Kewpie Corp (2809)

Source: Kewpie website

I have been looking at food manufacturers for a while and Kewpie Corp. ("Kewpie") caught my eye. Not because of the logo which is a doll created by artist and illustrator Rose O'Neill but because this is by far the most delicious mayonnaise I've ever had. Apparently many people agree as this is one of the most popular brands in the market and when you google japanese mayonnaise, the search result gives you Kewpie! 

We have to thank Toichiro Nakashima for this wonderful mayonnaise and it is heartening to know that the family still remains as the majority shareholder with 21.8%. I spotted Amane Nakashima who is a senior MD, Head of Compliance and Internal Audit and wonder whether he's part of the family.   I believe in continutity in family businesses except in cases where you can no longer bring the company to the next level and professional hires are required. 

Kewpie operates in various business segments and the condiments product segment which offers mayonnaise, dressings and vinegar is the top earner. They did some reorganisation of the business segments in 2013 so I'm not sure how this will affect the comparability of the results against the previous years. They seem to be facing challenges in the egg products segment due to rising costs, resulting in a y-o-y 30.2% drop in operating income. Fine chemical products was also hit by a decline in sales volume and distribution systems was slightly down due to acquisition of new businesses. 

Naturally for such a business, the increase in prices of key ingredients like hen's eggs and edible oils would be detrimental and it is true that whatever precautions you take, you can never guard against one of those catastrophic disasters such as bird flu or some crazy weather that screws up the crops that product edible oils. Which is why I am always hesitant about buying stocks that rely on the forces of nature which is as unpredictable as human behaviour. 

I do however like Kewpie for their continuous dedication to R&D and I find this to be a common trait among those Japanese companies that I've looked at. The ratios such as interest coverage, equity ratio look good and it is great for investors as they have a stated dividend policy. 

With a rapidly ageing population in Japan, Kewpie decided that targeting the same kids that grew up on their canned baby food with a range of pureed ready to eat meals called "Gentle Menu" would be  a good move and while this has yet to be profitable despite more than a decade in the making, it is rather amazing that they have not chucked the whole thing out of the window! Whether they will eventually make it work remains to be seen but if it does, this could turn out to be a good contributor to the business. It is expected to turn a profit next year so the plan is to add this stock preferably before the next earnings are out on 8 Jan 2015. 


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