RESEARCH UPDATE – 09 September 2021

P age |1MILBON CO., LTD (4919 JP)

1H RE SU LT S PROVE D RE TURN T O T HE P RE -COVID LEV EL OF EA RNINGS WIT H A RE MARKA BLE OV ERSEA S E ARNINGS GROW TH.

FY21 1H EARNINGS RESULTS
Milbon Co., Ltd (4919 JP) reported FY21 1H (Dec year-end) earnings withoperating profit [OP] of ¥3,659mil (+53.2% YoY) on sales of ¥19,558mil(+23.3% YoY). Despite repeated State of Emergency closures, customer
traffic to beauty salons steadily recovered throughout 1H. Furthermore,a steady increase in home-use haircare product sales at salons also
contributed to domestic sales growth. Milbon estimates that approx.
70% of the firm’s total haircare products sales come from salon sales.
milbon:iD – the firm’s e-commerce platform that supports beauty salonsin the sale of salon haircare products supplied by Milbon – also saw a risein registered salons and users (customers to beauty salons).
In addition to a solid recovery in Domestic sales (+17.7% YoY), Overseas
sales saw a stronger-than-expected recovery (+44.0% YoY). In all threeoverseas markets – the US, China, and Korea – sales rose more than 30%
compared to the pre-COVID FY19 1H, which suggests that the FY21 1H
performance in Overseas Business sales growth was more than just a
recovery from the weakness seen in the same period last year.

EXECUTIVE SUMMARY

Milbon reported better-than-expected
FY21 (Dec year-end) 1H results with OPof ¥3,659mil (+53.2% YoY) on sales of¥19,558mil (+23.3% YoY).

Sales in Japan rose 17.7% YoY thanks toa recovery in customer traffic to salonsand a steady rise in haircare products
sales through the firm’s e-commerce
platform milbon:iD. The E-commerce
sales ratio of Milbon’s premium brandreached 5.5%, a +4ppt rise HoH.

Overseas sales saw a strong recovery
from the COVID-hit performance of FY20
1H. In fact, sales growth in the US, Korea
and China are all performing above preCOVID levels.

Milbon revised up its full-year FY21
guidance from OP of ¥6,420mil (+0.4%YoY) on sales of ¥38,200mil (+6.9% YoY)to ¥7,800mil (+22.0%) on sales of¥40,600mil (+13.6% YoY), which renews
the record earnings achieved in FY19.

The annual dividend was also raisedfrom ¥56/share to ¥63/share.

Both sales in Japan and overseas will
likely hit new record revenues in FY21.

Introduced at the release of FY20 1H
results, Milbon has initiated an 18month review period (Change the Stage
18-month Missions) which ends in FY21,in preparation for the new mediumterm business strategy that willcommence from FY22. Managementstates that the transitions planned forthe 18-month have been progressing inline with their expectations.

Sales by Country
1. Japan
During 1H, the firm reported Japan OP of ¥3,074mil (+30.2% YoY) onsales of ¥15,742mil (+17.7% YoY), which produced an OPM of 19.5%,
up from FY20 1H’s 17.7% and FY19’s pre-Covid OPM of 18.9%.
Although the OPM improved along with sales growth, there was a bitof a cushion on the cost side as the firm did not use its planned SG&A
budget due restrictions on business activities under COVID.
However, even though overall SG&A costs rose 13.5% YoY due to anincrease in personnel costs, such as hiring new Field Persons [FPs]and logistics costs, that was more than offset by the improvement insales.
A primary reason for the domestic sales growth came from haircare
product sales at salons for their customers to use at home. Given
COVID restrictions has led to customers not frequenting salons asregularly as they used 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. As a result, thenumber of salons that registered with milbon:ID reached 2,000 in 1H
vs. 1,300 as of the end of FY20. Milbon also saw an increase in the ecommerce sales ratio of premium brands sold via milbon:iD rising to
5.5% from 1.5% as of the end of FY20. The number of users (saloncustomers) registered with milbon:iD also rose to approx. 70,000, a
substantial jump from 27,000 as of the end of FY20 and exceeding
management’s original FY21 forecast for 60,000 users.
2. USThanks to the end of lockdown, marketing activities resumed during
1H. Milbon teamed up with local distributors to cultivate new salons.
As a result, US sales surged 114.0% YoY to ¥406mil. Although theMILBON CO., LTD (4919 JP)

NIPPON INVESTMENT BESPOKE RESEARCH UK LTD

RESEARCH UPDATE – 09 September 2021

P age |2high YoY growth reflects a recovery from the weak sales in FY20 1H under the pandemic, US sales were up 31.3%
compared to FY19 1H. Sales of Global Milbon a premium haircare range, contributed to the sales growth. Haircolour product Sophistone proved popular and helps cultivate new customers. However, the US business remains
loss making as of the 1H.
3. China
FY21 1H OP rose 183.9% YoY to ¥269mil on sales of ¥1,091mil (+55.9% YoY / +69.9% YoY on a yen-denominatedbasis). The number of salons that use Milbon products steadily increased on the back of the firm’s successful
education support for hairdressers. Over the past years, Milbon has expanded its regional coverage by expanding
the number of distributors. Compared to FY19, sales are up 39.1%.
4. Korea
Milbon Korea – the largest part (8.2% of total consolidated net sales) of the firm’s overseas operations – generated
FY21 1H OP of ¥544mil (+97.4% YoY) on sales of ¥1,609mil (+26.9% YoY / +38.1% YoY on a yen-denominated base).
Some 70% of sales in Korea is derived from hair colour products. Sales of premium brands, such as Global Milbon
and Aujua, trended favourably as more salons had the products in stock.
Sales by products
1H Haircare product sales rose 20.2% YoY to ¥11,288mil. Premium brands sales improved 33.8% YoY to ¥6,200mil ascustomers in Japan spent more on salon-bought high-end products such as Aujua (sales +30.1% YoY), for use at home.
Global Milbon, another premium haircare brand, continue to grow in China, US and Korea. Sales of haircare premium
brand products now comprises more than half of Milbon’s total haircare products sales.
Hair colour products were particularly hit from the pandemic during FY20, but sales recovered 27.3% YoY to ¥7,124mil
in 1H FY21 and they are up 10.9% from pre-COVID FY19 1H levels. Since wearing a mask has become the norm andsince half of one’s face is hidden, customers are now choosing to add hair colour as part of their fashion repertoire.
Fashion colour products that offer a wider variety of colours rose +40.7% YoY or +25.6% compared to FY19 1H.
Sales of Imprea (only in Japan), a cosmetics series sold through hair salons, surged 114.6% YoY to ¥293mil. The numberof salons selling Imprea reached 890, +245 salons compared to the end of FY20. Several new products in the Imprea
range – a new eyebrow mascara, an eyebrow pencil that customers can choose to match their hair colour, and a skinwhitening care serum – also contributed to the boost in sales.
FY21 OUTLOOKThe better-than-expected 1H results, led Milbon to revise up its full-year FY21 guidance from an OP of ¥6,420mil (+0.4%YoY) on sales of ¥38,200mil (+6.9% YoY) to an OP of ¥7,800mil (+22.0% YoY) on sales of ¥40,600mil (+13.6% YoY), which
renews the record earnings achieved in FY19.
Milbon terminated the previous medium-term business plan at the time of FY20 1H results announcement due to thelack of visibility surrounding the beauty salon industry under the pandemic. The five years sales CAGR to FY19 was 7.5%.
The company expects the FY20~FY21 2-year CAGR will likely be 5.8% due to COVID and management has based theFY21 full year revised guidance on this forecast. Milbon’s assumptions also include higher travelling and subsistence
costs, along with (1) higher costs associated with recommencing marketing activities and (2) a temporary increase inlogistics-related costs – especially for air freight to the US to meet the rapid increase in haircare product demand.
Milbon is reviewing its global distribution network and looking to create a more optimal solution to address this issue.
Japan
Milbon is guiding for FY21 Japan sales of ¥33,100mil (+10.8% YoY), renewing the record level of revenues of ¥30,409mil
achieved in FY19.
The company has initiated an 18-month review period (Change the Stage 18-month Missions) which was introduced at
the release of FY20 1H results and will last until the end of this fiscal year. Management has identified four stages and25 missions to work on during that period, based on the key question: How can Milbon support the beauty industry’s
survival post COVID. For the details of Change the Stage 18-Month Mission, please check our previous report on Milbon(https://www.milbon.co.jp/english/ir/upload_file/m000-/20210331_SponsoredResearchReport.pdf).
MILBON CO., LTD (4919 JP)

NIPPON INVESTMENT BESPOKE RESEARCH UK LTD

RESEARCH UPDATE – 09 September 2021

P age |3

The environment surrounding the Japan’s beauty industry had entered a period of transition even before the pandemichit. COVID, however, has accelerated the transition. For example, with the mandatory wear of face masks, consumers’interest in beauty has changed from not just make-up but to include haircare. With reduced customer traffic to salons,
the importance of selling haircare products and establishing an online shopping infrastructure has become key to salonsbeing able to boost revenues and to retain customers. This trend was particularly apparent at salons in the rural areas.
While customer traffic in rural areas fell 10~15% on the back of the increase in remote working during 1H, the averagespend/customer at the salon improved by 10% thanks to customers choosing to have more treatments (e.g., a haircutand hair colour) when they visit the salon, they are also buying hair care products. In contrast, salons in suburban
residential areas saw an increase in both customer traffic and sales compared to pre-COVID time. Due to continued
remote working, many people stay home and choose to go to a hair salon in their neighbourhood.
Overseas
On the back of the stronger-than-expected 1H growth, Milbon also revised up its FY21 Overseas sales guidance from¥6,882mil (17.8% YoY) to ¥7,500mil (+28.3% YoY), and assumes that the economic activities will remain at the current
level despite the impact of COVID. Overseas sales are also likely to renew record sales, exceeding the current record
FY19 sales of ¥5,857mil. The Overseas sales ratio in FY21 will improve to 18.5% from 16.4% in FY20 and 16.2% in FY19.
Sales by ProductHair care products sales were revised up by 4.5% from ¥22,768mil to ¥23,798mil (+12.6% YoY) thanks to a steadyincrease in sales at salons and home-use haircare products. Hair colours are expected to see a recovery from a dip in
FY20, with the company guiding for sales of ¥14,400mil (+14.3% YoY). The company has high hopes for its new haircolour product launched in the US, Sophistone, which offers vivid colours and less odour, to become a salon favourite
and therefore encourage other salons to stock the product.
CAPEX
Towards the end of the 18-month transition period, Milbon has several investment plans in Japan and overseas. The
firm is guiding for CAPEX of ¥7,488mil, a substantial jump from FY20’s ¥1,917mil. Approx. ¥5,000mil will be spent onland for a new training centre and an R&D centre in Japan (approx. ¥3,000mil), and a factory in China (approx.
¥2,000mil). Furthermore, some ¥240mil will be spent on a new Aoyama sales office with studio facilities. During 1H,the firm spent ¥2,292mil. The actual amount of CAPEX for the year depends on whether Milbon can find a suitable andwell-located plot of land for the new training centre, which, as of 1H end, the firm has yet to secure a site.
Revision on Dividend Payment
Milbon also revised the annual dividend forecast from the previous ¥56/share (+0.0% YoY) to ¥63/share (+12.5% YoY).
The firm’s shareholder return principle is a pay-out ratio of approx. 40%. Management is willing to revise the policy inthe next medium-term business strategy which will likely be announced at the time of FY21 earnings results.

MILBON CO., LTD (4919 JP)

NIPPON INVESTMENT BESPOKE RESEARCH UK LTD

RESEARCH UPDATE – 09 September 2021

P age |4Milbon (4919 JP): Earnings Summary (Cumulative)
FY19(¥mil)

FY20

FY21
FYCE(Old)

FYCE(New)

Chg (%)(New/Old)

YoY (%)

40,600

6.3

13.6

1H

FY

1H

FY

1H

YoY (%)

Sales

17,24236,266

15,86935,725

19,55823.3

38,200

COGS

5,746

12,554

5,329

12,340

6,650

24.8

12,890GP

25,31011,49623,711

10,54023,385

12,90722.5

GPM (%)

66.7

65.4

66.4

65.5

66.0

-0.4PP

66.3

SG&A

8,406

16,9598,151

16,991

9,248

13.5

18,890

SG&A / Sales (%)

48.8

46.8

51.4

47.647.3-4.1pp

49.5

OP

3,089

6,751

2,388

6,394

3,659

53.2

6,420

7,800

21.5

22.0

OPM (%)

17.9

18.6

15.1

17.9

18.7

+3.6pp18.6

19.2+0.6pp+1.3pp

RP

2,824

6,231

2,102

5,791

3,355

59.5

5,710

7,120

24.7

22.9

RPM (%)

16.4

17.2

13.3

16.2

17.2

+3.9pp14.9

17.5+2.6pp+1.3ppNP for the parent's s/holders

1,999

4,517

1,451

4,204

2,413

66.3

4,050

5,100

25.9

21.3

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21 1H)

Sales and OP Breakdown by Country (Cumulative: JPY basis)
FY19(¥mil)

Japan

Overseas

Total

FY20

FY211H

FY1H

FY

1H

YoY (%)

FYCE
(Old)

FYCE
(New)

Sales

14,38330,40913,37329,88015,74217.7

31,318

OP

2,723

6,177

2,360

5,989

3,074

30.2

n/a

OPM(%)

18.9

20.3

17.7

20.0

19.5

+1.8pp

Sales

2,859

5,857

2,495

5,844

3,816

OP

365

574

27

405

585

OPM(%)

12.8

9.8

1.1

6.9

15.3

Sales

17,24236,266

15,86935,725OP

3,089

6,7512,388

6,394

OPM(%)

17.9

18.6

15.1

17.9

Change (%)

YoY (%)

33,1005.7

10.8

n/an/an/an/an/an/an/a

52.9

6,882

7,500

9.0

28.3

2024.0n/an/an/an/a+14.2pp

n/an/an/an/a

19,55823.3

38,20040,600

6.3

13.6

3,659

53.2

n/an/an/an/a18.7+3.6ppn/an/an/an/a

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21 1H)

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

FY20FY21CE
YoY(%)FYCE(Old)

FYCE
(New)

New/Old(%)

YoY(%)

Hair care products
9,897
21,328
9,391
21,135
11,288Hair colouring products
6,423
12,994
5,594
12,594
7,124
Permanent wave products
770
1,515
660
1,372
740
Cosmetic products
47
165
136
360
293
Others
103
263
85
262
111
Total
17,24236,266
15,86935,725
19,558Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21 1H)

20.2
27.3
12.0
114.6
31.3
23.3

22,768
13,112
1,416
640
264
38,20023,79814,400
1,48564027740,600

4.5
9.8
4.9
0.0
4.9
6.3

7.7
4.1
3.2
77.8
0.8
13.6

MILBON CO., LTD (4919 JP)

NIPPON INVESTMENT BESPOKE RESEARCH UK LTD

1HFY1HFY

1H

RESEARCH UPDATE – 09 September 2021

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