY24
YoY (%)FYCE

YoY (%)

Haircare products

12,21826,312

5,969

13,33928,3557.8

6,670

14,682

10.1

30,200

6.5

Hair colouring products

8,148

16,631

3,922

8,238

16,953

1.9

4,044

8,346

1.3

17,6003.8

Permanent wave products

751

1,450

301

714

1,463

1.0

350

799

12.0

1,480

1.1

Cosmetic products

262

572

126

267

571

-0.1

369

566

111.9

820

43.4

Others

87

272

20

144

418

53.6

73

131

-9.0

520

24.4

Total

21,46745,238

10,34022,70347,762

5.6

11,50824,5258.0

50,620

6.0

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY22, FY23 & FY24 1H)

FY24 OUTLOOK
Although 1H earnings overshot Milbon’s guidance by 2.3% in sales and 21.9% in OP, the firm has not changed its FY24
full-year earnings forecast which calls for FY24 GP of ¥32,400mil (+9.7% YoY) and OP of ¥6,600mil (+19.5% YoY) on salesof ¥50,620mil (+6.0% YoY).
Earnings Results and Guidance(¥mil)

FY22

FY23

FY24

1H

FY

1H

FY

1H

FYCE

YoY (%)

Sales

21,46745,23822,70347,762

24,52650,620

6.0

COGS

7,198

15,7297,893

18,237

8,770

N/A

N/A

GP

14,26929,50914,80929,52515,75532,4009.7

GPM (%)

66.5

65.2

65.2

61.8

64.2

64.0

+2.2ppt

SG&A

10,444

21,957

11,71924,00012,57725,800

7.5

SG&A / Sales (%)

48.7

48.5

51.6

50.2

51.3

51.0

+0.8ppt

OP

3,824

7,551

3,090

5,525

3,178

6,600

19.5

OPM (%)

17.8

16.7

13.6

11.6

13.0

13.0

+1.4ppt

RP

4,137

7,829

3,129

5,586

3,324

6,560

17.4

RPM (%)

19.3

17.3

13.8

11.7

13.6

13.0

+1.3ppt

NP*

2,875

5,577

2,195

4,001

2,280

4,650

16.2

Source: Nippon-IBR based on Milbon's FY22, FY23 & FY24 1H earnings presentation materials* NP attributed to the parent's shareholders

The FY24 guidance is based on the following assumptions:
1. Milbon is forecasting a +5.8% YoY rise in Domestic sales to ¥38,620mil, with OP up +30.5% YoY to ¥5,522mil,
mainly due to (1) a rebound from FY23’s write-downs for the hair dryer product, (2) raw materials price hikes
easing.
2. The firm is guiding for overseas sales to rise +6.6% YoY to ¥12,000mil, with Korea, China, and US Milbon’s main
focus among the seven key regions in which it operates. However, given continued sales promotion of haircolour products in US and expansion of operations in Korea, overseas OP is expected to decline -16.7% YoY to¥1,077mil. However, due to the weaker yen and steady sales growth in Korea and US, there could be upside to
the overseas performance.
3. Raw material costs will remain high, although in 1H, the impact of rising prices to earnings is less severe.

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4. The firm incurred total product disposal-related losses of -¥1,186mil – including the disposal for hair care andhair colour products (-¥289mil) and write downs for hair dryers (-¥897mil) in COGS – in FY23. In FY24, the firm
estimates disposal losses of approx. -¥230mil. which implies a +¥956mil rebound from the disposal losses andwrite-downs reported the year before.
5. In both Japan and overseas, marketing and sales promotion costs are expected to rise by +¥208mil YoY.
6. Higher logistics costs (+¥211mil YoY) are expected as well, reflecting the 2024 Problem surrounding the Japan’slogistics industry, caused by structural shortage of drivers.
UPDATE ON MEDIUM-TERM PLAN (FY22~FY26)
Milbon’s medium-term (FY22~FY26) targets remain unchanged at OP of ¥10,800mil on sales of ¥58,000mil (CAGR of+25.0% and +6.7%, respectively, for the remaining 3 years of the Plan), with Domestic sales of ¥43,700mil (CAGR +6.1%)
and Overseas sales of ¥14,300mil (CAGR +8.3%). Although the sales performance has been progressing in line with plan,
OP has been below expectations due to the surge in costs such as raw materials, personnel, and logistics. Revisions to
the medium-term targets will likely be disclosed in February 2025 with the release of the firm’s FY24 full-year results.
Medium-term management plan (FY22~26)(¥mil)FY21

FY26

FY22~FY26 CAGR (%)

Sales

40,84958,000

7.3

Japan32,93843,7005.8

Overseas

7,910

14,30012.6

Gross Profit [GP]26,76538,160

7.4

GPM (%)

65.5

65.8

+0.3ppt

SG&A

19,681

27,360

6.8

Operating Profit [OP]7,084

10,8008.8

OPM (%)

17.3

18.6

+1.3ppt

Recurring Profit [RP]

7,158

10,8108.6

NP attributed to the parent

5,109

7,670

8.5

NPM (%)

12.5

13.2

+0.7ppt

Source: Milbon Co., Ltd. FY22~26 New medium-term plan press release

To tackle the issues related to the surge in costs – higher raw material, personnel and logistics costs – Milbon plans to:

Launch high value-added new products. Pricing at the time of new product launches tends to timely reflect trends
in costs, which makes it easier to absorb changes in raw materials costs.



Review prices of existing products, especially in haircare products that are sold to salon customers.



Review CAPEX previously planned in the medium-term plan. In FY23, Milbon generated CFO of ¥4,765mill, while
investing ¥3,109mil in CAPEX and returned ¥2,863mil in shareholder returns, generating a dividend pay-out ratioof 71.6%. For FY24, the firm is guiding for CAPEX of ¥4,258mil, which includes projects including facilitating thefirm’s Yumegaoka and Thai factories, as well as digital platform-related investments such as milbon:iD, and digitalmarketing of Smart Salon. Depreciation is estimated at ¥2,404mil (+8.6% YoY).

During the medium-term plan, Milbon aims to achieve ROE of 13.9% and ROIC of 13.6% vs 8.9% and 8.6% achieved in
FY23, respectively. The firm has not yet disclosed its capital cost.

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SHAREHOLDER RETURNIn FY24, Milbon plans to make an annual dividend payment ¥88.00/share, which the firm identifies as the minimum
level. Milbon commits to not reduce the dividend going forward.

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