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Yoshinoya HD / 9861 R Yoshinoya HD / 9861 COVERAGE INITIATED ON: 2018.11.14 LAST UPDATE: 2021.05.14 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. Research Coverage Report by Shared Research Inc. Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2021.05.14 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 7 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------7 Trends and outlook --------------------------------------------------------------------------------------------------------------------------------- 10 Quarterly trends and results --------------------------------------------------------------------------------------------------------------------------------- 10 Past initial forecasts versus results -------------------------------------------------------------------------------------------------------------------------- 20 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 25 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 25 Group strategy --------------------------------------------------------------------------------------------------------------------------------------------------- 38 Group structure -------------------------------------------------------------------------------------------------------------------------------------------------- 40 Profitability snapshot ------------------------------------------------------------------------------------------------------------------------------------------- 41 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 44 Market and value chain---------------------------------------------------------------------------------------------------------------------------- 46 Restaurant market trends ------------------------------------------------------------------------------------------------------------------------------------- 46 Competition ------------------------------------------------------------------------------------------------------------------------------------------------------ 47 Historical performance and financial statements ------------------------------------------------------------------------------------------ 51 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 51 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 52 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 54 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 55 Other information ---------------------------------------------------------------------------------------------------------------------------------- 67 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 67 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 68 Corporate governance and top management --------------------------------------------------------------------------------------------------------- 70 Dividend policy -------------------------------------------------------------------------------------------------------------------------------------------------- 71 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 71 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 71 By the way --------------------------------------------------------------------------------------------------------------------------------------------------------- 72 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 72 02/73 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2021.05.14 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Executive summary Business overview Yoshinoya HD operates major restaurant chains in Japan and overseas. Its core business is Yoshinoya, which invented gyudon ◤ (beef bowl) and marked its 120th anniversary in 2019. In FY02/20, the company posted consolidated sales of JPY216.2bn, placing it fifth among 95 listed restaurant companies in Japan. Later, in FY02/21, the company reported consolidated sales of JPY170.3bn and an operating loss of JPY5.3bn. The company began actively acquiring restaurant operators around 1995, and has grown to operate a diverse portfolio of restaurants. Main brands include Yoshinoya (gyudon) and Hanamaru Udon (udon noodles). As of end-FY02/21, it had a total of 3,168 restaurants, 2,203 in Japan and 965 overseas. The majority of its restaurants in Japan are directly operated, whereas overseas (mainly Yoshinoya and Hanamaru restaurants) most are operated by franchisees. (The company sold off its Arcmeal business in February 2020 and completed the sale of its stake in Kyotaru in April 2021.) At the Yoshinoya segment, which accounts for 50–60% of total sales and at least 70% of operating profit, the company ◤ operated 1,189 restaurants in Japan (as of end-February 2021), ranking the chain second among the three companies that dominate the beef bowl market in Japan. Annual sales per restaurant were JPY88mn. Over the past 10 years, the company has maintained around 1,200 Yoshinoya restaurants as it continued to scrap and build its domestic suburban stores. Yoshinoya is a strong brand, but beef prices are currently high, and the company’s profit margins tend to fluctuate along with these prices due in part to the high sales weighting of gyudon. Consequently, companywide OPM over the past five years only averaged 1.4% (excluding impact from the operating loss in FY02/21), placing Yoshinoya HD near the bottom of the food-service sector, although profit levels have recovered somewhat from the slump that occurred in the wake of the outbreak of BSE that occurred at the beginning of the year 2000. Growth drivers are the Hanamaru segment (11.8% of total sales in FY02/21) and the Overseas segment (11.5%). The ◤ Hanamaru business comprised 490 restaurants around the country (mostly directly operated), making it the second-largest udon chain in Japan. Annual sales per restaurant were JPY40mn. The company targets a total of 800 locations. The Overseas segment mostly involves Yoshinoya (947 locations) and Hanamaru (18) restaurants in the US, China, and the ASEAN region (as of end-FY02/21). The company is also focusing on opening directly operated restaurants abroad and expects the number of overseas restaurants to exceed that of Yoshinoya restaurants in Japan by 2025. Trends and outlook FY02/21 results: In FY02/21, the company reported full-year consolidated sales of JPY170.3bn (-21.2% YoY), operating loss ◤ of JPY5.3bn (versus profit of JPY3.9bn in FY02/20), recurring loss of JPY2.0bn (versus profit of JPY3.4bn), and net loss attributable to owners of the parent of JPY7.5bn (versus profit of JPY713mn in FY02/20). On top of the sale of its Arcmeal business, which put a JPY19.8bn dent in consolidated sales versus FY02/20, the shortened business hours and temporary shutdowns of restaurants operated by group companies in the wake of pandemic also weighed heavily on sales. On the earnings front, the company moved back into the black in 2H thanks to ongoing cost-cutting measures (including negotiating lower rents) and the implementation of structural reforms across the
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