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10/Jul/2024 ー About Discussion with YONEX Co., Ltd.

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On 28th June, Hibiki Path Advisors (hereafter referred to as “Hibiki” and “we”) held a meeting with the IR department of YONEX Co., Ltd. (hereafter referred to as “Yonex” and “the Company”), one of our new major portfolio names since the start of 2024. We made recommendations on the ideal financial strategy and capital allocation policy for the Company based on our analysis.

Yonex was founded in 1946 by Minoru Yoneyama and has since become a world-leading manufacturer of badminton gear. In recent years, they have also rapidly increased their presence and market share in tennis gear. As one of Japan’s leading sports manufacturers, we have been following Yonex closely since around 2018 and finally had the pleasure to invest with them this year.

The Company’s primary strength lies in their technological prowess. Yonex’s stable aerodynamic performance of their shuttlecocks, which dominate the global market, is well-known (reference site: BADMINTON SPIRIT (in Japanese only)). In terms of rackets, Yonex’s technology of wholistically combining joints, frames, and ingredients is unmatched by competitors – its ISOMETRIC theory (in Japanese only) that enlarges the sweet spot is one of such examples. With that said, in 2021, Yonex signed an equipment usage contract with the Chinese national team, a major badminton powerhouse, solidifying their status as a globally recognized brand.

However, compared to their global reputation within the industry and amongst the players, we believe that Yonex remains significantly under-appreciated in the Japanese capital market. Recognizing this disparity, we decided to invest in Yonex. Below is a comparative valuation table between Yonex and its global peers (Figure 1).

Figure 1: Comparative valuation table between Yonex and peers

※The three financial statements are based on the previous fiscal year’s results as of July 2024. The valuation is as of the end of June 2024, and the averages are calculated as simple averages.

(Source: Hibiki from Bloomberg and Shikiho)

Sporting goods are both a manufacturing and a brand business; the higher the brand value, the higher the market valuation. Companies like Asics, Adidas, and Nike receive extremely high valuations based on said brand recognition. Given Yonex’s technological prowess and reliability in badminton and tennis products, it is not surprising if their valuation significantly surpasses those of Under Armour and Lululemon. However, Yonex’s current valuation remains low partly due to their disclosure practices and the direction of their IR activities, which can be improved significantly. We discussed these points constructively during the meeting, and it was acknowledged very positively by them.

We will refrain from disclosing specific details of the meeting at this time since we wish to respectfully watch over the growth strategy (Global Growth Strategy) by Yonex’s new president, Alyssa Yoneyama. Nevertheless, we have communicated our desire for Yonex to recognize its higher than peer advertisement cost, consider allocating such expense wisely and efficiently, and then aim high as a world-leading sports manufacturer, for them to TARGET ROE OF OVER 20%, which is the global average (Figure 2). We also provided various scenario analyses of specific capital allocations, in order to set an appropriate ROE target. We are confident that by implementing these proposed financial strategies and capital allocation policies, Yonex will be further highly valued in the market.

Figure 2: Comparison of Profitability and ROE-related Indicators of Yonex and Peers

※The three financial statements are based on the previous fiscal year’s results as of July 2024. The valuation is as of the end of June 2024, and the averages are calculated as simple averages. Adidas’ net profit for the previous fiscal year was negative.

(Source: Hibiki from Bloomberg and Shikiho)

As our principle, we invest in companies that we genuinely like to support the growth of their businesses. Under this premise, we identify and address factors that could potentially hinder the growth of our investment targets, such as a rigid adherence to precedents, an overly-defensive stance that sets self-imposed limitations, overly conservative financial policies, etc. We often share our insights and suggest measures to help companies break through such barriers, whether that can be financial items or strategic matter.

Regarding Yonex, we are currently highly optimistic and supportive as we believe that the new president, Ms. Alyssa Yoneyama, is making various positive efforts to reinvigorate and propagate Yonex’s redefined “Purpose & Mission” (Figure 3). We are confident that Yonex is on the right path to achieve their goals and we look forward to their continued progress.

Figure 3: “From Corporate Philosophy to Purpose & Mission”

(Source: Yonex financial results presentation for FY 3/2024, P.19)

We sincerely hope that Yonex will transcend the traditional framework of a Japanese craftsman-style sports manufacturer and emerge as a globally renowned and highly esteemed company, not only in the badminton and tennis industries but also among global investors. We look forward to continued engagement with Yonex, and look forward to their “Entering a New Growth Phase” (Figure 4).

Figure 4: “Entering a New Growth Phase”

(Source: Yonex financial results presentation for FY 3/2024, P.18)

Please note that the publication of these materials does not solicit applications for or recommend the sale of certain securities, or provide advice on investment, legal, tax, accounting, etc.