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Elite Client Idea #3

Updated: Nov 28, 2023

Yachiyo Industry Co., Ltd. (TSE ticker: 7298; Price when published: 659 yen)

Yachiyo (‘company’) manufactures automobile parts and is a subsidiary of Honda Motor Company, which holds a 50.5% stake. 90% of its sales are to Honda’s subsidiaries across the world.

It generated sales from China (32% of FY22 revenues), rest of Asia (36%), Americas (18%), and Japan (14%).

The key issues facing the company are lower orders - due to covid-19 restrictions (particularly in China) and a prolonged shortage of semiconductors; as well as higher raw material costs. (These were partially offset by a weaker yen.) It also faces long-term challenges as the industry turns to electric vehicles.

(Although concentration of sales to Honda is certainly a risk, it could also be considered a point in favor of the company serving an entrenched industry player – it currently enjoys stable relations with Honda.)

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