Niitaka specializes in cleaning chemicals catered primarily to restaurants, hotels, food factories, schools, and supermarkets.
The company has recently expanded into the healthcare industry by acquiring a company (Biobank) that sells a lactic acid bacteria-fermented health supplement that aids in digestive health.
Niitaka’s strength is that it is relatively more vertically integrated than its competitors, so it can create custom cleaning solutions for unique use cases for its customers.
One example is the company’s “Chemifine” quick rinse product. Typically at the end of the workday, restaurants will do a comprehensive clean of all of the kitchen’s surfaces, from the countertops and appliance surfaces to the floor. This is to prevent cross-contamination and ensure floors are safe and not slippery for the next day. Chemifine is a product that doesn’t require scrubbing and doesn’t bubble as much, allowing for faster cleaning times. The primary value prop is that restaurants can save on labour costs with this product due to reduced cleaning times.
Hypothetical example: 6 kitchen staff stay behind to clean the kitchen. With Chemifine you save 10 minutes of cleaning time per person. 60 minutes of labour cost are saved with Chemifine. Would you rather pay a few cents or bucks more for Chemifine or pay more for labour?
EBIT margins: 5-7%
Revenue growth last 10 years: 65% in total
Valuation:
- MCap: 14 bn yen (at 2325 yen per share) * Debt: 1.7 bn yen * Cash: 7.3 bn * Investment securities: 0.5 bn * EV*: 8.2 bn excl. investment securities * EV**: 7.7 bn incl. investment securities * EV*/EBIT: 4.1x * P/B: 0.9x * P/E: 9.2x * Div %: 3.3% (76 yen per share)
Why you would consider investing:
- Cheap * Improving margins due to * healthcare products having higher margins than the company’s core business * recent drop in the cost of raw materials * revenue growth as a result of company gaining market share - operating leverage * Gradually capturing more market share in chemical segment * Lots of dry powder to perform more acquisitions in healthcare or related chemical products * Expansion of cleaning solutions for other industries beyond food, i.e., dental clinics. * Food Trends: Trend of eating self-heating hotpot for take-out orders in China - Niitaka sells solid fuels that heat up food over a set period of time while emitting fewer odours. * End customers in restaurant, hotel, and food industries are likely to do well due to tourism boom in Japan
Why you wouldn’t consider investing:
- Sensitive to price fluctuations of chemical raw material costs * Cannot completely pass on costs to customers * Circle of competence reasons * No buybacks * CEO owns very little stock, which is interesting
Factor exposure:
- Chemical raw material prices: petroleum, natural oils, and fats * Restaurant, hotel, supermarket, and food factory sales * Tourism in Japan * Cleanliness and hygiene standards of restaurants, schools, etc. * COVID would be good for this company given their disinfecting cleaning supplies
Rating: B+/A-
Based on preliminary analysis, Niitaka seems promising. What is most interesting are the levers for growth Niitaka has at its disposal.
I don't typically look at chemical companies. Anyone with expertise have any insights?