Japan-based Hoshizaki Corp. (TSE:6465, Financial)(HSHZY, Financial) is arguably the best ice maker in the world. The company's balance sheet is pristine with a huge hoard of cash and no debt. Sales have been off with restaurant closures due to the Covid-19 pandemic, but if we ever get through it, the stock should do well.
The stock trades for 10,270 yen ($93.64), there are 72.4 million shares and the market cap is 744 billion yen ($6.8 billion). Earnings per share are 243 yen and the stock trades at a price-earnings ratio of 42. The stock is not cheap on that metric compared to most global financial markets. The dividend is 110 yen and the dividend yield is 1%. You will rarely find a Japanese company that pays much of a dividend.
Revenue grew from 282 billion yen in 2017 to 290 billion yen in 2019, but fell off a cliff (due to the pandemic) to 238 billion yen in 2020. It has, however, recovered to 253 billion yen over the last 12 months. Earnings fell from 23 billion yen in 2017 to 17.6 billion yen for the trailing 12 months. Free cash flow was 23.5 billion yen.
The balance sheet is ridiculously strong. There is a whopping 217 billion yen in cash and 27 billion yen in receivables. There is no debt and only 16 billion yen in payables. So really, you need to subtract 217 billion yen in cash from the market cap of 744 billion yen to get 527 billion yen. Based on that calculation, the stock really trades at a price-earnings ratio of 29.
Hoshizaki receives 68% of its sales in Japan, 20% in the U.S. and the rest of the world represents everything else. I wrote about the company in February of 2020. Little did I know that we’d be knee-deep in a global pandemic a few weeks later. I used to own a restaurant and my repair guy raved about the brand. He said the parts were of the highest quality.
We bought the stock in June 2019 and are at a 22% profit. Management got in trouble fudging numbers and we thought it was a buying opportunity. If not for that pesky pandemic, we’d probably be making more money. All of the restaurant closures have affected the stock.
Hoshizaki has some of the coolest refrigeration products around. A newer product named 2by2 produces an ice cube that measures two inches by two inches. This is desirable for many mixed drinks. The company also makes dishwashers, drink dispensers and ice makers that produce fun-shaped ice.
Morningstar thinks the shares are about at fair value. They note Hoshizaki has a “wide moat” because it’s difficult to produce the reputation the company has. Morgan Stanley is neutral on the stock, but it has never been a big fan of the company.
I was talking to a wholesaler at First Eagle and he told me the founder came to the U.S. many years ago and was looking for a business opportunity. People told him there was a need for ice machines, so that’s how he came about the focus.
I like the stock. We’re holders. If we ever get through this pandemic, restaurants and bars will open back up and drive Hoshizaki’s sales.
