Nakamoto Packs’ business centers on gravure printing (a form of intaglio printing often used for printing photographs because it produces very fine differences in color gradations) on plastic sheets, film, and paper; laminate processing; container and sheet molding; and thin-film coating for industrial materials. In FY02/21, the company reported revenue of JPY36.0bn and gross profit of JPY5.7bn. Revenue and gross profit breakdown by product category was as follows: Food Packaging and Containers, 66.0% of revenue and 44.6% of gross profit; IT and Industrial Materials, 13.6% and 23.7%; Consumer Product Packaging and Materials, 9.1% and 18.9%; Printing Sheets for Building Materials, Pharmaceuticals and Healthcare, and Others combined, 11.3% and 12.7%. The company has clients in diverse industries, and its core policy centers on all-weather management that aims for stable growth regardless of trends in specific industries. Approximately 94% of revenue came from the Japanese market.
In Food Packaging and Containers, revenue is calculated by multiplying the printing price per color by the number of colors and printing volume (e.g., meter or sqm). If lamination and/or molding is required, revenue will increase accordingly. In IT and Industrial Materials, revenue is determined by the processing fee for each contract, which is calculated by multiplying the contracted unit price by volume, and by the hourly rental of coating machines, which is obtained by multiplying rental fee per hour by the number of hours. Raw materials comprise the largest portion of costs for Nakamoto Packs (main raw material is resin; raw material costs make up two thirds of production costs), but in Food Packaging and Containers and IT and Industrial Materials, the client supplies almost all of the materials (sheets and films). When materials are supplied by the client, the company does not feel any direct impact from increases in the price of crude oil right away. However, the impact on the price of raw materials will be reflected during regularly held price negotiations in the long run.
In Food Packaging and Containers, which is the main line of business (revenue ratio of food containers to food packaging material is approximately 2:1), Nakamoto Packs engages in gravure printing and processing for food containers, food packaging materials, and beverage lids, among others. Nakamoto Packs has the largest market share in thick sheet gravure printing (100–500μm; approximately 8% of the gravure printing market) for food containers used in convenience stores, supermarkets, and department stores, handling approximately 70% of all printing outsourced by container manufacturers (source: Nakamoto Packs). The company receives printing contracts from many food container manufacturers, including the industry leader, FP Corporation (TSE1: 7947).
In addition to gravure printing for food containers, Nakamoto Packs also offers coating, laminate processing, container molding (including injection molding of sheets), and material development services (in some cases, clients handle all processes other than printing) depending on client requirements. By leveraging its founding printing technology, the company has expanded its business to include both upstream and downstream processes, enabling it to provide integrated production services.
In food packaging materials, which mainly encompasses bags for frozen food, snacks, and instant noodles, and commercial film packaging materials, Nakamoto Packs provides gravure printing and lamination services. The company also supplies shrink wrap for food (food packaging film that shrinks when heat is applied; revenue totaled approximately JPY250mn in FY02/21) utilizing technology it has accumulated through gravure printing for thin film.
The second business pillar is IT and Industrial Materials, which covers printing and coating for optical film used in the displays of mobile devices and electronic substrates. Nakamoto Packs utilizes its coating technology not only for fulfilling processing contracts, but also for providing optimum coating proposals to clients. The company designs and manufacturers its own coating machines after having strengthened its engineering capabilities. In addition to using these machines for its own business, it rents them out to other companies. Nakamoto Packs was able to add optical film for mobile device displays to its line-up of products after making concerted efforts in the area of gravure printing for thin film (2–12μm; accounts for approximately 10% of the gravure printing market), and these efforts are also leading to technical advances for reducing the weight of film.
The third business pillar is gravure printing and lamination for Consumer Product Packaging and Materials, which is the most profitable of all its product categories (GPM is 32.8% compared with 15.8% across the company). Nakamoto Packs has the leading market share (source: Nakamoto Packs) in the lamination of vacuum storage bags for bedding, which it carries out on an OEM basis (under the client’s brand). The company’s lamination technology is used for both the bag manufacturing process and the packaging materials.
In gravure printing, Nakamoto Packs mainly targets low-competition markets; namely, the thick sheet market (printing sheet thickness of 100–500μm; approximately 8% of the gravure printing market, Shared Research estimate) for food containers, and the thin film market (2–12μm; approximately 10% of the gravure printing market) for optical film used in the displays of mobile devices. It avoids the largest market (printing sheet thickness of 12–40μm; nearly 80% of the gravure printing market) as competition is fierce in this area. In the 1980s, when the future of the market was uncertain, the second president of Nakamoto Packs, Mr. Takashi Nakamoto (son of Mr. Minoru Nakamoto, the founding president of the company), resolved to make an early entry into the thick sheet printing market, which had been mostly ignored by competitors and made initial investments to install several special-purpose, large machines (with high-tensile strength). In the years since, the company has accumulated manufacturing expertise in appropriate printing time, pressure, and drying methods.
In Food Packaging and Containers, revenue reached a record high in FY02/21, backed by growth in the number of post-printing processing contracts and favorable performance at clients (revenue and profit reached record highs at FP Corporation in FY03/21). However, GPM declined from 11.4% in FY02/19 to 10.7% in FY02/21. Sales volume grew in the domestic food container market, driven by the spread of delivery and takeout services amid the COVID-19 pandemic (product volume increased 7% YoY at FP in FY03/21). Meanwhile, the printing price and number of colors used decreased as a result of fewer orders from department stores, which handle a large volume of luxury ingredients, and cancellation of recreational activities and events. Nakamoto Packs thinks the thick sheet printing market is maturing.
In view of the above, Nakamoto Packs is strengthening its material development technology, and focusing on eco-friendly N-brand products that reflect its proprietary technology in food-related areas. N-brand products are rigid, thin-film products made from PET resin (polyethylene terephthalate; one of the synthetic resins used to make PET bottles) that save on resources and are easy to recycle. N-brand products are used as materials for trays and food packaging for confectionary and agricultural produce, and containers for baked food items, such as gratin. If these products are made using biomass materials, CO2 emissions can be further reduced by up to 30% and fossil fuel ingredients by 30%.
In FY02/21, revenue came to JPY36.0bn (+5.7% YoY), operating profit JPY1.7bn (+11.9% YoY), recurring profit JPY1.8bn (+8.8% YoY), and net income attributable to owners of the parent JPY1.3bn (+21.2% YoY). Revenue grew for the fifth consecutive year, and all profit categories increased for the first time in two years, with all figures achieving record highs. The high rate of growth in net income was attributable to extraordinary gains on negative goodwill relating to the consolidation of a Japanese affiliate as a subsidiary. The annual dividend was also a record high at JPY57.0 per share (DPS was adjusted to reflect the stock split, at the end of February 2018).
The company’s forecast for FY02/22 calls for revenue of JPY39.5bn (+9.6% YoY), operating profit of JPY2.3bn (+35.8% YoY), recurring profit of JPY2.5bn (+42.8% YoY), net income attributable to owners of the parent of JPY1.5bn (+11.7% YoY), and EPS of JPY179.9. The company upwardly revised its initial forecast prior to announcing 1H results. The revisions were due to the effect of higher revenue and cost reductions. The previous forecast called for sales of JPY38.0bn, operating profit of JPY1.9bn, recurring profit of JPY1.9bn, and net income of JPY1.1bn. The company maintained its expectation that revenue will grow for the sixth consecutive year, and that operating profit and recurring profit will increase for the second straight year, thereby reaching new record highs. After the upward revision, net income is also expected to reach a record high. Its forecast for the annual dividend is JPY58.0 per share, which is in keeping with its policy of avoiding dividend reductions since listing on the stock market. Based on the forecast, the dividend payout ratio is projected to be 32.2% (Shared Research estimate).
Nakamoto Packs has announced its first medium-term management plan for the three-year period from FY02/22 to FY02/24. In the plan, the company lists nine specific management strategies for responding to drastic changes in the business environment caused by the COVID-19 pandemic. These include growing its market share in key areas (film printing and sheet printing for molded containers), enhancing development in the high-margin IT and Industrial Materials (GPM of 27.6% in FY02/21 compared with 15.8% for the company as a whole) and Consumer Product Packaging and Materials (GPM of 32.8%) categories, improving production efficiency, reducing raw material costs and loss ratios, cutting manufacturing costs, and expanding overseas business. Through these strategies, the company hopes to achieve revenue of JPY44.0bn (+22.1% versus FY02/21), operating profit of JPY2.2bn (+25.3%), and ROE of 10% or higher (10.5% in FY02/21) in FY02/24. It also announced its goal to achieve JPY50.0bn in revenue and JPY2.5bn in operating profit in the future, although it did not give a specific timeframe for this. The company is aiming for gradual, but steady growth through the strong promotion of its all-weather management policy. Shared Research understands that the company will be implementing a major review in April 2022, as earnings in FY02/22, the first year in the plan, are substantially outperforming the initial expectations.
Shared Research considers the following three points to be the company’s strengths:
Its high market share (approximately 70%) in thick sheet printing for food containers, backed by its early entry into the market, special-purpose equipment, and manufacturing expertise
High barriers to entry, owing to time required to comply with regulations and acquire manufacturing expertise
Its ability to proactively offer clients coating solutions in a clean environment using in-house designed and manufactured equipment
Shared Research considers the following three points to be the company’s weaknesses:
Restrictions on overseas expansion caused by the Chinese government’s tightening of environmental regulations
Limited price competitiveness in areas other than sheet printing for food containers
Insufficient readiness for the enactment of tighter environmental regulations, such as those calling for reductions in plastic use
|Gross profit margin||13.7%||13.6%||14.2%||14.8%||14.9%||15.6%||15.4%||15.8%||16.9%|
|Operating profit margin||3.2%||3.1%||3.6%||4.2%||4.0%||4.8%||4.5%||4.8%||5.9%|
|Recurring profit margin||4.1%||3.7%||3.8%||4.3%||4.5%||5.0%||4.7%||4.9%||6.3%|
|Per-share data (split-adjusted; JPY)|
|Shares outstanding (ex. treasury shares; year-end; '000)||6,337||6,337||6,737||8,173||8,173||8,173||8,173||8,173||-|
|EPS (fully diluted; JPY)||-||-||-||-||-||-||-||-||-|
|Dividend per share (JPY)||31.25||31.25||31.25||50.00||55.00||56.00||56.00||57.00||58.00|
|Book value per share (JPY)||-||1,234.9||1,360.7||1,287.8||1,363.6||1,425.8||1,479.3||1,590.0||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||3,268||2,746||2,604||3,786||3,601||3,031||2,559||3,723|
|Total current assets||12,621||12,881||12,086||13,985||14,155||13,779||14,389||16,824|
|Tangible fixed assets||8,553||9,768||10,015||10,012||10,298||11,421||11,394||12,979|
|Investments and other assets||918||959||1,204||1,239||1,309||1,383||1,446||1,615|
|Total current liabilities||11,255||11,902||10,966||11,598||11,664||12,206||12,147||14,976|
|Total fixed liabilities||2,708||2,782||3,033||2,958||2,762||2,738||3,001||2,587|
|Total net assets||8,361||9,138||9,498||10,843||11,510||11,984||12,420||14,222|
|Total interest-bearing debt||5,997||6,605||6,723||6,637||6,589||6,819||7,153||8,090|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||1,336||809||1,268||1,666||1,499||2,029||896||2,436|
|Cash flows from investing activities||-326||-1,738||-1,455||-925||-1,200||-2,348||-1,166||-1,728|
|Cash flows from financing activities||-623||335||75||507||-492||-214||-181||478|
Nakamoto Packs Co., Ltd. announced an upward revision to its consolidated earnings forecast.
The company cited higher revenue, cost reductions due to improved production efficiency, and cost cutting as the reasons for the upward revision. It planned to record an extraordinary loss of about JPY122mn in Q2 (June–August) for financial compensation for employees due to the relocation of production facilities between its bases in China. Shared Research understands that this is the reason why net income grew slower than both operating profit and recurring profit.
The company’s 1H results announcement is scheduled for Friday, October 8, with a briefing scheduled for Tuesday, October 12.
Shared Research initiated coverage of Nakamoto Packs Co., Ltd.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Gross profit margin||15.7%||15.4%||15.5%||15.4%||15.0%||15.4%||16.0%||15.8%||17.9%||17.8%||16.9%|
|Operating profit margin||4.9%||4.4%||4.7%||4.5%||4.2%||4.6%||5.2%||4.8%||7.1%||6.8%||5.9%|
|Recurring profit margin||5.5%||4.6%||4.8%||4.7%||4.3%||4.7%||5.3%||4.9%||8.3%||7.6%||6.3%|
|Gross profit margin||15.7%||15.1%||15.6%||15.2%||15.0%||15.8%||17.0%||15.3%||17.9%||17.6%|
|Operating profit margin||4.9%||3.9%||5.1%||4.0%||4.2%||4.9%||6.4%||3.5%||7.1%||6.6%|
|Recurring profit margin||5.5%||3.8%||5.2%||4.4%||4.3%||5.1%||6.4%||3.5%||8.3%||6.9%|
|Breakdown by product category||FY02/20||FY02/21||FY02/22||FY02/22|
|Cumulative (JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Food Packaging and Containers||5,990||11,671||17,430||22,914||5,752||11,734||18,029||23,775||6,506||12,864|
|% of total||69.5%||67.9%||67.8%||67.2%||68.4%||68.4%||67.5%||66.0%||65.2%||63.6%|
|IT and Industrial Materials||1,037||2,215||3,294||4,323||1,041||2,085||3,444||4,894||1,359||2,789|
|% of total||12.0%||12.9%||12.8%||12.7%||12.4%||12.1%||12.9%||13.6%||13.6%||13.8%|
|Pharmaceuticals and Healthcare||282||651||1,030||1,376||360||823||1,190||1,568||333||700|
|% of total||3.3%||3.8%||4.0%||4.0%||4.3%||4.8%||4.5%||4.4%||3.3%||3.5%|
|Printing Sheets for Building Materials||352||709||1,074||1,508||439||793||1,229||1,668||488||966|
|% of total||4.1%||4.1%||4.2%||4.4%||5.2%||4.6%||4.6%||4.6%||4.9%||4.8%|
|Consumer Product Packaging and Materials||820||1,620||2,411||3,253||710||1,524||2,365||3,288||998||2,362|
|% of total||9.5%||9.4%||9.4%||9.5%||8.4%||8.9%||8.9%||9.1%||10.0%||11.7%|
|% of total||1.5%||1.9%||1.8%||2.1%||1.2%||1.2%||1.7%||2.3%||2.9%||2.7%|
|Gross profit margin||15.7%||15.4%||15.5%||15.4%||15.0%||15.4%||16.0%||15.8%||17.9%||17.8%||16.9%|
|Food Packaging and Containers||741||1,345||2,022||2,583||631||1,249||1,957||2,542||819||1,554|
|Gross profit margin||12.4%||11.5%||11.6%||11.3%||11.0%||10.6%||10.9%||10.7%||12.6%||12.1%|
|% of total||54.6%||50.8%||50.9%||49.2%||50.0%||47.2%||45.8%||44.6%||45.8%||43.2%|
|IT and Industrial Materials||249||522||784||1,061||286||596||991||1,350||404||830|
|Gross profit margin||24.0%||23.6%||23.8%||24.5%||27.5%||28.6%||28.8%||27.6%||29.7%||29.8%|
|% of total||18.4%||19.7%||19.7%||20.2%||22.7%||22.5%||23.2%||23.7%||22.6%||23.1%|
|Pharmaceuticals and Healthcare||57||132||203||271||63||139||207||269||69||155|
|Gross profit margin||20.2%||20.3%||19.7%||19.7%||17.5%||16.9%||17.4%||17.2%||20.7%||22.1%|
|% of total||4.2%||5.0%||5.1%||5.2%||5.0%||5.2%||4.8%||4.7%||3.9%||4.3%|
|Printing Sheets for Building Materials||33||82||131||181||61||117||175||241||78||156|
|Gross profit margin||9.4%||11.6%||12.2%||12.0%||13.9%||14.8%||14.2%||14.4%||16.0%||16.1%|
|% of total||2.4%||3.1%||3.3%||3.4%||4.8%||4.4%||4.1%||4.2%||4.4%||4.3%|
|Consumer Product Packaging and Materials||239||499||721||993||189||496||789||1,079||336||755|
|Gross profit margin||29.1%||30.8%||29.9%||30.5%||26.6%||32.5%||33.4%||32.8%||33.7%||32.0%|
|% of total||17.6%||18.8%||18.1%||18.9%||15.0%||18.7%||18.5%||18.9%||18.8%||21.0%|
|Gross profit margin||26.0%||19.8%||23.6%||21.9%||27.2%||24.0%||33.6%||25.3%||27.6%||26.1%|
|% of total||2.5%||2.5%||2.8%||3.0%||2.2%||1.8%||3.5%||3.7%||4.4%||4.0%|
|Breakdown by product category||FY02/20||FY02/21||FY02/22|
|Food Packaging and Containers||5,990||5,681||5,759||5,484||5,752||5,982||6,295||5,746||6,506||6,358|
|% of total||69.5%||66.2%||67.6%||65.4%||68.4%||68.3%||65.9%||61.6%||65.2%||62.0%|
|IT and Industrial Materials||1,037||1,178||1,079||1,029||1,041||1,044||1,359||1,450||1,359||1,430|
|% of total||12.0%||13.7%||12.7%||12.3%||12.4%||11.9%||14.2%||15.6%||13.6%||13.9%|
|Pharmaceuticals and Healthcare||282||369||379||346||360||463||367||378||333||367|
|% of total||3.3%||4.3%||4.5%||4.1%||4.3%||5.3%||3.8%||4.1%||3.3%||3.6%|
|Printing Sheets for Building Materials||352||357||365||434||439||354||436||439||488||478|
|% of total||4.1%||4.2%||4.3%||5.2%||5.2%||4.0%||4.6%||4.7%||4.9%||4.7%|
|Consumer Product Packaging and Materials||820||800||791||842||710||814||841||923||998||1,364|
|% of total||9.5%||9.3%||9.3%||10.0%||8.4%||9.3%||8.8%||9.9%||10.0%||13.3%|
|% of total||1.5%||2.3%||1.7%||3.1%||1.2%||1.1%||2.6%||4.2%||2.9%||2.6%|
|Gross profit margin||15.7%||15.1%||15.6%||15.2%||15.0%||15.8%||17.0%||15.3%||17.9%||17.6%|
|Food Packaging and Containers||741||604||677||561||631||618||708||585||819||735|
|Gross profit margin||12.4%||10.6%||11.8%||10.2%||11.0%||10.3%||11.2%||10.2%||12.6%||11.6%|
|% of total||54.6%||46.7%||51.1%||44.0%||50.0%||44.6%||43.6%||41.1%||45.8%||40.6%|
|IT and Industrial Materials||249||273||262||277||286||310||395||359||404||426|
|Gross profit margin||24.0%||23.2%||24.3%||26.9%||27.5%||29.7%||29.1%||24.8%||29.7%||29.8%|
|% of total||18.4%||21.1%||19.8%||21.7%||22.7%||22.4%||24.3%||25.2%||22.6%||23.5%|
|Pharmaceuticals and Healthcare||57||75||71||68||63||76||68||62||69||86|
|Gross profit margin||20.2%||20.3%||18.7%||19.7%||17.5%||16.4%||18.5%||16.4%||20.7%||23.4%|
|% of total||4.2%||5.8%||5.4%||5.3%||5.0%||5.5%||4.2%||4.4%||3.9%||4.8%|
|Printing Sheets for Building Materials||33||49||49||50||61||56||58||66||78||78|
|Gross profit margin||9.4%||13.7%||13.4%||11.5%||13.9%||15.8%||13.3%||15.0%||16.0%||16.3%|
|% of total||2.4%||3.8%||3.7%||3.9%||4.8%||4.0%||3.6%||4.6%||4.4%||4.3%|
|Consumer Product Packaging and Materials||239||260||222||272||189||307||293||290||336||419|
|Gross profit margin||29.1%||32.5%||28.1%||32.3%||26.6%||37.7%||34.8%||31.4%||33.7%||30.7%|
|% of total||17.6%||20.1%||16.7%||21.3%||15.0%||22.1%||18.0%||20.4%||18.8%||23.2%|
|Gross profit margin||26.0%||15.7%||32.6%||18.7%||27.2%||20.6%||41.2%||15.8%||27.6%||24.5%|
|% of total||2.5%||2.4%||3.5%||3.8%||2.2%||1.4%||6.3%||4.3%||4.4%||3.6%|
The mainstay Food Packaging and Containers business (63.6% of total revenue in 1H FY02/22) drove the overall increase in revenue and operating profit, with revenue growth of close to 10% YoY and improved profitability as a result of cost savings contributing to about 24% YoY growth in the category gross profit. Revenue and gross profit in IT and Industrial Materials (13.8% of 1H revenue) increased by about 34% YoY and roughly 40% YoY respectively, underpinned by demand for 5G-related products and the electrification of automobiles. Revenue and gross profit in Consumer Product Packaging and Materials (11.7% of 1H revenue) rose by about 55% YoY and about 52% YoY respectively, supported by strong sales of popular products such as vacuum storage bags and sheets, the mainstay products in the category. Revenue growth in these three businesses, first and foremost the Food Packaging and Containers business, contributed to the company booking record-high 1H earnings.
The company booked 1H FY02/22 revenue of JPY20.2bn, exceeding its initial forecast of JPY18.6bn by JPY1.6bn: an increase of JPY933mn in the Food Packaging and Containers business, a rise of JPY487mn in the Consumer Product Packaging and Materials business, and an increase of JPY202mn in the IT and Industrial Materials business. Operating profit of JPY1.4bn exceeded the initial forecast of JPY855mn by JPY525mn, due mainly to a JPY636mn increase in gross profit and a JPY111mn rise in SG&A expenses (a negative factor on profit). Outperformance of JPY636mn in gross profit breaks down to an increase of JPY238mn in the Consumer Product Packaging and Materials business, a rise in JPY178mn in the Food Packaging and Containers business, an increase of JPY146mn in the IT and Industrial Materials business, and also a rise of JPY48mn in the Printing Sheets for Building Materials business.
1H FY02/22 results by product category were as follows.
For food containers, takeout and delivery containers and tray-related demand was firm. Food package sales for agricultural products grew in Q1 (March–May), the first half of 1H. In addition, the company saw recovery in demand for some items (whose demand was low in 1H FY02/21) targeting convenience store and department store food halls. Demand was firm in packaging materials for frozen food products sold at supermarkets. As a result, revenue in the business improved by close to 10% YoY. Despite a deteriorating product mix on a downturn in demand for high-end containers and trays used in recreational activities and events, the business saw record 1H gross profit thanks to enhanced revenue and cost reductions contributing to improved profit margin. Improved profit margin particularly contributed to the earnings, with improved production efficiency (including auxiliary materials cost reduction, something the company has been working on for some time) and efforts to reduce costs at domestic subsidiaries paying off. GPM in the business reached a record high of 12.1%.
Backed by growing demand for 5G products and the electrification of automobiles, the IT and Industrial Materials business saw improved revenue in packaging materials, film used in manufacturing processes, and contract processing of products used for electronic component. Favorable sales of release film, mainly such film developed in-house, in Japan and China contributed to revenue growth of more than 30% YoY in the category. Due to the global shortage of semiconductors, booking of revenue was pushed back for some products, including light shielding tape for LCD, though the business appears to have successfully offset this negative factor. Gross profit increased about 40% YoY, reaching a record high, on higher revenue, cost reductions, and the delivery of prototypes in next-generation fields, including flexible printed circuits (FPCs). GPM continued to trend higher, reaching about 30%.
Revenue was up 55% YoY on strong sales in several popular new products. In kitchen and hygiene products, sales of new products such as cutting board sheets and kitchen mats grew as people spent more time at home and eat-at-home demand increased. Sales of light filtering and thermal insulation sheets used on windows increased. Moreover, with an increase in TV shopping, the business saw sales growth of vacuum storage bags, an item for which it maintains a strong market share. Higher revenue contributed to more than 50% YoY increase in gross profit which reached a record high for 1H. That being said, in comparison to mainstay vacuum storage bags, profit margins for newer products still have room for improvement, and the overall profit margin for the business deteriorated 0.5pp YoY. The company, however, does not see this as an issue, as profit margins for its mainstay vacuum storage bags are showing no signs of deteriorating.
Revenue increased more than 20% YoY as strength in other products rather than furniture-related area offset a decline in orders for some items due to the sudden shortage in wood materials used in the furniture-related area. Gross profit increased by more than 30% YoY on an increased sales share of functional building materials produced with the use of new coating equipment introduced in 2020 and improved profitability on the back of enhanced productivity of that equipment. GPM has constantly reached a record high of over 16%.
This was the only product category to see a YoY decline in revenue, mainly as the COVID-19 pandemic resulted in bidding delays for protective gear used by healthcare professionals. Changes in the revenue share of adhesive patch-related products, including separators, depressed revenue. However, gross profit was up by double digits YoY, thanks mainly to increased revenue of high-end adhesive patch-related products. Improving more than 5.0pp YoY, GPM remained over 20% and close to its highest level ever.
On a consolidated basis, the existing businesses recorded YoY increases in revenue and operating profit. Mikunishiko Co., Ltd., which was made a subsidiary in July 2020, also boosted the company's earnings. Mikunishiko contributes to earnings in a number of areas, mainly with food-related products. According to the company, Mikunishiko boosted revenue by roughly JPY1.5bn in 1H FY02/22. The company made Mikunishiko a consolidated subsidiary in order to strengthen its position in processed paper products, mainly in the foods area, with a focus on bolstering sales in heat-resistant paper containers and strengthening cooperation in processing technologies. The company hopes to increase synergies over the medium to long term rather than near-term impact on earnings from the consolidation of Mikunishiko.
On a quarterly (three-month period) basis, revenue increased (YoY) for the fifth consecutive quarter, and operating profit and recurring profit increased (YoY) for the second consecutive quarter. Net income declined for the first time in three quarters, though this was due to: 1) an extraordinary loss of approx. JPY150mn related to the relocation of production facilities in China in Q2; and 2) an absence of a extraordinary gain (a gain on negative goodwill of JPY228mn) booked in Q2 FY02/21.
Performance in the Food Packaging and Containers, IT and Industrial Materials, and Consumer Product Packaging and Materials businesses drove overall earnings results in Q2 (June–August) as in Q1 (March–May). However, 2Q gross profit (JPY1.81bn) topped that in Q1 (JPY1.79bn) thanks to QoQ growth not only in the IT and Industrial Materials and Consumer Product Packaging and Materials businesses, but also in the Pharmaceuticals and Healthcare business. GPM was down 0.3pp QoQ, from 17.9% in Q1 to 17.6% in Q2, however both represented record-high levels.
|FY02/20||FY02/21||FY02/22 Revised Est.||FY02/22 Initial Est.|
|(JPYmn)||1H||2H||FY||1H||2H||FY||1H Act.||2H Est.||FY Est.||1H Est.||2H Est.||FY Est.|
|Gross profit margin||15.4%||15.4%||15.4%||15.4%||16.1%||15.8%||17.8%||16.0%||16.9%||-||-||16.1%|
|Operating profit margin||4.4%||4.6%||4.5%||4.6%||4.9%||4.8%||6.8%||4.9%||5.9%||4.6%||5.2%||4.9%|
|Recurring profit margin||4.6%||4.8%||4.7%||4.7%||5.0%||4.9%||7.6%||5.0%||6.3%||4.7%||5.3%||5.0%|
The company remained the earnings forecast it upwardly revised on September 29, 2021, just before the announcement of 1H FY02/22 results. In its initial forecast, the company expected to achieve record-high revenue, operating profit, and recurring profit in FY02/22. The upwardly revised forecast indicates that it now expects those levels to be even higher, and that it expects net income to reach a record-high level as well. Growth rate for net income is expected to be smaller than the expected growth rate for operating profit and ordinary profit due to a decrease in extraordinary gains and an increase in extraordinary losses. The company's initial full-year forecast (before the upward revision) called for revenue of JPY38.0bn, operating profit of JPY1.9bn, recurring profit of JPY1.9bn, and net income of JPY1.1bn.
1H progress rates versus the company's full-year forecast were 51.2% for revenue, 59.3% for operating profit, and 58.4% for net income. The company kept a forecast for annual dividend of JPY58.0 per share, and is maintaining its policy of not reducing the dividend since the company's listing. Shared Research calculated dividend payout ratio of 32.2% based on the company's EPS forecast of JPY179.9 per share.
The company has not disclosed earnings forecasts for its product categories (product applications). It, however, announces its outlook for each product category from Q3 onward. On the whole, the company appears to be taking a more cautious view toward earnings from Q3 and onward. The company says it has factored into its product category forecasts the impact from the COVID-19 pandemic, higher raw material prices, and the global semiconductor shortage.
In Japan, all emergency declarations and priority measures to prevent the spread of the disease have been lifted, and movement of people has already started to accelerate. Amid this environment, the company looks for a recovery in demand for high-end food containers used in recreational activities and events toward the holiday and event season. At the same time, the company expects no sharp drop in demand for prepared food items (including ones sold at convenience stores) and for meals at home. Therefore, it will maintain its current strategies, including its focus on delivery containers. While the company expects an increase in revenue, it also anticipates as a risk factor higher costs on auxiliary materials (such as printing inks) as a result of the uptick in crude oil prices. The company thinks that it can absorb this cost increase by improving production efficiency, and that the impact on earnings will be limited. However, the company also thinks that if further cost increases prove unavoidable, price hikes in some area will be all but inevitable.
While the company expects demand for 5G-related products to remain strong, and thinks this demand is likely to continue to be a driving force from Q3 onwards, it also recognizes the risk that the impact of semiconductor shortages could be greater from Q3 onwards than it was in 1H. While domestic automobile manufacturers are making sharp production adjustments in line with semiconductor shortages, the company's revenue share in automotive interior materials is not very large. As such, the company will be keeping a close eye on the impact of semiconductor shortages on mobile device-related area. In addition, deliveries of prototypes in next-generation growth fields, which were included in 1H revenue figures, are now in full swing, and the company expects some of these prototypes to move into mass production. Given these conditions, it thinks there is still significant room for an improvement in profit margins in the business.
The company was able to launch several highly popular products in 1H and expects strong sales through e-commerce sites and TV shopping networks from Q3 onward. The company expects sales of its mainstay vacuum storage bags, for which it maintains a strong market share, to grow through the same channels. The company also targets sustained revenue growth through the successive launching of additional new products.
The company expects functional building materials and films, which performed well in 1H, to maintain their strength in Q3 and thereafter. On the other hand, one uncertainty from Q3 is the potential continuation of shortages in processed materials as a result of the so-called "wood shock" from 1H. While not expecting this to have a major impact on overall earnings, the company intends to keep a close eye on the situation.
The company noted that the effects from bidding delays for protective apparel, the largest reason behind the downturn in 1H, and when that bidding may resume, are still undetermined. On the other hand, the company plans to continue working to improve profitability in its existing adhesive patch products.
The company made no change to its initial forecast. For FY02/22, Nakamoto Packs expects capital expenditures to decrease 23.6% YoY to JPY1.6bn, depreciation to increase 37.9% YoY to JPY1.5bn, and R&D expenses to decrease 11.0% YoY to JPY78mn. In FY02/21, capital expenditures included costs for building a new factory and production line dedicated to N-brand products and for introducing sheet extrusion production equipment; the company also made overseas capital investments into building a new factory in Vietnam. The absence of these large projects is the reason capital expenditures are forecast to decrease in FY02/22. Meanwhile, the company forecasts depreciation to increase by approximately JPY400mn YoY due to the start of operations at the new factory. Although higher depreciation will put downward pressure on operating profit, the company expects the impact will be offset and operating profit will grow to a record high. With regard to R&D, the analysis of newly developed products is set to begin in earnest when the analytics center of the Quality Assurance Division goes into operation in FY02/22.
|Results vs. Initial Est.||FY02/14||FY02/15||FY02/16||FY02/17||FY02/18||FY02/19||FY02/20||FY02/21|
|Results vs. Initial Est.||-||-||-||-0.3%||-0.1%||-1.6%||-5.8%||4.4%|
|Operating profit||Initial Est||-||-||-||1,106||1,400||1,500||1,780||1,629|
|Results vs. Initial Est.||-||-||-||18.5%||-4.9%||9.7%||-13.8%||5.3%|
|Recurring profit||Initial Est||-||-||-||1,175||1,450||1,600||1,850||1,650|
|Results vs. Initial Est.||-||-||-||16.4%||2.5%||5.3%||-13.0%||6.1%|
|Net income||Initial Est||-||-||-||745||900||1,000||1,270||1,148|
|Results vs. Initial Est.||-||-||-||10.3%||9.1%||15.7%||-14.5%||14.6%|
|FY02/21||FY02/22||FY02/23||FY02/24||3 Year||Medium-term target|
|Gross profit margin||15.8%||16.1%||16.0%|
|Recurring profit margin||4.9%||5.0%||4.9%||5.0%||5.0%|
|Revenue by product category|
|Food Packaging and Containers||66.0%||50.0%|
|IT and Industrial Materials||13.6%||20.0%|
|Pharmaceuticals and Healthcare||4.4%||5.0%|
|Printing Sheets for Building Materials||4.6%||5.0%|
|Consumer Product Packaging and Materials||9.1%||15.0%|
|Gross profit by product category|
|Food Packaging and Containers||44.6%||33.0%|
|IT and Industrial Materials||23.7%||27.0%|
|Pharmaceuticals and Healthcare||4.7%||5.0%|
|Printing Sheets for Building Materials||4.2%||3.0%|
|Consumer Product Packaging and Materials||18.9%||30.0%|
The company is now in the midst of the three-year (FY02/22–FY02/24) medium-term management plan announced in April 2021. For FY02/24, the last year in the plan, the company targets operating profit of JPY2.2bn, recurring profit of JPY2.2bn, RPM of 5.0%, and ROE of at least 10%. However, for FY02/22, the first year under the plan, the company forecasts recurring profit of JPY2.5bn and RPM of 6.3%. While there are some line items that will not achieve the final-year plan targets in FY02/22, including revenue and overseas sales ratio (the target is 10% or more in FY02/24), profit and profit margins appear likely to reach those final-year targets in the first year of the plan, according to the company forecast. There have also been changes in the content of the company's business and in the external environment compared to when the plan was first formulated. As such, Shared Research understands that the company will announce a review of the current plan when it releases full-year FY02/22 results.
On April 15, 2021, Nakamoto Packs announced its medium-term management plan for the three-year period from FY02/22 to FY02/24. This is the first time the company has publicly released a medium-term management plan since it listed on the stock market in March 2016. For FY02/24, it targets revenue of JPY44.0bn (+22.1% versus FY02/21), operating profit of JPY2.2bn (+25.3% versus FY02/21), and ROE of 10% or more (10.5% in FY02/21). The company lists nine specific management strategies for responding to drastic changes in the business environment caused by the COVID-19 pandemic. These include growing its market share in key products (film printing and sheet printing for molded containers), enhancing development in the high-margin IT and Industrial Materials (GPM of 27.6% in FY02/21 versus 15.8% for the company as a whole) and Consumer Product Packaging and Materials (GPM of 32.8%) categories, improving production efficiency, reducing raw material costs and loss ratios, cutting manufacturing costs, and expanding overseas business.
Listed below are the company’s six company-wide management policies for the three years covered by the medium-term management plan. Shared Research has changed the wording for some items.
Heavy materials and organic solvents are used in the company’s production processes. In order to guarantee the safety of its employees, the company strives to strengthen compliance at its factories to ensure the safety of factory workers.
This is the management policy that the company has consistently been striving for. The company aims to build a management base that is unaffected by trends in specific industries by expanding into a range of markets in a balanced way, while focusing on food packaging-related markets where demand is stable.
Recognizing the need to solve the issue of marine plastics and food waste, and to realize a decarbonized, zero-waste society, Nakamoto Packs plans to reduce CO2 emissions and contribute to society by extending the shelf life of food products through its packaging technology, conserving resources, actively using water-based and biomass inks and adhesives, saving energy, and using renewable energy.
Nakamoto Packs will work to raise its competitiveness by boosting productivity with increased efficiency, reducing production costs, and cutting production waste (improve yield).
The company plans to maximize client satisfaction by going back to its roots and working to improve technology, quality, and services.
The company plans to promote growth overseas, and raise the overseas revenue ratio from approximately 6% as of end-FY02/21 to 10% or more. It intends to accelerate overseas investment in tandem with profit growth in the domestic business.
Specific strategies for achieving medium-term numerical targets and thoroughly implementing management policies outlined above are as follows:
The company plans to grow revenue from JPY36.0bn in FY02/21 to JPY44.0bn in FY02/24 (CAGR of 6.9% over the three years of the medium-term management plan). It aims for YoY revenue growth to exceed the previous high of 5.7% in FY02/21, since it transitioned to consolidated accounting in FY02/14.
Over the three years of the medium-term management plan, the company aims to grow revenue by approximately JPY8bn from JPY36.0bn in FY02/21 to JPY44.0bn in FY02/24. The breakdown of the revenue growth forecast is as follows:
While growing revenue in areas that require upfront spending (including start-up costs and depreciation), such as own-brand products (N-brand), eco-friendly products, and the overseas business, Nakamoto Packs aims to maintain GPM at 15.9% (15.8% in FY02/21; 16.1% forecast for FY02/22) and OPM at 4.9% (4.8% in FY02/21; 4.9% forecast for FY02/22) in the final year of the plan (FY02/24).
The company has also announced plans to achieve revenue of JPY50.0bn and recurring profit of JPY2.5bn in the years following the medium-term management plan, but it has not given a specific timeframe for this. The company aims to achieve steady growth by strongly promoting its all-weather management policy—the policy aimed at building a management base unaffected by trends in specific industries, by expanding into a range of markets in a balanced way while focusing on food packaging-related markets where demand is stable.
Nakamoto Packs currently has 24 production sites (locations with production and processing facilities), consisting of 17 sites in Japan and seven sites overseas (includes group companies). In Japan, the company has three sites in Kansai (including its headquarters in Osaka), eight in Kanto (including the Saitama factory—the company’s largest factory), one in Hiroshima, and one in Fukuoka. The seven sites overseas break down to five in China, one in the US, and one in Vietnam (this site was just completed in March 2021 and is currently installing machinery ahead of commencing operations as of end-Q1 FY02/22). The company’s first foray overseas was in 1995 when it established its first production site in China. It went on to establish three more production sites in China in 2001, 2004, and 2012. In 2018, it built its first production site in the US, before constructing a fifth production site in China in 2019. Finally, in 2021, it established its first production site in Vietnam. While the US site is fitted with basic equipment, it mainly operates as a sales base.
One goal in the company’s medium-term management plan is to grow the overseas business. Specifically, it plans to raise the overseas revenue ratio from approximately 6% in FY02/21 to 10% in FY02/24. At present, the seven overseas production sites primarily manufacture products for the Consumer Product Packaging and Materials category (mainly vacuum storage bags) and the IT and Industrial Materials category (mainly automotive interior materials and coated parts for smartphones). Very few products for the core Food Packaging and Containers category are manufactured overseas (approximately 2% of the category revenue).
At two of the five production sites in China, the company manufactures vacuum storage bags for clothing and bedding, for which it has the highest global market share (source: Nakamoto Packs). These products are delivered either to local clients (local subsidiaries of leading Japanese DIY stores) or to Japan (Nakamoto Packs and its group companies). In addition, the company sells automotive interior and ceiling materials to local Chinese clients (these products are manufactured at one of the five production sites). The US sales office also delivers automotive interior materials to automotive parts manufacturers in Canada, the US, and Mexico.
Nakamoto Packs had to revise its initial plan for local expansion in China. The first Chinese production site, established in 1995, initially focused on gravure printing and lamination services for food packaging materials. However, due to the Chinese government’s tightening regulations, this business had to be transferred to a new factory established in 2019 (in Cangzhou, China). China has been tightening regulations on environmental pollution, and in 2014, amended its Environmental Protection Law and Air Pollution Control Law to bring these regulations in line with those of Europe and the US. Then, in January 2018, China put into force Environmental Protection Tax Law that taxes companies in China according to the amount of air pollutants, water pollutants, solid waste, and noise they produce. In addition, companies that fail to meet the country’s environmental standards are issued fines, or forced to suspend or shutdown their operations. While standards and fines differ by region (with the toughest standards and largest fines in and around big cities), the law is now in force across most of the country.
China’s tightening of regulations made it difficult for the company to continue carrying out gravure printing and lamination services it had been providing since it first entered the Chinese market with the establishment of the first production site in the country in 1995 (Langfang, China). As such, production at this site now centers on consumer products, such as vacuum storage bags. However, the company has no plans at present to discontinue gravure printing and lamination services in China. Instead, it has relocated the necessary production equipment (printers, laminators, bag making machines, and others) from Langfang to the new factory established in 2019 (in Cangzhou, China). However, the new factory commenced operations more than one year later than initially planned (had been planned for 2018) in September 2019 because it took more time than expected to obtain regulatory approval. Since the factory started operating, utilization rates have been increasing, with the factory achieving single-year profitability in FY12/20 (local fiscal year)—only the second year since commencing operations. The site plans to continue operating with the sheet printing business at its core, but there is still a risk that the local authority could tighten environmental regulations further.
To achieve an overseas revenue ratio of 10% or above, one of the goals under the medium-term management plan, Nakamoto Packs has built a new factory in Vietnam (construction completed in March 2021). The company expects this factory to facilitate aggressive expansion in South East Asia, where the market is expected to grow, and help disperse the risk of having production sites concentrated in Japan and China. The company is currently installing machinery in preparation for commencing operations. The company plans for the factory to manufacture automotive interior materials and compression bags, among other products. At present, it has no plans for the factory to handle gravure printing services or any other products or processes for the Food Packaging and Containers category.
The company’s production sites in China have been impacted by the tightening of environmental regulations and the trade war between the US and China (tariff issues). The gravure printing business, in particular, has been impacted by the time required to establish a new factory, transfer production equipment, and obtain approval. The company thinks these factors could still affects its Chinese operations. Hence, the company plans to expand the overseas business with the view to mitigate risks in China, such as through the establishment of the new factory in Vietnam. In this way, it aims to promote its all-weather management policy in the overseas business, as well.
Nakamoto Packs has already rolled out several own-brand (N-brand) products leveraging its proprietary PET modification technology. Own-brand products that the company has developed and is offering under the Food Packaging and Containers category include NS-PET (a multi-purpose PET sealant with superior heat resistance and aroma retention), NAK-A-PET (PET sheeting for highly rigid, transparent containers), and NC-PET (ultra-heat resistant PET sheeting). According to the company, adoption of these products is steadily increasing.
PET is the abbreviation for the resin known as polyethylene terephthalate. This is what is used in PET bottles for drinks. PET is created by chemically reacting terephthalic acid and ethylene glycol refined from petroleum at high-temperatures and high-vacuum conditions. PET has excellent transparency, water resistance, and cold temperature resistance, but most notably, it is highly recyclable, which is why it is used in PET bottles. When used for film, PET is heat resistant to almost 200°C and has excellent chemical resistance, but the material’s heat resistance decreases significantly and its chemical resistance also weakens when it is used for PET bottles.
NAK-A-PET is PET sheeting that is 20–30% thinner than general A-PET (sheeting produced from PET resin). NAK-A-PET can be formed with a normal hot-forming machine and on a shorter mold shot cycle. The product is mainly used for food packaging, food containers, and trays for noodles and confectionary owing to its thinness and high rigidity.
NS-PET is a PET-extruded laminated film that has heat sealing properties, in addition to the main properties of PET. It is sold for various purposes owing to having heat resistance, aroma retention, and low adsorption properties that olefin sealants lack. Nakamoto Packs is carrying out sales activities using takeout packaging for croquettes, karaage (fried chicken) and yakitori (grilled chicken skewers) as examples of applications that take advantage of the high melting point (240–260°C) and oil resistance of PET. Adoption is increasing with the spread of takeout services since the COVID-19 pandemic hit.
Nakamoto Packs has also developed an original Eco-Range deli bag using its NS-PET film. Eco-Range is a composite bag made from heat-resistant film and oil-resistant paper, and the company is receiving many inquiries for using the bag as takeout packaging for fried dishes. The bag has good display qualities as its transparent film means contents are visible. In addition, the bags can be carried home from the store, placed in a microwave for reheating, and then arranged on the table, meaning there is no need for food to be removed from the bag and transferred to a plate. Due to these advantages, the bags have started to be used across Japan as an infection prevention measure. Furthermore, the bags do not give off an olefin odor when heated in the microwave, so the flavor of the food is not spoiled. As a specific example of these bags in use, consumers purchasing delicatessen dishes, such as fried food, in supermarkets are moving away from using the self-service counter (where customers use tongs to take as many items as they wish) amid the pandemic, and instead purchasing pre-packed Eco-Range bags containing a set number of items. Nakamoto Packs sees lifestyle changes such as these are one factor contributing to growth in sales of N-brand products.
NC-PET is sheeting that is capable of achieving heat resistance to 220°C depending on the way it is molded. As such, it can be used for high temperature cooking in steam convection ovens and conventional ovens. It is also highly resistant to cold temperatures, so the same container can be used for all food processes, including baking, freezing and distribution, and defrosting and reheating. This serves to improve workability and distribution processes at food manufacturers, and ensure food safety. The material is primarily used for containers, such as for gratin dishes.
With adoption of NAK-A-PET and NC-PET growing, Nakamoto Packs projects production to also increase. As such, it has established a new production line—the Extrusion Molding Factory—in the Environmental Materials Division (Ryugasaki, Ibaraki Prefecture). The new line was installed on the premises of the factory that houses the existing production line for NS-PET, and it has already commenced operations. The new line features a tri-layer, co-rotating, twin-screw extruder with an extrusion throughput of 1,000kg per hour. Waste materials produced by the company, such as PET sheeting, and recycled resin can be used as the core layer of the sheeting. Therefore, the thickness of the sheet can range from a minimum of 80μm to a maximum of 500μm.
The company has also established an Extrusion Technology Development Office under its Development Division for enhancing development of products with a reduced environmental impact, such as paper containers with biodegradable resin lamination, Bio NAKA-PET made from plant-derived bio-PET (awarded the Biomass Mark), and PET sheeting using recycled resin. In this way, the company is creating a fully integrated base for R&D, prototypes, and manufacturing. It aims to further expand its N-brand business.
In its three-year medium-term management plan, announced in April 2021, Nakamoto Packs stated that it aims to grow revenue from new N-brand products by JPY1.9bn from JPY1.7bn in FY02/21 to JPY3.5bn in FY02/24 (this target includes revenue from eco-friendly products aside from N-brand products). It then plans to grow revenue to JPY5.0bn by FY02/26—two years after the medium-term management plan. The company expects operations at the newly established production line (essentially a new factory) to help drive this growth.
Nakamoto Packs thinks its N-brand products hold great appeal for overseas business expansion. While thin film printing is steadily becoming mainstream for food containers in Japan, the company thinks there is a strong chance demand for thick sheets will increase overseas. In the US and Asia, in particular, consumers often purchase a large volume of packs and other containers containing food from supermarkets and drive these a long distance back to their home. This is creating demand for stronger and lighter containers. N-brand products are designed to be strong and light so as to fulfil the requirements of the overseas market, and the company believes these products will be key to expanding overseas business in the future.
Nakamoto Packs is taking various measures to mitigate the impact that the move away from plastic and global environmental regulations could have on its mainstay Food Packaging and Containers business.
The number of companies moving away from using plastics is increasing. For example, Starbucks Corporation has almost entirely replaced plastic straws and containers with paper alternatives. Clients in Nakamoto Packs’ Food Packaging and Containers category are also shifting to paper products. Although Nakamoto Packs has been providing paper printing services, the majority of its production facilities are for processing plastics. Therefore, the company is enhancing measures for paper products in response to the current trend. As one measure, the company increased its shareholding in Mikunishiko Co., Ltd. from 22.0% previously to 50.1%, making Mikunishiko a consolidated subsidiary in July 2020 (at an acquisition cost of JPY430mn).
Mikunishiko has been processing paper for 50 years, and it possesses paper extrusion lamination technology that Nakamoto Packs lacks. Nakamoto Packs thinks the consolidation of Mikunishiko will enable it to increase its handling of processed paper products. The company had already been collaborating with Mikunishiko on enhancing extrusion lamination technology since May 2015, when it made Mikunishiko an equity-method affiliate. By making Mikunishiko a subsidiary, the company expects it will be able to further speed-up communication between the two companies, such as with regard to enhancing sales of heat-resistant paper containers. As a result of making Mikunishiko a consolidated subsidiary, Nakamoto Packs recorded an extraordinary gain of JPY227mn on negative goodwill and an extraordinary loss of JPY99mn related to the step acquisition in FY02/21.
However, Nakamoto Packs does not expect that current use of plastic containers will be completely replaced by paper containers. This is because raw materials for paper products are costly (approximately 10–20% higher than for resin products), paper container shapes are limited (certain shapes only), and forest resources—the raw material for paper—are finite. Nakamoto Packs thinks approximately 20% of plastic containers will be replaced by paper containers, and hence plans to continue investing in plastic processing. That said, it intends to strengthen its capabilities for paper containers in case of amendments to environmental regulations that may impose legal obligations.
Nakamoto Packs is also developing new products laminated with biodegradable resin (biodegradable plastic). The primary application is bags for fried food (such as karaage [fried chicken]) sold at convenience stores and supermarkets. Although this kind of paper bag has existed for some time, the company’s products use a third of plastic used for existing products.
Nakamoto Packs plans to change the ink it uses in printing to inks and adhesives that contain biomass raw materials. Compared with conventional inks and adhesives, biomass inks and adhesives reduce CO2 emissions by 15%. They also use a lower volume of fossil fuel materials. Meanwhile, water-based adhesives use no organic solvents and produce no VOC (volatile organic compounds) emissions, unlike conventional adhesives. The company’s gravure printing process still uses organic solvents, with eco-friendly coating materials accounting for less than 10% of materials used. However, as with the impact from environmental regulations in China, the Japanese government may tighten its environmental regulations. With this in mind, Nakamoto Packs plans to increase the volume of eco-friendly coating materials it uses and promote environmentally conscious management.
In the printing industry, inkjet printing, which prints directly onto an object without the need for a plate, is gradually gaining in popularity. This method differs from the current three major printing methods of intaglio printing, letterpress printing, and planographic printing. Inkjet printing is already a common method used in printers for home use, but Nakamoto Packs thinks it is an inadequate alternative to gravure printing. This is because inkjet printing has poor ink density and elongation for printing on molded containers, is unsuitable for mass production, and is high-cost. For these reasons, Nakamoto Packs does not expect inkjet printing to rapidly replace gravure printing for containers. Nevertheless, the company has established an in-house R&D division for inkjet printing on the view that this could be a risk in the future.
Nakamoto Packs’ business centers on gravure printing for plastic sheets and film (a form of intaglio printing often used for printing photographs because it produces very fine differences in color gradations), lamination, and thin-film coating for industrial materials. In FY02/21, revenue came to JPY36.0bn and gross profit JPY5.7bn. The breakdown of revenue and gross profit by product category was as follows: Food Packaging and Containers, 66.0% of revenue and 44.6% of gross profit; IT and Industrial Materials, 13.6% and 23.7%; Consumer Product Packaging and Materials, 9.1% and 18.9%; and Printing Sheets for Building Materials, Pharmaceuticals and Healthcare, and Others combined, 11.3% and 12.7%. Client industries are diverse, and Nakamoto Packs has adopted an all-weather management policy that aims for stable growth regardless of trends in specific industries. Some 94% of revenue came from the Japanese market. Nakamoto Packs has the largest market share in thick-sheet gravure printing (sheet thickness of 100–500μm; accounts for approximately 8% of the gravure printing market) for food containers used in convenience stores, supermarkets, and department stores, handling approximately 70% of all printing outsourced by container manufacturers (source: Nakamoto Packs).
Nakamoto Packs operates a single reporting segment, the Printing segment. However, because business descriptions differ depending on application, the company’s Printing segment can be divided into several product categories. Each product category combines the company’s four core technologies listed below (source: the company’s results briefing materials).
Gravure printing is one of the printing techniques categorized as intaglio printing. Intaglio printing uses a printing machine that applies ink to the recessed areas of a plate, which is then pressed against the printing surface. This method is often used for printing photographs because it produces very fine differences in color gradations. Generally, a different plate is required for each color, so for multi-color printing, the same number of plates as colors will be needed. This is the core technology that underpins the company’s founding business.
This is a surface treatment technology that evenly coats the surface of materials, such as plastic film, paper, and metallic foil, with a thin film of synthetic resin or other coating materials to protect the base material and improve its functionality. Nakamoto Packs handles a wide range of coating processes from thin film to thick sheet, as well as and multi-layer coating.
A processing technology that creates multi-layer composite materials using adhesives, heat, and pressure for the purpose of strengthening packaging materials and adding functions. The company possesses various lamination technologies, including dry lamination*1, thermal lamination*2, and extrusion (coating) lamination*3, enabling it to cater to various applications and requirements.
*1 Dry lamination: A method where an adhesive is applied to the surface of the base material, after which the solvent is evaporated in a drying device and the base material is pressure-bonded to the second base material.
*2 Thermal lamination: A method where the base material to which an adhesive has been applied is bonded to a second base material through the application of pressure and heat. There is no drying process required during pressure bonding.
*3 Extrusion (coating) lamination: A method where a thermoplastic resin is melted, extruded into a film, and then laminated onto a base material.
Nakamoto Packs holds 12 patents relating to recyclable PET (as of end-June 2021). PET is the abbreviation for the resin known as polyethylene terephthalate. It is a plastic material best known as the material used for PET bottles. PET is recyclable, and is used in packaging for food and pharmaceuticals due to having excellent heat resistance, cold resistance, transparency, insulation, abrasion resistance, and chemical resistance. This material is extremely relevant to the company’s mainstay Food Packaging and Containers business.
Below gives a guide as to which technologies are used in the company’s five main product categories:
Of these four core technologies, gravure printing technology—the basis for the company’s founding business—has the longest history. Although Nakamoto Packs was established as the surviving company of a merger in December 1988, one of its group companies that was absorbed through a subsequent merger has been engaged in gravure printing since February 1959. Therefore, the company’s current gravure printing technology is essentially over 60 years old, and it continues to this day due to the accumulation and evolution of the technology. Following the absorption of the gravure printing company, Nakamoto Packs carried out a number of other absorption-type mergers of group companies with separate businesses under its policy of group consolidation. It was through these mergers that the company acquired coating technology, lamination technology, and material development technology. Currently, the company’s business utilizes the combination of all four of these technologies, with gravure printing technology at the core.
Aside from these four processing technologies, the company is also working to develop molding technology in the Food Packaging and Containers category. Molding refers to the process of changing the shape of plastic sheeting through applying heat (to create food containers, trays, lids, and others), as well as the process of forming plastic films and sheets through extrusion. Using this technology allows the company to achieve an integrated production process in Food Packaging and Containers, covering gravure printing on resin film and sheets through to molding of the final container.
This is the company’s main line of business, accounting for 66.0% of total revenue in FY02/21. The business is divided into products for food containers and products for food packaging. The revenue ratio of food containers to flexible packaging materials in the Food Packaging and Containers category is approximately 2:1.
In products for food containers, Nakamoto Packs carries out printing and lamination on externally-sourced (including from food container manufacturing clients) resin sheets, film, and paper. It then delivers the printed or laminated materials to food container manufacturers, sometimes via trading companies. The food container manufacturer uses these materials to manufacture the final product (container), which it delivers to food manufacturers, convenience stores, supermarkets, department stores, and delicatessens (lunch vendors), among others. Nakamoto Packs does not directly deliver products to final retailers (e.g., convenience stores).
There are four main processes applied to resin sheets and film sourced by the company:
Coating technology is the only one of the company’s four core technologies that is rarely applied to products for food containers. In each of the above four processes, revenue is booked upon delivery to the client (mainly food container manufacturers) following completion of all processes, and the more processes the client requests, the higher the revenue will be. However, it should be noted that when only container molding is required as in the case of (4), a subsidiary handles this. According to Nakamoto Packs, in FY02/21 55% of revenue came from (1), 20% from (2), 10% from (3), 12% from (4), and 3% from other processes.
Revenue is generally calculated by multiplying the printing price per color (negotiated with the client) by printing volume (meter or sqm). However, the printing price varies widely depending on the thickness and type of film or sheet to be used, the number of processes, the printing color, and design. The fee for lamination services also varies greatly depending on the number of processes and the type of base materials to be bonded. Therefore, although revenue is calculated by multiplying the price by volume and the number of processes, the calculation is in fact more complicated.
Gravure printing can be used for printing a single color or multiple colors, but as a different plate is needed for each color, the use of three colors would require three separate plates to be passed through the press. This effectively means that the company is carrying out the printing process three times, so the delivery price will rise accordingly. Also, as the price differs depending on the color to be used for printing, it is not simply the case that three colors will generate three times the revenue of single-color printing; but generally, the more colors used, the higher revenue will be.
Nakamoto Packs sources all resin sheeting and film for printing externally, but more than half of the materials used are supplied by the food container manufacturing clients themselves. Therefore, for materials that have been supplied by the client, there is no direct impact from increases in the price of crude oil in short term, i.e., during the fiscal year. However, the impact on the price of materials will be reflected during regularly held price negotiations. For materials it procures itself, Nakamoto Packs negotiates prices with suppliers.
Food packaging materials mainly refer to bags containing frozen food, snacks, and instant noodles, as well as commercial film packaging materials. Nakamoto Packs provides printing and lamination services for these materials. The main clients are food manufacturers, but the company also delivers to convenience stores and supermarkets (including subcontractors) via trading companies. As with food containers, revenue is generally calculated by multiplying the unit price by volume and the number of processes.
The difference with the food containers business is that the market environment is highly competitive, and the business is impacted by fluctuations in the cost of raw materials. Printing for food packaging is the largest area of the gravure printing market, accounting for approximately 80% of the market (refer to the section “Gravure printing market selection strategy”), and there are said to be hundreds of companies operating within the area, including small, medium, and micro enterprises. As such, competition over orders and pricing is fierce. Unlike with food containers, the raw materials tend not to be supplied by the client, so the company incurs costs for procuring raw materials.
Another product the company handles in the food packaging materials business is shrink wrap for food. Shrink wrap is film that tightly wraps around food and food containers to protect them. Examples include film that wraps three yogurt pots together, and film used to wrap side dishes and boxed lunches sold at convenience stores. In FY02/21, revenue from the business amounted to approximately JPY250mn.
Revenue from FP Corporation, the company’s largest client, amounted to JPY3.3bn in FY02/19 (9.8% of the company’s total revenue), JPY3.7bn in FY02/20 (10.9%), and JPY4.4bn in FY02/21 (12.1%). Of the Food Packaging and Containers category revenue, FP accounted for 14.3% in FY02/19, 16.3% in FY02/20, and 18.4% in FY02/21. Revenue from FP disclosed in the company’s financial reports include both direct deliveries to FP and indirect deliveries via trading companies. The majority of revenue from FP (both direct and indirect) are recorded under the Food Packaging and Containers category (sheet printing, film printing, container molding, etc.).
The IT and Industrial Materials category is the company’s second largest business, accounting for 13.6% of total revenue (in FY02/21). The category handles optical film for the displays of mobile devices, film for manufacturing electronic components, semiconductor-related coating, and lamination for materials used in car ceilings and interiors. With regard to coating, the company is subcontracted mainly by electronic component manufacturers (including their subcontractors) to carry out film coating, with the coated products subsequently returned to the client. The company only receives processing fees for this service, so revenue rises in accordance with growth in the number of orders. As the coating process is carried out using coating machines that the company developed and manufactured in-house, cost reductions through improving efficiency and productivity directly translate into higher profit. The main clients are chemical and electronic component manufacturers.
Nakamoto Packs has made efforts to strengthen its position in the thin film gravure printing market (2–12μm; accounts for approximately 10% of the gravure printing market [Shared Research estimate]). As a result of these efforts, the company started to handle optical film for mobile device displays and film for manufacturing electronic components. The company has since grown this business, and the IT and Industrial Materials category has become the second pillar of its earnings. With demand for weight saving projected to increase further, the company expects there will be more opportunities for it to utilize the technology it has cultivated through its efforts in the area of thin film gravure printing in the future.
Nakamoto Packs does not purchase any materials in the IT and Industrial Materials business; instead, all materials are supplied by the client. As such, the company is not affected by fluctuations in purchasing costs. However, substantial rises in materials costs will be reflected during regularly held price negotiations.
As previously mentioned, Nakamoto Packs also rents out its in-house designed and manufactured coating machines to external companies on an hourly basis (minimum one hour). The coating machines are rented out for a fixed amount on an hourly basis for projects in the early stages of development, for which whether a coating machine should be introduced has not been decided. Clients also sometimes use the coating machines for small lot processing. In reality, however, it is difficult to physically move the coating machines, so Nakamoto Packs handles the whole process, including the operation of the coating machines. The benefit of taking on small-lot prototype projects is that these tend to eventually lead to large orders. Revenue from contracted coating orders is calculated by multiplying the unit processing fee by volume, and revenue from coating machine rentals is calculated by multiplying the hourly rate by the number of hours.
The company’s in-house designed and manufactured coating machines are, therefore, an important element of the IT and Industrial Materials category. Few other companies design and manufacture their own coating machines, but Nakamoto Packs was able to do so through its efforts to strengthen its engineering capabilities. As a result, the company is able to swiftly adjust specifications and modify its machines according to client requirements.
The Consumer Product Packaging and Materials category is the company’s third largest business, accounting for 9.1% of total revenue (in FY02/21). The business mainly handles vacuum storage bags for clothing and bedding, wall and floor decoration sheets for DIY projects, and anti-condensation film, among others. The core products are vacuum storage bags, with the company holding the top market share in vacuum storage bags for bedding (source: Nakamoto Packs). Sales of compression bags to television shopping channels and e-commerce shopping sites have grown due to the stay-at-home trend amid the COVID-19 pandemic leading to a surge in home consumption. The company’s vacuum storage bags are processed and manufactured at its production bases in China, and are either sold directly to local clients in China (mainly the local subsidiaries of Japanese DIY stores), or exported to Japan for delivery to DIY stores or general merchandising stores (supermarket chains). The company also sells kitchen and hygiene-related products, such as cutting board sheets and kitchen mats. Revenue in the Consumer Product Packaging and Materials is generally calculated by multiplying the product price by volume.
In Printing Sheets for Building Materials, the company mainly handles products for house fixtures (e.g., printed wallpaper and printed paper for sliding doors) and furniture (printed paperboard). In materials for house fixtures, in particular, revenue is growing in the sale of functional building materials produced on a new type of coating machine. In Pharmaceuticals and Healthcare, the company supplies printed packaging film for prescription and over-the-counter pharmaceuticals and release films for adhesive patches (transdermal patches). The company started processing face shields and protective clothing during the COVID-19 pandemic.
|Performance by product category||FY02/15||FY02/16||FY02/17||FY02/18||FY02/19||FY02/20||FY02/21|
|Food Packaging and Containers||20,391||20,461||21,262||22,415||23,273||22,914||23,775|
|% of total||65.0%||67.3%||67.5%||68.0%||68.6%||67.2%||66.0%|
|IT and Industrial Materials||4,251||4,206||4,262||4,036||4,761||4,323||4,894|
|% of total||13.5%||13.8%||13.5%||12.2%||14.0%||12.7%||13.6%|
|Pharmaceuticals and Healthcare||1,249||1,143||1,386||1,469||1,324||1,376||1,568|
|% of total||4.0%||3.8%||4.4%||4.5%||3.9%||4.0%||4.4%|
|Printing Sheets for Building Materials||712||658||632||743||814||1,508||1,668|
|% of total||2.3%||2.2%||2.0%||2.3%||2.4%||4.4%||4.6%|
|Consumer Product Packaging and Materials||3,693||3,530||3,481||3,883||3,367||3,253||3,288|
|% of total||11.8%||11.6%||11.1%||11.8%||9.9%||9.5%||9.1%|
|% of total||3.5%||1.4%||1.4%||1.3%||1.2%||2.1%||2.3%|
|Gross profit margin||13.6%||14.2%||14.8%||14.9%||15.6%||15.4%||15.8%|
|Food Packaging and Containers||2,199||2,132||2,214||2,369||2,658||2,583||2,542|
|Gross profit margin||10.8%||10.4%||10.4%||10.6%||11.4%||11.3%||10.7%|
|% of total||51.7%||49.3%||47.4%||48.3%||50.3%||49.2%||44.6%|
|IT and Industrial Materials||782||904||987||902||1,168||1,061||1,350|
|Gross profit margin||18.4%||21.5%||23.2%||22.3%||24.5%||24.5%||27.6%|
|% of total||18.4%||20.9%||21.1%||18.4%||22.1%||20.2%||23.7%|
|Pharmaceuticals and Healthcare||248||223||355||354||298||271||269|
|Gross profit margin||19.9%||19.5%||25.6%||24.1%||22.5%||19.7%||17.2%|
|% of total||5.8%||5.2%||7.6%||7.2%||5.6%||5.2%||4.7%|
|Printing Sheets for Building Materials||144||104||117||122||133||181||241|
|Gross profit margin||20.2%||15.8%||18.5%||16.4%||16.3%||12.0%||14.4%|
|% of total||3.4%||2.4%||2.5%||2.5%||2.5%||3.4%||4.2%|
|Consumer Product Packaging and Materials||670||787||856||1,051||900||993||1,079|
|Gross profit margin||18.1%||22.3%||24.6%||27.1%||26.7%||30.5%||32.8%|
|% of total||15.7%||18.2%||18.3%||21.4%||17.0%||18.9%||18.9%|
|Gross profit margin||19.7%||42.2%||30.5%||24.1%||31.7%||21.9%||25.3%|
|% of total||5.0%||4.0%||3.0%||2.1%||2.4%||3.0%||3.7%|
|Breakdown by main areas||FY02/15||FY02/16||FY02/17||FY02/18||FY02/19||FY02/20||FY02/21|
|Food Packaging and Containers||20,391||20,461||21,262||22,415||23,273||22,914||23,775|
|% of total||65.0%||67.3%||67.5%||68.0%||68.6%||67.2%||66.0%|
|IT and Industrial Materials||4,251||4,206||4,262||4,036||4,761||4,323||4,894|
|% of total||13.5%||13.8%||13.5%||12.2%||14.0%||12.7%||13.6%|
|Pharmaceuticals and Healthcare||1,249||1,143||1,386||1,469||1,324||1,376||1,568|
|% of total||4.0%||3.8%||4.4%||4.5%||3.9%||4.0%||4.4%|
|Printing Sheets for Building Materials||712||658||632||743||814||1,508||1,668|
|% of total||2.3%||2.2%||2.0%||2.3%||2.4%||4.4%||4.6%|
|Consumer Product Packaging and Materials||3,693||3,530||3,481||3,883||3,367||3,253||3,288|
|% of total||11.8%||11.6%||11.1%||11.8%||9.9%||9.5%||9.1%|
|Vacuum storage bags and clothes||-||29.8%||22.6%||26.6%||26.6%||26.1%||33.8%|
|Home improvement/furniture/eco products||-||-||-||-||-||13.1%||10.8%|
|Hair/beauty care/health-related products||-||-||-||-||-||22.5%||19.3%|
|Hair/beauty care-related products||-||-||12.9%||10.8%||11.6%||-||-|
|Home improvement products||-||-||7.3%||9.9%||9.9%||-||-|
In the processed foods business, Nakamoto Packs provides gravure printing and processing services for frozen food and fresh food packaging materials for supermarkets, and containers and packaging materials for department stores, recreational activities, and events. In the convenience store business, the company provides gravure printing and processing services for food containers, food packaging materials, and shrink wrap. In the dairy products business, the company sells packaging materials and shrink wrap, mainly for commercial use. In the agriculture and marine products business, it provides gravure printing and processing services for trays and packaging film for fruit and vegetables.
The company processes optical film for the displays of mobile devices, and carries out adhesive processing in the mobile communications business. In the semiconductor field, it primarily provides coating services for film used in the manufacture of electronic components. The automobiles-related business is concentrated on the processing of automotive interior and ceiling materials, and the rechargeable batteries business centers on coating services for lithium-ion battery parts.
In the transdermal patches business, the company provides printing services for film used for pharmaceuticals, and gravure printing and coating services for the release films of transdermal patches. In the hospitals business, it processes packaging materials relating to transfusions, face shields, and protective clothing. In the OTC drugs business, it provides gravure printing and processing services for packaging materials for over-the-counter pharmaceuticals.
Nakamoto Packs sells printed interior wallpaper and printed paper for sliding doors in the house fixtures business. In the furniture business, it provides gravure printing and processing services for film for furniture and built-in kitchens.
In the vacuum storage bags and clothes business, the company prints, laminates, and manufactures vacuum storage bags for bedding and clothing sold through e-commerce sites and other channels. In the home improvement/furniture/eco products business, the company manufactures and sells energy-saving products, such as heat insulating sheets for glass windows, and decorating film for walls and floors. In the kitchen/hygiene-related products business, it manufactures and sells cutting board sheets and kitchen mats, and in the hair/beauty/health-related products business, it carries out injection molding and film processing for hair dye products (combs and gloves), and manufactures and sells sweat pads.
The company’s core technology is gravure printing technology. Although Nakamoto Packs was established in 1988, its predecessor had been handling gravure printing since 1959.
Gravure printing can be used for printing on sheets (e.g., film and paper) in thicknesses ranging from 2μm to 500μm. One micrometer (1μm) is equivalent to one millionth of a meter, or one thousandth of a millimeter. Under the company’s segmentation of the market, printing on thicknesses of 12μm to 40μm is the largest market (approximately 80% of the entire market), but competition is fierce because hundreds of companies operate in this area. In the markets covering thicknesses above or below this range, on the other hand, competition is limited as there are fewer players than in the main market. Nakamoto Packs entrusts the majority of business for the main market (printing on thickness of 12μm to 40μm) to affiliates (subcontracting companies and others), and instead focuses its efforts on strengthening business in the thick sheet and thin film gravure printing markets where competition is less intense than in the main market (refer to the “Market and value chain” section below).
The Japanese gravure printing market is worth approximately JPY1.0–1.1tn. This is calculated based on the assumption that (in 2018) gravure printing accounted for approximately 18% of the total value of product shipments in printing-related markets (JPY4.8tn in the 2019 preliminary report) provided in the Ministry of Economy, Trade and Industry’s Census of Manufacture 2020 (published in May 2021). The value of product shipments only includes businesses with four or more employees (the value of product shipments for businesses with three employees or less is close to JPY160.0bn [JPY154.8bn in 2018]). The above also takes into account the higher ratio of gravure printing (after the ratio of offset printing declined). Although this is outdated now, the gravure printing market was reported to be worth JPY933.4bn in FY2010 (source: Yano Research Institute Ltd.).
The value of the gravure printing market given above is the total for flexible packaging materials (printing on film, photographs, metal, paper, among others) and thick sheets. Nakamoto Packs estimates that the gravure printing market for food-related products (mainly food containers, food packaging, and shrink wrap), in which the company is heavily invested, is worth approximately one tenth of the total market.
Gravure printing is a type of intaglio printing process. In intaglio printing, the design is incised into a copper or zinc plate through etching or some other means. The ink is then applied and the excess scraped off so that ink only remains in the incised grooves. The printing material is then pressed against the design so that the ink is transferred from the grooves to the printing material. Finally, the transferred ink is dried.
Gravure printing is characterized by its ability to closely reproduce photographs because of the fine differences in color gradations achieved, its suitability for high volume printing thanks to its printing speed and the durability of the plates, and its ability to print on various materials, including film. Gravure printing particularly excels in the printing of images, such as photographs, with gravure printing being the origin of the term “gravure magazines.” Although gravure printing can also be used for color printing and multi-color printing, a different plate is required for each color, so the use of three colors would require three separate plates to be passed through the press for printing. Another disadvantage of gravure printing is the cost of producing the original plates (for each color). Such initial investment costs, however, can be rapidly recovered because high volume printing can be achieved early on.
In addition to intaglio printing, which includes gravure printing, letterpress printing and planographic printing make up the three mainstream printing processes. Outside of this falls inkjet printing which does not use plates.
Gravure printing can be used for printing on sheets (e.g., film and paper) in thicknesses ranging from 2μm to 500μm. Under the company’s segmentation of the market, printing on thicknesses of 12μm to 40μm comprises the largest market (approximately 80% of the entire market), but competition is fierce because hundreds of companies operate in this area.
The thick sheet printing market covers printing on film, paper, or other sheet materials in thicknesses of 100μm to 500μm, and makes up 7–8% of the gravure printing market. The market provides printing services for molded products, lunch containers, and lids for drinks and other products. Thick sheet printing for food containers, in which Nakamoto Packs has the leading market share of 70%, falls under this category. The company achieved this leading share (of orders outsourced by container manufacturers) by making an early advance into the market through initial investments into special-purpose, large machinery (with high-tensile strength) and accumulating manufacturing expertise.
Printing on thick sheets requires special-purpose, large machinery with high-tensile strength. Since this large machinery has special specifications, it must be custom ordered from manufacturers, and thus, is priced higher than standard machinery. Therefore, initial investment costs are high, especially as multiple machines are necessary. In the 1980s, the future of the thick sheet printing market was uncertain, and this led many companies to pass it up.
However, the second president of Nakamoto Packs, Mr. Takashi Nakamoto, decided to make an early entry into the thick sheet printing market. The company says it was not all smooth sailing from the time it entered the market, but over time, it accumulated various manufacturing expertise on the appropriate pressure, duration, and timing required during printing, and the appropriate drying methods after printing. Following its entry into the market, the food containers market has grown, partly due to the increasing number of convenience stores (for example, after the first 7-Eleven store opened in May 1974, the number of 7-Eleven stores has since grown to 21,179 [as of end-May 2021]). Nakamoto Packs believes its early entry into the market at a time when other companies were uninterested is the reason it now holds the top market share in container printing.
The thin film printing market covers printing on sheets in thicknesses of 2μm to 12μm, and accounts for approximately 10% of the gravure printing market (Shared Research estimate). Specific applications for the company’s services in this area include optical film for the displays of mobile devices and shrink wrap for food packaging. The company started handling optical film for mobile device displays (under the IT and Industrial Materials category) and shrink wrap (under the Food Packaging and Containers category), enabled by the technology it acquired through efforts to strengthen its position in the thin film printing market. Nakamoto Packs states that, as with thick sheet printing, thin film printing also requires special machinery. In addition, patented technology is important to have in this market because more market players mean competition is more intense than in the thick sheet printing market. Nakamoto Packs holds two or more patents for its drying and processing methods (as of end-June 2021).
Nakamoto Packs does not entirely avoid the largest market (printing thickness range of 12μm to 40μm) where competition is fierce. Rather, it mainly outsources these orders to subcontractors. The company’s food packaging materials (printing processes for bags for food products, such as frozen food and snacks) fall into this area, with revenue accounting for approximately one third of all revenue in the Food Packaging and Containers category (JPY23.8bn in FY02/21).
Gravure printing uses hazardous organic solvents. Although water-based inks are also used to some degree (Shared Research estimates a ratio of approximately 10% at present), organic solvents are the main material used. Since organic solvents are used for printing on sheets used for food containers, production facilities and buildings must undergo strict inspections and be certified under the Fire Service Act. In addition, the Building Standards Act and the City Planning Act impose restrictions on where factories can be constructed (for example, factories are not permitted to be built in city centers), and the Air Pollution Control Act requires that air used to dry printed material must be specially treated, such as by absorbing, collecting, and burning solvent components to detoxify the air, before it is released outside.
New companies wishing to enter the market must make initial investments into introducing several special-purpose, large machines with high tensile strength, such as those Nakamoto Packs has designed and manufactured in-house. In addition, they must meet the various legal and regulatory requirements pertaining to setting up production facilities and locations. New entrants will also need time to catch up with the manufacturing expertise the company has accumulated (relating to appropriate printing pressure and drying methods, among others). Given this, Nakamoto Packs thinks the barriers for entering the food container printing and processing business, in which it holds the top market share (approximately 70%), are high.
Nakamoto Packs’s gross profit margin (GPM) deteriorated 0.1pp YoY in FY02/15 and 0.2pp YoY in FY02/20. Excluding these two years, GPM has maintained an uptrend (since the company transitioned to consolidated reporting in FY02/14). In the seven years between FY02/14 and FY02/21, GPM increased from 13.7% to 15.8%, and for FY02/22, the company forecasts GPM to increase further to 16.1%. However, the rate of growth has been slowing since FY02/19 mainly due to deteriorating GPM in the Food Packaging and Containers category, the largest category in terms of revenue contribution (66.0% of total revenue; see figure below).
GPM in the Food Packaging and Containers category (food containers business, food packaging business) decreased 0.7pp in the two years since GPM peaked at 11.4% in FY02/19. Nakamoto Packs attributes this to the COVID-19 pandemic. In the company’s view, there are several factors that are intricately linked, namely 1) a reduction in high priced containers due to the cancellation of recreational activities and events, 2) a reduction in luxury food products handled by department stores and some high-end supermarkets due to voluntary store closures and/or shortened business hours, 3) an increase in demand for prepared food items seen in convenience store customers, and 4) sharp growth in delivery and takeout services that use simple-design containers.
The increase in containers for delivery and takeout services, 4) above, in particular, was triggered by the pandemic. As delivery and takeout containers are primarily used for food and drink to be consumed at home (by single people, couples, or families), there is little need for these containers to be of high quality. They are usually simple in design, require few printing processes, and often only use one color. The increased demand for delivery and takeout services is leading to growth in shipment volume of these takeout containers. Product sales volume at FP Corporation—Nakamoto Packs’s biggest client—increased approximately 7% YoY in FY03/21, according to FP’s results briefing materials. While sales volume at Nakamoto Packs is not necessarily linked to that of FP, Nakamoto Packs also experienced increased sales volume in FY02/21. Nevertheless, because these containers have a simpler design with fewer colors, and require fewer processes after printing, the company thinks the increase in revenue is unlikely to lead to a rise in GPM.
In its forecast for FY02/22, Nakamoto Packs assumes demand from department store food halls and the restaurant industry will remain sluggish, while orders for delivery and takeout containers will grow steadily, driven by increased home consumption spurred by the pandemic (as stated in results briefing materials). The company, therefore, does not expect GPM in the Food Packaging and Containers category to rebound in the short-term.
Having said that, the company also does not expect GPM in the Food Packaging and Containers category to remain in a prolonged downtrend. This is mainly because food container manufacturers expect shipment volumes to continue to increase. According to industry leader, FP Corporation, the expansion of delivery and takeout services amid the COVID-19 pandemic is not temporary and will continue to take root (results briefing materials). This is because FP assumes the increased demand for prepared food items (meals and side dishes bought from convenience stores and supermarkets and consumed at home) will shift toward at-home fine dining, and lead to a rise in virtual restaurants (restaurants without dining premises that only offer online delivery services). On top of capturing this demand, Nakamoto Packs plans to respond to the changing market by increasing the ratio of integrated production through to molding (currently, approximately 10% of food container-related revenue), reducing costs by optimizing the quantity of ink used and improving yield, and implementing proposal-based sales for new materials such as biomass materials.
Through these measures, centering on cost cutting, Nakamoto Packs thinks that, when events and recreational activities return to normal after the pandemic ends and demand for luxury food products starts to recover in department store food halls, GPM in the Food Packaging and Containers category may bounce back at a speed not hitherto seen, particularly in food containers, and surpass the previous peak of 11.4% (in FY02/19). This projection is backed by the fact that GPM reached a new quarterly high of 12.6% in Q1 FY02/22 (March–May 2021), with cost reductions across the group, including at domestic and overseas affiliates, offsetting a sustained slump in demand for products and services for high-priced containers and trays.
While GPM is stagnating and declining in the Food Packaging and Containers category, it is on the rise in the IT and Industrial Materials category. According to Nakamoto Packs, the biggest factor driving this rise in GPM is revenue growth resulting from an increase in coating contracts amid tight supply and demand in the semiconductor market. As the mainstay of IT and Industrial Materials is contract coating services, an increase in the number of coating contracts leads to higher revenue. In IT and Industrial Materials, the client supplies all the materials, so the company does not need to purchase these itself. Hence the company is not impacted by increases in raw material prices in short term, i.e., during the fiscal year. The company thinks that this, together with cost reductions on efforts to improve efficiency and raise productivity, are the reasons that GPM is rising.
GPM is also continuing to rise in the Consumer Product Packaging and Materials category, and growth has been particularly pronounced over the last two years during the spread of COVID-19 (GPM increased 6.1pp from 26.7% in FY02/19 to 32.8% in FY02/21). The company attributes this growth primarily to sales remaining favorable at DIY stores and hundred-yen discount stores even amid the pandemic, as well as to sales through TV shopping channels and e-commerce sites growing as a result of people staying at home while department stores and large shopping malls closed or operated under shortened hours. The company understands this change in consumer buying behavior has caused its revenue to grow, including in vacuum storage bags for bedding, in which it holds the leading market share (source: Nakamoto Packs). It thinks this is the reason why GPM has risen.
In other categories (Printing Sheets for Building Materials, Pharmaceuticals and Healthcare, Others), GPM has largely been declining. Between FY02/17 and FY02/20, GPM decreased 7.8pp from 24.8% to 17.0%. In FY02/21, however, GPM improved to 17.8%, but recovery was limited. The main factor in the decline in GPM has been a drop in the price of film for generic drugs in Pharmaceuticals and Healthcare due to intensified competition. Reduced demand for printing services for furniture in Printing Sheets for Building Materials has also had an impact.
|Food Packaging and Containers||IT and Industrial Materials||Consumer Product Packaging and Materials||Printing Sheets for Building Materials||Pharmaceuticals and Healthcare||Others|