MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 29 SEPTEMBER 2022

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MILBON CO., LTD (4919 JP)F Y22 G UIDA NCE REMAI NS U NCHA NGED DESP IT E BET T ER THA N E X PE CTE D 1H. OVE RSE AS GROWT H PHA SE EN TE RE D A NE W C HAP T ER

FY22 1H EARNINGS RESULTS
Milbon Co., Ltd (4919 JP) reported FY22 1H (Dec year-end) earnings with
operating profit [OP] of ¥3,824mil (+15.3% YoY) on sales of ¥21,467mil(+11.7% YoY) which generated a 1.1ppt YoY increase in the gross profit margin[GPM] to 66.5%. Even excluding the currency translation gains from theweaker yen on consolidated net sales, the boost in sales volumes in all regions
contributed to the overall strong performance and improved profitability.
By region, net sales in Japan rose 7.9% YoY as demand for the firm’s hair colour
and hair care products remained firm. In the US, the successful collaboration
with local distributors supported 1H net sales growth of 48.5% YoY (yendenominated basis). Korea net sales rose 28.0% YoY (yen-denominated basis)in thanks to the prompt return to live training sessions boosted demand forcore hair colour products.
The rise in sales volumes across all regions – discussed in more detail on p.2 –contributed to the +1.1ppt improvement in the FY22 1H GPM. In addition, theoperating profit margin [OPM] improved 0.5ppt YoY due to less-than-expectedmarketing costs amid COVID-related restrictions.
Milbon (4919 JP): Earnings Summary (Cumulative)
FY21(¥mil)

FY22

1H

FY

1H

YoY (%)FYCE

YoY (%)

Sales

19,217

40,84921,46711.7

43,900

7.5

COGS

6,650

14,083

7,198

8.2

14,7604.8

GP12,566

26,765

14,26913.6

29,1408.9

GPM (%)

65.4

65.5

66.5

+1.1ppt

66.4+0.9ppt

SG&A

9,248

19,681

10,444

12.9

21,590

9.7

SG&A / Sales (%)

48.1

48.2

48.7

-0.8ppt

49.2+1.0ppt

OP

3,317

7,084

3,824

15.3

7,550

6.6

OPM (%)

17.3

17.3

17.8

+0.5ppt

17.2-0.1ppt

RP

3,355

7,158

4,137

23.3

7,410

3.5

RPM (%)

17.5

17.5

19.3

+1.8ppt

16.9-0.6ppt

NP*

2,413

5,109

2,875

19.1

5,230

2.4

EXECUTIVE SUMMARY
 Milbon (4919 JP) reported FY22 1H(Dec year-end) operating profit [OP]of ¥3,824mil (+15.3% YoY) on sales of¥21,467mil (+11.7% YoY) and a
1.1ppt YoY gain in the GPM to 66.5%.
 Unlike the consumer toiletry
products market, the professionaluse hair care market, has not been
affected as much due to rising raw
material costs. Strong sales volumes
and the pricing mechanism has
supported profit growth.
 The firm’s e-commerce platform,
milbon:iD, which supports salons inthe sale of haircare products, saw thenumber of registered salons on thesite reach 4,200, up from the total of
3,200 registered as of the end of
FY21. The number of milbon:iD users
also increased from 170,000 in FY21
to 280,000 as of FY22 1H. As a result,
Milbon’s e-commerce sales hit the¥431mil mark vs the ¥511mil
achieved in FY21.
 Despite the better-than-expected 1H
performance, the full-year guidance
has not been changed as 1) it isdifficult to gauge the impact of higher
raw materials costs, 2) a possible
resurgence of COVID cases in Japan
may affect the customer traffic tosalons, and 3) the uncertainty of
China’s Zero COVID policy.

Source: Nippon-IBR based on Milbon's FY21 & FY22 1H earnings presentation materials* NP attributed to the parent's shareholders

Unlike the consumer toiletry products market, rising raw materials prices have
had less of an impact on Milbon’s profit margins as:
1. Raw materials cost hikes were offset as fixed costs were sufficiently
covered by increase in sales volume.

 Milbon’s aim is to expand new
business in each market and establish
a global distribution network torealise the two-week delivery system
in an aim to achieve overseas sales
CAGR of 12.6% during the existing
medium-term plan which ends in
FY26.

2. Pricing in the professional-use market is higher than that of consumer-use
toiletry products, hence a lower raw material cost ratio.
3. Over half of Milbon’s existing products were launched in the past five years.
New product prices are based on the firm’s assessment of the most up-toMILBON CO., LTD (4919 JP)

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date trends in customer value, commodity prices and production costs. Given the majority of its products wererecently launched, pricing tends to reflect current trends.
Milbon would consider hiking prices if the FY22 OPM significantly falls short of the target 17.2%. At the moment, thefirm does not intend to raise prices.
Sales by Country
Japan
Milbon reported FY22 1H Japan OP of ¥3,201mil (+16.6% YoY) on sales of ¥16,627mil (+7.9% YoY), which produced an
OPM of 19.3%, up from FY21 1H’s 17.8%. During Q1, while customer traffic to salons were still being affected by rising
COVID cases, especially in the suburbs, a recovery of the customer traffic became apparent in Q2.
In terms of profitability, there was a bit of a cushion on the cost side as the firm did not use its planned SG&A budget
due restrictions on business activities under COVID. Even though overall SG&A costs rose 12.9% YoY due to an increasein personnel costs, such as hiring new Field Persons [FPs] and logistics, it was more than offset by the improvement insales, thanks to Milbon’s efforts to support beauty salons to overcome pandemic-related obstacles. Given many people
in Japan still wear masks, hair colour has become a fashion item / way for individuals to express themselves, resulting
in hair colour sales growth of 13.3% YoY in 1H. With rising demand for hair colouring, sales of products that help treat
damaged hair due to colouring, as well as products to make the colour last longer, have expanded.
Milbon reported 1H domestic haircare product sales (gross basis) of ¥11,460mil (+6.5% YoY), of which ¥5,973mil (+8.9%
YoY) is from premium brands. Given COVID restrictions led to customers not frequenting salons as regularly as theyused to, especially in the urban areas, it has become vital that hairdressers encourage sales of salon-bought haircare
products in an effort to maintain their business.
The benefits of the firm’s efforts can be seen in the number of salons that registered with milbon:iD, its unique ecommerce platform and the number of registered users. Milbon’s e-commerce revenue reached approx. ¥431mil in 1H
versus FY21 full-year sales of ¥511mil. The firm estimates that approx. 70% of revenues from its haircare products
comes from salon sales. The number of registered salons signed up to milbon:iD hit 4,200 in FY22 1H – a sharp increase
from the 3,200 registered as of the end of FY21. In addition, the number of milbon:iD users also surged from 170,000
as of Dec 21 to 280,000. Moreover, the spend per person exceeded the ¥10,000 mark to approx. ¥12,000, which
compares to the typical cost of ¥7,000~8,000 for a hair cut in a Central Tokyo salon.
Overseas
1H overseas earnings surpassed Milbon’s expectations, generating sales of ¥4,839mil (+27.2% YoY). Although there wassome FOREX impact, the local currency-based sales growth of 18.5% suggests that the firm enjoyed 1) an expanding
customer base, and 2) an increase in sales volumes. However, while OP grew 8.9% YoY to ¥622mil, the OPM contracted
2.1ppt YoY to 12.9%, mainly due to business in China moving into the red. Details by country are as follows: US: By continuing to expand its alliances with local distributors to cultivate new salons, FY22 1H US sales surged
48.5% YoY to ¥603mil. Although the high YoY growth reflects the positive impact from the weak yen, US sales on a
local currency basis [LCB] were up 29.8% YoY, thanks to strong sales of the premium haircare range Global Milbon.
Hair colour product Sophistone is also proving popular and has helped cultivate new customers. Although the US
business remains in the red with an operating loss of ¥125mil, the losses have shrunk compared to ¥218mil reported
in FY21 1H.

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 China: Operations in China fell into the red in FY22 1H, due to the two-month lockdown in Shanghai. FY22 1H sales
fell 3.0% YoY on a yen-denominated basis to ¥1,058mil / LCB -15.0% YoY and reported an operating loss of ¥76mil,
compared to OP of ¥269mil in FY21 1H. During the lockdown, Milbon worked on building good relationships withtargeted salons through its distributors, which resulted in helping the recovery once the lockdown was lifted in June.
With the current restrictive environment, customers tend to spend less time in salons, therefore Milbon has
designed hair care menus that take less time.
 Korea: Milbon Korea – the largest part of the firm’s overseas operations comprising 9.5% of total consolidated net
sales – generated FY22 1H OP of ¥693mil (+30.5% YoY) on sales of ¥2,043mil (+28.0% YoY / LCB +23.4% YoY), withhair colour products, some 80% of the sales in Korea, leading the growth. Milbon reckons that the prompt
resumption of live training seminars to hairdressers, which is an important marketing programme to attract
customers to hair colour products, after the COVID restrictions were lifted, promotes sales. Close to 80% of sales in
Korea are derived from hair colour products. Thanks to the successful cooperation with distributors, sales ofpremium brands, such as Global Milbon, trended favourably as more salons became customers.
FY22 OUTLOOK
Although 1H earnings were better than expected, Milbon has maintained its FY22 full-year guidance for the following
reasons:
1. Although the professional hair care market is less sensitive to rising raw material costs, it is unclear how much of an
impact they will have on earnings,
2. The resurgence of COVID cases in Japan may affect customer traffic to salons, especially in suburban and rural areas
and among the older generations,3. There is uncertainty surrounding the Chinese government’s Zero COVID policy and its impact to the business.
Based on FY21 figures adjusted to the new cost recognition method, which directly deducts the sales discount from
actual sales rather than reporting it as a non-operating cost item, Milbon is guiding for FY22 OP of ¥7,550mil (+6.6%
YoY) on sales of ¥43,900mil (+7.5% YoY). [NB: In this section, unless otherwise stated, the past numbers will bereadjusted to the new recognition method of sales discount].
Milbon (4919 JP): Earnings Results and Guidance(¥mil)FY21

FY22

Results

YoY (%)

Adjusted

CE (adjusted)

YoY (%)

Sales

41,582

16.4

40,84943,9007.5

DM33,64312.6

32,93835,150

6.7

Overseas

7,938

35.8

7,910

8,750

10.6

GP

27,49817.6

26,76529,1408.9

GPM (%)

66.1+0.7pp65.5

66.4+0.9ppSG&A

19,681

15.8

19,681

21,590

9.7

SG&A / Sales (%)

47.3-0.3pp48.2

49.2+1.0pp

OP

7,817

22.3

7,084

7,550

6.6

OPM (%)

18.8+0.9pp17.3

17.2-0.1pp

RP

7,158

23.6

7,158

7,410

3.5

RPM (%)

17.2+1.0pp17.5

16.9-0.6ppNP for the parent's s/holders

5,109

21.5

5,109

5,230

2.4

Source: Nippon-IBR based on Milbon's earnings presentation materials FY21 & FY22 1H

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 29 SEPTEMBER 2022

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Net Sales Breakdown by Products (Cumulative)
FY19(¥mil)

1H

FY20
FY

1H

FY21
FY

1H

FY

FY22CE
Results
vs. CE(%)

YoY
(%)

FYCE

YoY
(%)

Hair care products

9,897

21,328

9,391

21,135

11,28824,4662.8

15.8

25,570

6.4

Hair colouring products

6,423

12,994

5,594

12,594

7,124

14,813

2.9

17.6

15,570

7.0

Permanent wave products

770

1,515

660

1,372

740

1,449

-2.4

5.6

1,510

6.0

Cosmetic products

47

165

136

360

293

579

-9.5

60.6

900

55.3

Others

103

263

85

262

111

273

-1.4

4.3

350

31.2

Total

17,24236,266

15,86935,725

19,55841,582

2.4

16.4

43,900

7.5

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21)

FY22 FORECAST BY REGION
Japan
Milbon is guiding for FY22 Japan OP of ¥6,706 (+9.8% YoY) on sales of ¥35,150mil (+6.7% YoY), renewing the record
level of revenue achieved in FY19, mainly thanks to strong demand for hair care and hair colour products. During Julyand August, the number of COVID cases in Japan was reported to be the highest in the world. That said, Milbon has notseen much of an impact of COVID on customer traffic.
The importance of selling haircare products and establishing an online shopping infrastructure such as milbon:iD has
become key to retain customers, both now and in the future, and for them to become repeat purchasers of Milbon’s
hair products. For salons, the advantage of milbon:iD is that they can promptly promote hair care products when thecustomer is about to renew their purchases. In addition, by generating revenues by selling products online, it can limit
the likelihood of potential closures. The average spend per customer on milbon:iD is now at ¥12,000, vs ¥7,000~8,000
if a customer buys products at a salon, and is almost equal to what customers pay for hair colour and cut in a reasonably
priced salon.
Moreover, milbon:iD customers tend to buy products in larger bottles which pushes up the average spend. Milbon
reckons that milbon:iD is unlikely to cannibalise sales at salons as customers tend to distinguish between services they
can only access by going to a salon from product purchases that help maintain the condition of their hair. Milbon targets
FY22 annual sales from milbon:iD of ¥1,000mil vs ¥431mil in FY22 1H and ¥511mil in FY21 full year.
Overseas
FY22 Overseas guidance is for OP of ¥843mil (-13.8% YoY) on sales – which are likely to reach a new record level – of
¥8,750mil (+10.6% YoY), and assumes that the economic activity will remain at current levels despite the impact of
COVID. Although each overseas operation will see sales expand, due to planned investment in a new factory and R&D,
along with depreciation costs in China, the China business will likely see FY22 OP fall by more than half, to ¥206mil.
However, there is also the uncertainty with the Zero COVID policy in China, so the earnings risk will remain with China
for the time being.
Ongoing developments overseas are as follows:After the successful expansion in the US, Milbon has started expanding in Canada.
Established a European subsidiary in Germany to increase its footprint in surrounding countries.
Given the successful development of milbon:iD in Japan, the service started in August in Korea.
Start locally manufacturing hair care products in China from August.

Milbon’s aim is to expand new business in each market and establish a global distribution network to realise the twoweek delivery system in an aim to achieve overseas sales CAGR of 12.6% during the existing medium-term plan which
ends in FY26.

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Medium-term management plan (FY22~26)(¥mil)
Sales
Japan
Overseas
Gross Profit [GP]GPM (%)
SG&A
Operating Profit [OP]OPM (%)
Recurring Profit [RP]NP attributed to the parent
NPM (%)

FY21
40,84932,938
7,910
26,76565.5
19,681
7,084
17.3
7,158
5,109
12.5

FY26
58,00043,70014,30038,16065.8
27,36010,80018.6
10,8107,670
13.2

CAGR (%)
7.3
5.8
12.6
7.4
+0.3ppt
6.8
8.8+1.3ppt
8.6
8.5+0.7ppt

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

CAPEX
With FY22 being the first year of the new medium-term management plan, Milbon has several investment plans inJapan and overseas, including those related to digital transformation (DX). The firm is guiding for FY22 CAPEX of¥5,080mil, up from FY21’s ¥4,644mil. This year’s CAPEX projects include the purchase of land for a new training centre
in Japan, and a production facility in Thailand.
Revision on Dividend Payment
In FY22, Milbon aims to pay out 50% of net profit and aims for a cash dividend of ¥86/share, up from FY21’s ¥68/share.

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