Pigeon sells nursing bottles, nipples, and other products for babies 0–24 months old via distributors to drugstores and baby goods retailers. Nursing bottles and nipples are the company’s mainstay products and in FY12/21 represented 48.3% of sales in the China segment, which had the highest share of total operating profit among the company’s four segments (70.9% of operating profit before adjustments in FY12/21; Shared Research estimates that nursing bottles and nipples accounted for 25% of total consolidated sales). Since the time of Yuichi Nakata, its first president, Pigeon has strived to develop nipples optimally suited to babies’ mouths and prides itself on its ability to produce and sell nipples that function more like the mother’s breast than anything competitors can offer.

Besides nursing bottles and nipples, other key products include breast pads, baby wipes, skincare goods, maternity products, strollers, and breast pumps. Through half a century of research into breastfeeding and child development, Pigeon has delved deeply into growth processes of babies to develop a range of products suited to childcare needs.

Pigeon has three of its own factories in Japan, two in China, two in Thailand, and one each in India, Indonesia, and Turkey (Lansinoh), allowing it to make about 60% of its products in house. It sources the remaining 40% from partner manufacturers.

The company’s reporting segments are Japan (41.1% of sales and 12.4% of operating profit in FY12/21), China (40.0%, 70.9%), Singapore (13.6%, 10.9%), and Lansinoh (14.3%, 5.7%).

In the Japan business, Pigeon manufactures and sells products for babies and mothers in Japan. Mainstay products include breastfeeding-related products, skincare products, baby foods, and baby wipes.

In the China business, Pigeon manufactures products for babies and mothers for sale in China, South Korea, Hong Kong, Taiwan, and Russia. Target customers are primarily affluent families and middle-class families with annual incomes of JPY5mn or more. The company sells products at physical stores and on Chinese e-commerce sites, with the latter accounting for 67% of sales (on a sell-out basis) in FY12/21. A high ratio of sales (48.3% in FY12/21) comes from nursing bottles and nipples, the product categories with the highest value-added, attributing to the segment’s higher OPM (31.7% in FY12/21) compared to the other segments.

In the Singapore business, the company manufactures products for babies and mothers for sale in ASEAN member countries including Singapore, Indonesia, Thailand, and Malaysia, and in India, Australia, and the Middle East. In addition, its Thai subsidiary manufactures silicone rubber and plastic products, including nursing bottles and nipples, for sale in Japan.

In the Lansinoh business, Pigeon manufactures products for babies and mothers for sale in the US, Germany, the UK, Turkey, and China. Pigeon brought Lansinoh Laboratories, Inc., which operates the Lansinoh business, into the group in 2004. Currently, nipple cream generates the highest ratio of sales (31.2% in FY12/21), but in the medium term the company aims to expand sales of breast pumps (18.8%) to grow its earnings. The US accounts for about 65% of segment sales.

Trends and outlook

In FY12/21, Pigeon reported consolidated sales of JPY93.1bn (-6.3% YoY), operating profit of JPY13.3bn (-12.9% YoY), recurring profit of JPY14.6bn (-9.1% YoY), and net income attributable to owners of the parent of JPY8.8bn (-17.5% YoY). Sales declined due to the application of the Accounting Standard for Revenue Recognition and the continued impact of the COVID-19 pandemic on various markets. Profits declined due to lower sales, higher sales promotion and advertising expenses accompanying the launch of new products, and increased R&D expenses to enhance product appeal.

For FY12/22, the company forecasts sales of JPY98.7bn (+6.0% YoY), operating profit of JPY14.2bn (+6.5% YoY), recurring profit of JPY14.3bn (-2.4% YoY), and net income attributable to owners of the parent of JPY9.5bn (+8.1% YoY).

In the medium term, the company aims to improve GPM by 1pp each fiscal year by concentrating management resources on relatively high-margin nursing bottles and nipples and skincare products to differentiate them and improve profitability. Moreover, the company aims to achieve earnings growth by creating new categories in each of its businesses, such as prenatal and postpartum care for mothers, new technology-based products, and products for men engaged in childrearing.

Strengths and weaknesses

Shared Research thinks Pigeon’s strengths center on its strong brand and trustworthiness, overwhelming share in a niche market, and growth potential overseas. Weaknesses center on its possible competition against giants in adjacent businesses, limited domestic growth potential, and minor-player status in Europe and the US.

Key financial data

Income statement		FY01/13	FY01/14	FY01/15	FY01/16	FY01/17	FY01/18	FY01/19	FY12/19	FY12/20	FY12/21	FY12/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales		65,075	77,465	84,113	92,209	94,640	102,563	104,747	100,017	99,380	93,080	98,700
	YoY	10.0%	19.0%	8.6%	9.6%	2.6%	8.4%	2.1%	-	-	-6.3%	6.0%
Gross profit		27,761	34,464	38,296	43,345	44,688	50,572	53,858	50,800	49,921	44,072	48,100
	YoY	14.2%	24.1%	11.1%	13.2%	3.1%	13.2%	6.5%	-	-	-11.7%	9.1%
	Gross profit margin	42.7%	44.5%	45.5%	47.0%	47.2%	49.3%	51.4%	50.8%	50.2%	47.3%	48.7%
Operating profit		7,086	10,365	12,780	14,521	16,015	19,412	19,612	17,072	15,316	13,336	14,200
	YoY	40.5%	46.3%	23.3%	13.6%	10.3%	21.2%	1.0%	-	-	-12.9%	6.5%
	Operating profit margin	10.9%	13.4%	15.2%	15.7%	16.9%	18.9%	18.7%	17.1%	15.4%	14.3%	14.4%
Recurring profit		7,389	11,002	13,299	15,080	16,462	20,129	20,398	17,284	16,113	14,648	14,300
	YoY	50.3%	48.9%	20.9%	13.4%	9.2%	22.3%	1.3%	-	-	-9.1%	-2.4%
	Recurring profit margin	11.4%	14.2%	15.8%	16.4%	17.4%	19.6%	19.5%	17.3%	16.2%	15.7%	14.5%
Net income		4,573	6,985	8,451	10,197	11,118	14,515	14,238	11,538	10,643	8,785	9,500
	YoY	43.7%	52.7%	21.0%	20.7%	9.0%	30.5%	-1.9%	-	-	-17.5%	8.1%
	Net margin	7.0%	9.0%	10.0%	11.1%	11.8%	14.2%	13.6%	11.5%	10.7%	9.4%	9.6%
Per-share data (split-adjusted)
Shares issued (split-adjusted, year-end; '000)		121,653	121,653	121,653	121,653	121,653	121,653	121,653	121,653	121,653	121,653
EPS		38.1	58.2	70.6	85.2	92.8	121.2	118.9	96.4	88.9	73.4	79.4
EPS (fully diluted)		-	-	-	-	-	-	-	-	-	-
Dividend per share		19.2	29.3	35.0	42.0	53.0	66.0	68.0	70.0	72.0	74.0	76.0
Book value per share		263.8	325.8	385.5	413.9	437.4	506.8	536.4	565.6	607.1	642.0
Balance sheet (JPYmn)
	Cash and cash equivalents	10,574	13,103	21,591	24,298	30,052	31,346	30,949	32,416	37,163	35,218
Total current assets		29,103	35,363	47,027	48,914	55,244	58,178	58,201	61,933	65,231	66,254
Tangible fixed assets		16,208	19,023	21,383	21,471	20,263	21,116	21,127	22,494	23,262	27,093
Investments and other assets		2,051	2,127	2,232	2,212	2,273	1,865	2,066	2,200	2,020	2,122
Intangible assets		1,176	1,441	1,724	1,346	1,106	3,307	4,223	3,863	2,957	2,572
Total assets		48,539	57,955	72,367	73,943	78,889	84,467	85,618	90,491	93,472	98,042
	Accounts payable	3,864	4,518	4,463	5,366	6,550	6,991	6,527	6,909	6,427	5,710
	Short-term debt	1,416	1,400	2,090	1,309	5,699	-	-	-	-	-
Total current liabilities		11,616	12,819	15,273	14,223	21,381	17,673	15,623	15,638	15,664	15,072
	Long-term debt	2,204	2,012	5,928	5,000	-	-	-	-	-	-
Total fixed liabilities		4,558	5,155	9,797	8,927	3,770	3,982	3,412	4,389	5,181	6,159
Total liabilities		16,173	17,974	25,070	23,150	25,152	21,655	19,036	20,028	20,846	21,232
Total net assets		32,365	39,982	47,297	50,793	53,736	62,812	66,582	70,463	72,625	76,810
Total interest-bearing debt		3,620	3,412	8,018	6,309	5,699	-	-	-	-	-
Cash flow statement (JPYmn)
Cash flows from operating activities		7,656	7,930	10,135	13,480	14,810	17,094	13,632	14,098	18,400	10,893
Cash flows from investing activities		-1,848	-3,794	-3,134	-3,332	-1,854	-3,586	-4,704	-3,995	-3,815	-5,593
Cash flows from financing activities		-3,149	-3,163	-150	-6,568	-6,223	-12,812	-8,338	-8,734	-9,231	-8,693
Financial ratios
ROA (RP-based)		16.0%	20.7%	20.4%	20.6%	21.5%	24.6%	24.0%	19.6%	17.5%	15.3%
ROE		15.5%	19.7%	19.8%	21.3%	21.8%	25.7%	22.8%	17.5%	15.5%	12.2%
Equity ratio		65.3%	67.5%	63.8%	67.0%	66.4%	71.9%	75.0%	74.8%	74.8%	75.4%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Gross profit figures are after provisions for sales returns.
Per-share data are adjusted for the 2-for-1, and 3-for-1 stock splits in August 2013 and May 2015, respectively.
In April 2019, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that had fiscal years ending in January.
In FY12/21, the company changed the revenue recognition standard it used for the Japan and China businesses. Under the previous standard, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales.

Trends and outlook

Quarterly trends and results

Cumulative		FY12/21				FY12/22				FY12/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Sales		21,359	47,277	69,426	93,080	21,714				22.0%	98,700
	YoY	-6.5%	-2.4%	-6.0%	-6.3%	1.7%					6.0%
Gross profit		10,168	22,558	33,179	44,072	10,470				21.8%	48,100
	YoY	-10.3%	-7.6%	-10.9%	-11.7%	3.0%					9.1%
	Gross profit margin	47.6%	47.7%	47.8%	47.3%	48.2%					48.7%
SG&A expenses		7,307	14,969	22,735	30,735	7,475				22.1%	33,900
	YoY	-7.9%	-8.6%	-7.6%	-11.2%	2.3%					10.3%
	SG&A ratio	34.2%	31.7%	32.7%	33.0%	34.4%					34.3%
Operating profit		2,861	7,589	10,444	13,336	2,994				21.1%	14,200
	YoY	-15.9%	-5.5%	-17.5%	-12.9%	4.6%					6.5%
	Operating profit margin	13.4%	16.1%	15.0%	14.3%	13.8%					14.4%
Recurring profit		3,454	8,536	11,774	14,648	3,971				27.8%	14,300
	YoY	-10.6%	0.0%	-13.2%	-9.1%	15.0%					-2.4%
	Recurring profit margin	16.2%	18.1%	17.0%	15.7%	18.3%					14.5%
Net income		2,008	5,085	7,185	8,785	2,617				27.5%	9,500
	YoY	-30.0%	-13.2%	-23.3%	-17.5%	30.3%					8.1%
	Net margin	9.4%	10.8%	10.3%	9.4%	12.1%					9.6%
Quarterly		FY12/21				FY12/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		21,359	25,918	22,149	23,654	21,714
	YoY	-6.5%	1.3%	-12.8%	-7.4%	1.7%
Gross profit		10,168	12,390	10,621	10,893	10,470
	YoY	-10.3%	-5.2%	-17.3%	-14.0%	3.0%
	Gross profit margin	47.6%	47.8%	48.0%	46.1%	48.2%
SG&A expenses		7,307	7,662	7,766	8,000	7,475
	YoY	-7.9%	-9.3%	-5.5%	-20.1%	2.3%
	SG&A ratio	34.2%	29.6%	35.1%	33.8%	34.4%
Operating profit		2,861	4,728	2,855	2,892	2,994
	YoY	-15.9%	2.2%	-38.3%	8.9%	4.6%
	Operating profit margin	13.4%	18.2%	12.9%	12.2%	13.8%
Recurring profit		3,454	5,082	3,238	2,874	3,971
	YoY	-10.6%	8.9%	-35.7%	13.0%	15.0%
	Recurring profit margin	16.2%	19.6%	14.6%	12.2%	18.3%
Net income		2,008	3,077	2,100	1,600	2,617
	YoY	-30.0%	3.0%	-40.2%	25.2%	30.3%
	Net margin	9.4%	11.9%	9.5%	6.8%	12.1%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Estimates represent most recent company forecast.
In April 2019, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that have fiscal years ending in January.

Quarterly segment performance

Cumulative			FY12/21				FY12/22				FY12/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Sales			21,359	47,277	69,426	93,080	21,714				22.0%	98,700
	YoY		-6.5%	-2.4%	-6.0%	-6.3%	1.7%					6.0%
	Japan		9,717	19,888	29,267	38,264	8,846				22.7%	38,900
		YoY	-15.2%	-11.9%	-13.9%	-14.9%	-9.0%					1.7%
	China		7,685	19,440	27,640	37,239	7,892				19.2%	41,000
		YoY	7.5%	11.4%	1.4%	-1.3%	2.7%					10.1%
	Singapore		2,869	6,024	9,170	12,619	3,069				24.8%	12,400
		YoY	-13.9%	-6.5%	-4.6%	3.6%	7.0%					-1.7%
	Lansinoh		3,117	6,231	9,562	13,320	3,551				24.3%	14,600
		YoY	2.5%	-1.3%	0.7%	6.8%	13.9%					9.6%
	Eliminations		-2,030	-4,306	-6,214	-8,363	-1,645				-	-8,200
Operating profit			2,861	7,589	10,444	13,336	2,994				21.1%	14,200
	YoY		-15.9%	-5.5%	-17.5%	-12.9%	4.6%					6.5%
	Operating profit margin		13.4%	16.1%	15.0%	14.3%	13.8%					14.4%
	Japan		603	1,172	1,686	2,065	543				23.1%	2,350
		YoY	-32.2%	-25.8%	-31.1%	-31.3%	-10.0%					13.8%
		Operating profit margin	6.2%	5.9%	5.8%	5.4%	6.1%					6.0%
	China		2,434	6,766	9,161	11,792	2,532				19.5%	13,000
		YoY	1.1%	10.6%	-5.8%	-6.4%	4.0%					10.2%
		Operating profit margin	31.7%	34.8%	33.1%	31.7%	32.1%					31.7%
	Singapore		356	807	1,354	1,811	514				39.5%	1,300
		YoY	-46.8%	-35.8%	-22.4%	10.0%	44.4%					-28.2%
		Operating profit margin	12.4%	13.4%	14.8%	14.4%	16.7%					10.5%
	Lansinoh		318	522	718	953	168				16.0%	1,050
		YoY	-20.3%	-42.4%	-48.4%	-30.4%	-47.2%					10.2%
		Operating profit margin	10.2%	8.4%	7.5%	7.2%	4.7%					7.2%
	Adjustments		-852	-1,680	-2,476	-3,286	-764				-	-3,500
Quarterly			FY12/21				FY12/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales			21,359	25,918	22,149	23,654	21,714
	YoY		-6.5%	1.3%	-12.8%	-7.4%	1.7%
	Japan		9,717	10,171	9,379	8,997	8,846
		YoY	-15.2%	-8.6%	-17.8%	-18.1%	-9.0%
	China		7,685	11,755	8,200	9,599	7,892
		YoY	7.5%	14.0%	-16.3%	-8.4%	2.7%
	Singapore		2,869	3,155	3,146	3,449	3,069
		YoY	-13.9%	1.4%	-0.9%	34.4%	7.0%
	Lansinoh		3,117	3,114	3,331	3,758	3,551
		YoY	2.5%	-4.8%	4.6%	26.3%	13.9%
	Eliminations		-2,030	-2,276	-1,908	-2,149	-1,645
Operating profit			2,861	4,728	2,855	2,892	2,994
	YoY		-15.9%	2.2%	-38.3%	8.9%	4.6%
	Operating profit margin		13.4%	18.2%	12.9%	12.2%	13.8%
	Japan		603	569	514	379	543
		YoY	-32.2%	-17.7%	-40.6%	-32.6%	-10.0%
		Operating profit margin	6.2%	5.6%	5.5%	4.2%	6.1%
	China		2,434	4,332	2,395	2,631	2,532
		YoY	1.1%	16.7%	-33.7%	-8.4%	4.0%
		Operating profit margin	31.7%	36.9%	29.2%	27.4%	32.1%
	Singapore		356	451	547	457	514
		YoY	-46.8%	-23.3%	12.1%	-	44.4%
		Operating profit margin	12.4%	14.3%	17.4%	13.3%	16.7%
	Lansinoh		318	204	196	235	168
		YoY	-20.3%	-59.8%	-59.6%	-	-47.2%
		Operating profit margin	10.2%	6.6%	5.9%	6.3%	4.7%
	Adjustments		-852	-828	-796	-810	-764

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding method
In April 2019, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that had fiscal years ending in January.

Sales by overseas region (half-year basis)

		FY12/20			FY12/21
		1H	2H	FY	1H	2H	FY
USD/JPY (average)		108.26	105.28	106.77	107.76	111.94	109.85
CNY/JPY (average)		15.39	15.55	15.47	16.65	17.41	17.03
China (JPYmn)		16,367	19,334	35,701	18,133	16,259	34,392
	YoY	-1.9%	4.5%	1.5%	10.8%	-15.9%	-3.7%
Other Asia (JPYmn)		3,890	3,860	7,750	3,872	4,220	8,092
	YoY	-13.0%	-6.1%	-9.7%	-0.5%	9.3%	4.4%
North America (JPYmn)		4,111	3,813	7,924	4,044	4,625	8,669
	YoY	1.2%	1.1%	1.2%	-1.6%	21.3%	9.4%
Europe (JPYmn)		1,363	1,492	2,855	1,705	1,945	3,650
	YoY	-11.7%	4.7%	-3.8%	25.1%	30.4%	27.8%
Near and Middle East (JPYmn)		1,208	909	2,117	990	1,017	2,007
	YoY	-5.6%	-11.2%	-8.1%	-18.0%	11.9%	-5.2%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Results for Q1 FY12/22

Sales: JPY21.7bn (+1.7% YoY)
Operating profit: JPY3.0bn (+4.6% YoY)
Recurring profit: JPY4.0bn (+15.0% YoY)
Net income attributable to owners of the parent: JPY2.6bn (+30.3% YoY)

In February 2020, Pigeon unveiled its seventh medium-term business plan, covering the three-year period from FY12/20 through FY12/22. Under the new plan, the company seeks to implement three core strategies: brand strategy, core product strategy, and regional strategy. In FY12/22, the final year of the plan, the company will implement a number of measures in line with its core strategies.

In Q1, sales rose YoY due in part to favorable forex rates, despite the continuing negative impact of the COVID-19 pandemic. GPM rose 0.6pp YoY, absorbing an increase in SG&A expenses, so operating profit also grew YoY.

Q1 results reflect average exchange rates of JPY116.35/USD and JPY18.32/CNY used to translate the financial statements of major overseas subsidiaries into yen; this compares with JPY106.04/USD and JPY16.36/CNY in Q1 FY12/21.

Earnings information for individual segments was as follows.

Japan

Sales: JPY8.8bn (-9.0% YoY)
Segment profit: JPY543mn (-10.0% YoY)

Sales declined YoY due to lower sales in the Health & Elder Care business.

The Japan business comprises Baby Care, Health & Elder Care, and Child Care Service businesses.

Baby Care sales were JPY6.2bn (-1.0% YoY). Sales of baby wipes and other consumables declined due to price competition, but sales of core products such as nursing bottles and breast pumps increased YoY.

In February 2022, the company launched an update of its mainstay "Bonyu-jikkan" nursing bottle series for the first time in 11 years. Also in February, it updated its Pigeon Basic Skincare series of skincare products for babies (including foam body wash, shampoo, and other bath products for babies).

As part of its direct communication initiatives, Pigeon's breastfeeding webinar Oppai College was livestreamed to more than 700 viewers. The company also conducted webinars for healthcare professionals, livestreamed to more than 100 viewers. In addition, to ease the concerns of mothers and fathers during the ongoing pandemic, the company continued providing support content via social networking services and its own websites. Further, to better service its customers, it made further improvements to the Pigeon.info website, which provides support for women on matters including pregnancy, childbirth, and childcare.

Health & Elder Care sales were JPY1.2bn (-26.8% YoY), with the decline due in part to revisions of the product lineup that begun in FY12/21.

In Child Care Services, sales were JPY892mn (-5.9% YoY). As of end-March 2022, the company operated a total of 64 childcare facilities.

Segment profit fell YoY due to lower sales.

China

Sales: JPY7.9bn (+2.7% YoY)
Segment profit: JPY2.5bn (+4.0% YoY)

Sales grew YoY due to favorable forex rates. However, on a local currency basis, sales in mainland China declined 14% YoY.

There was steady progress on shipments of the "Bonyu-jikkan" nursing bottle series, which was updated and given an advance launch in mainland China in September 2021. However, lockdowns caused by the local spread of COVID-19 affected production, shipments, and related activities, and mainland China sales fell 14% YoY on a local currency basis.

The company sought to stimulate communication with consumers through social media and livestreams, provided childcare support information amid the COVID-19 pandemic, promoted in-store sales and delivery of new products, and continued to strengthen activities at general and maternity hospitals to increase contact points with customers.

Segment profit rose YoY on increased sales and improved GPM attributed to an improved sales mix.

Singapore

Sales: JPY3.1bn (+7.0% YoY)
Segment profit: JPY514mn (+44.4% YoY)

Sales and profit grew YoY despite the impact of the COVID-19 pandemic in the ASEAN region and India, mainly due to the resumption of sales and marketing activities and the implementation of systems at sales bases for operating even as the pandemic lingered.

Lansinoh

Sales: JPY3.6bn (+13.9% YoY)
Segment profit: JPY168mn (-47.2% YoY)

In North America, there were ongoing delays in product arrival and shipment due to logistics disruptions, but e-commerce sales were solid, and there were robust sales of nipple cream and new prenatal and postpartum care products. However, sales of some consumables declined due to intense price competition.

Segment profit was lower YoY due to an ongoing rise in logistics costs, including ocean freight costs. This affected CoGS and shipping expenses, and marketing expenses also weighed on segment profit.

Company forecast

Company forecast for FY12/22

		FY12/21			FY12/22
(JPYmn)		1H Act.	2H Act.	FY Act.	FY Est.
Sales		47,277	45,803	93,080	98,700
	YoY	-2.4%	-10.1%	-6.3%	6.0%
Gross profit		22,558	21,514	44,072	48,100
	YoY	-7.6%	-15.7%	-11.7%	9.1%
	Gross profit margin	47.7%	47.0%	47.3%	48.7%
SG&A expenses		14,969	15,766	30,735	33,900
	SG&A ratio	31.7%	34.4%	33.0%	34.3%
Operating profit		7,589	5,747	13,336	14,200
	YoY	-5.5%	-21.1%	-12.9%	6.5%
	Operating profit margin	16.1%	12.5%	14.3%	14.4%
Recurring profit		8,536	6,112	14,648	14,300
	YoY	0.0%	-19.4%	-9.1%	-2.4%
	Recurring profit margin	18.1%	13.3%	15.7%	14.5%
Net income		5,085	3,700	8,785	9,500
	YoY	-13.2%	-22.72%	-17.5%	8.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

FY12/22 earnings forecast by segment

Est. by segment			FY12/21			FY12/22
(JPYmn)			1H Act.	2H Act.	FY Act.	FY Est.
Sales			47,277	45,803	93,080	98,700
	YoY		3.0%	-4.8%	-1.0%	6.0%
	Japan		19,888	18,376	38,264	38,900
		YoY	-3.9%	-10.5%	-7.2%	1.7%
	China		19,440	17,799	37,239	41,000
		YoY	15.6%	-7.8%	3.1%	10.1%
	Singapore		6,024	6,595	12,619	12,400
		YoY	-6.5%	14.9%	3.6%	-1.7%
	Lansinoh		6,231	7,089	13,320	14,600
		YoY	-1.3%	15.1%	6.8%	9.6%
	Eliminations		-4,306	-4,057	-8,363	-8,200
Operating profit			7,589	5,747	13,336	14,200
	YoY		-4.0%	-19.9%	-11.6%	6.5%
	Operating profit margin		16.1%	12.5%	14.3%	14.4%
	Japan		1,172	893	2,065	2,350
		YoY	-19.6%	-32.0%	-25.5%	13.8%
		Operating profit margin	5.9%	4.9%	5.4%	6.0%
	China		6,766	5,026	11,792	13,000
		YoY	10.6%	-22.5%	-6.4%	10.2%
		Operating profit margin	34.8%	28.2%	31.7%	31.7%
	Singapore		807	1,004	1,811	1,300
		YoY	-35.8%	157.4%	10.0%	0.0%
		Operating profit margin	13.4%	15.2%	14.4%	10.5%
	Lansinoh		522	431	953	1,050
		YoY	-42.4%	-6.9%	-30.4%	10.2%
		Operating profit margin	8.4%	6.1%	7.2%	7.2%
	Adjustments		-1,678	-1,607	-3,285	-3,500

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
In FY12/21, the company changed the revenue recognition standard it used for the Japan and China businesses. Under the previous standard, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales.
FY12/21 YoY comparison is the percentage that would have been recorded if the new standard had been applied in FY12/20.

Pigeon will concentrate management resources on the breastfeeding and skincare categories to achieve earnings growth. In FY12/21, the company launched an upgraded version of its "Bonyu-jikkan" nursing bottles in China. It expects that sales will increase in FY12/22 through global launch and marketing of the updated version, including in Japan. Increased sales, along with higher profit margins for new products and price revisions for existing products, are expected to result in higher gross profit, which in turn will lead to an increase in operating profit.

Pigeon projects average exchange rates of JPY112.00/USD and JPY17.50/CNY for translating the financial statements of overseas consolidated subsidiaries into yen; this compares with JPY109.85/USD and JPY17.03/CNY in FY12/21.

Japan

The company forecasts sales of JPY38.9bn (+1.7% YoY) and segment profit of JPY2.4bn (+13.8% YoY).

The breakdown of the Japan business is expected to be as follows

Domestic Baby & Mother Care: Sales JPY26.6bn (+3.6% YoY), segment profit JPY3.7bn (+55.7% YoY)
Childcare Service: Sales JPY3.6bn (+2.2% YoY), segment profit JPY188mn (+18.2% YoY)
Health & Elder Care: Sales JPY5.6bn (-7.0% YoY), segment profit JPY469mn (-6.9% YoY)

In FY12/22, the company changed the name of the Domestic Baby & Mother Care business to Baby Care.

The assumption for Baby Care is that the annual number of births is expected to be approximately 800,000 (-5% YoY). The company has also taken the position that inbound demand will not recover.

The company expects to increase sales and profits by selling upgraded "Bonyu-jikkan (Just like Mom)" series products, which were pre-sold in the China business in FY12/21, in the Japan business as well. The revamped products went on sale in February 2022, and the average unit price is approximately 15% higher than the previous products. Moreover, the revamping of the skincare series will also increase the market share, which will be a factor in sales growth.

Gross profit is expected to be JPY13.6bn (+3.6% YoY), and GPM 35.0% (+0.7pp YoY). The sales composition of relatively high-margin nursing bottles and nipples and skincare products is expected to increase. SG&A expenses are forecast to be JPY11.3bn (+1.7% YoY), as the company plans to concentration sales promotions on nursing bottles and nipples and skincare products and keep other costs increases under control. The company expects double-digit growth in segment profit due to higher gross profit and controlled increases in SG&A expenses.

In FY12/22, the Fuji factory (scheduled to start operation in 2023) will be rebuilt. The Fuji factory has been manufacturing skincare products and cleansers. The new Fuji factory will enjoy increased manufacturing efficiency and capacity, and will also have a skincare R&D center. Moreover, the company will bring in-house manufacturing of products that were previously outsourced to outside companies.

China

The company expects sales of JPY41.0bn (+10.1% YoY) and segment profit of JPY13.0bn (+10.2% YoY). In local currency terms, a 7% YoY increase is forecast for mainland China.

No increase in the number of births (10.6mn in 2021) is assumed for the China business.

The average unit price is expected to increase due to the switch to the upgraded "Bonyu-jikkan (Just like Mom)" series of nursing bottles, which were launched in FY12/21 and have replaced the previous products, leading to an increase in sales. The company plans to increase its market share in value terms of nursing bottles to 50% in FY12/22 (45% in Q4 FY12/21) through the introduction of upgraded products. In addition, the company plans to curb the decline in physical store sales (33.0% of China business sales in FY12/21), which have been on a downward trend, by launching products offered exclusively at physical stores.

Upgraded the "Shizen-jikkan" nursing bottle series ("Bonyu-jikkan" in Japan): The company launched an upgraded version of this core product series in China in September 2021 before it did so anywhere else. Pigeon is moving ahead with the replacement of the current model with the upgraded version across its sales channels, and it expects to complete the replacement for sell-out sales in April 2021. This new version is priced 20% higher than the current products, and has a higher GPM.

The company expects gross profit of JPY21.8bn (+15.0% YoY) and GPM of 53.2% (+2.3pp YoY). The GPM is expected to increase as the sales composition of upgraded products increases. Segment profit is expected to be JPY13.0bn (+10.2% YoY). Despite the increase in gross profit margin, sales promotion expenses are seen increasing as the company enters into e-commerce platforms such as TikTok, WeChat Mall, and Pinduoduo.

In FY12/22, the company plans to start selling Pigeon brand products from its China business to the North American market. Since this market will be developed using e-commerce sites, the China business, which has accumulated sales know-how through cultivating e-commerce channels, will take the lead in market entry. However, contributions from sales of Pigeon brand products in the North American market in FY12/22 are expected to be limited.

Singapore

The company anticipates sales of JPY12.4bn (-1.7% YoY) and segment profit of JPY1.3bn (essentially unchanged YoY).

In FY12/21, the above-mentioned upgraded products were shipped from Thai factories to the Japanese market, which contributed to the sales increase. However, this contribution from the shipment of the upgraded products will be lost in FY12/22, resulting in lower sales. Meanwhile, sales to external customers are seen increasing by more than 10% YoY. In FY12/21, urban lockdowns and business restrictions were issued intermittently in the countries where Pigeon operates, but the company expects the impact of the COVID-19 pandemic on its business to decrease in FY12/22, resulting in higher sales. The company plans to expand sales of "Natural Botanical" skincare products, which were launched in Q4 FY12/21 (October–December 2021), in each region, and to roll out the upgraded "Bonyu-jikkan (Just like Mom)" nursing bottle series products in Southeast Asia from Q3 FY12/22 (July–September 2022).

On the profit front, the GPM is expected to be 36.3% (-2.4pp YoY) due to the impact of soaring raw material prices, but segment profit will be maintained at the same level as FY12/21 owed to increased external sales.

Lansinoh

The company expects sales of JPY14.6bn (+9.6% YoY) and segment profit of JPY1.1bn (+10.2% YoY). By region, sales of JPY9.6bn (+10.3% YoY; +8.2% on a local currency basis) are forecast for North America (US and Canada) and JPY4.1bn (+9.3% YoY) for Europe.

Pigeon will continue to expand sales of nipple cream, which sold well in FY12/21, in FY12/22. The company expects to expand its lineup of prenatal and postpartum care products, which it began selling in FY12/21, to account for 4% of Lansinoh business sales.

The Lansinoh business is projected to generate gross profit of JPY8.2bn (+15.2% YoY) and GPM of 56.2% (+2.7pp YoY). The company expects the sales composition of nipple creams, which have relatively high gross profit margins, to increase, leading to higher GPM. In FY12/21, soaring logistics costs were a factor in the increase in cost of sales and SG&A expenses. In FY12/22, logistics costs are seen remaining high, driving an increase in expenses, but higher sales should push segment profit upward.

Dividends

The company aims to raise dividends YoY and achieve a total shareholder return ratio of about 55%. In FY12/22, it plans to pay an interim dividend of JPY38 per share (+JPY1 YoY) and a year-end dividend of JPY38 per share (+JPY1 YoY), for a total of JPY76 per share (+JPY2 YoY; payout ratio of 95.8%).

Historical forecast accuracy

Results vs Initial Est.	FY01/13	FY01/14	FY01/15	FY01/16	FY01/17	FY01/18	FY01/19	FY12/19	FY12/20	FY12/21
(JPYmn)	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Sales (Initial Est.)	64,300	73,500	84,500	92,000	95,000	99,800	107,000	106,200	109,000	100,800
Sales (Results)	65,075	77,465	84,113	92,209	94,640	102,563	104,747	100,017	99,380	93,080
Results vs Initial Est.	1.2%	5.4%	-0.5%	0.2%	-0.4%	2.8%	-2.1%	-5.8%	-8.8%	-7.7%
Operating profit (Initial Est.)	5,650	7,800	11,600	13,900	15,000	17,000	20,400	20,000	18,100	16,500
Operating profit (Results)	7,086	10,365	12,780	14,521	16,015	19,412	19,612	17,072	15,316	13,336
Results vs Initial Est.	25.4%	32.9%	10.2%	4.5%	6.8%	14.2%	-3.9%	-14.6%	-15.4%	-19.2%
Recurring profit (Initial Est.)	5,550	7,800	11,800	14,000	15,300	17,000	20,400	20,000	18,100	16,700
Recurring profit (Results)	7,389	11,002	13,299	15,080	16,462	20,129	20,398	17,284	16,113	14,648
Results vs Initial Est.	33.1%	41.1%	12.7%	7.7%	7.6%	18.4%	0.0%	-13.6%	-11.0%	-12.3%
Net income (Initial Est.)	3,300	4,850	7,300	8,900	10,400	11,800	14,100	14,300	12,600	11,100
Net income (Results)	4,573	6,985	8,451	10,197	11,118	14,515	14,238	11,538	10,643	8,785
Results vs Initial Est.	38.6%	44.0%	15.8%	14.6%	6.9%	23.0%	1.0%	-19.3%	-15.5%	-20.9%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Outlook

In February 2021, the company announced a revision of its seventh medium-term business plan. In FY12/20, Pigeon achieved the projections of its FY12/20 forecast revised in November 2020, but sales and profits were down YoY due to the impact of the COVID-19 pandemic. In FY12/21, the company expects to generate higher sales and profits by enhancing its sales and marketing activities in China and other businesses. However, in the Japan business, it anticipates that the sharp drop in inbound demand and intermittent urban lockdowns and movement restrictions caused by the pandemic will continue, so it will be difficult to achieve the targets of the medium-term plan as originally announced in February 2020. For this reason, Pigeon has revised the quantitative targets for FY12/21 and FY12/22. Even so, there is no change to the basic strategy of the medium-term plan.

For the final year of the revised plan, the company was targeting consolidated sales of JPY114.5bn, operating profit of JPY18.6bn, and net income attributable to owners of the parent of JPY12.3bn. However, circumstances that were not anticipated even in the revised plan, such as the spread of COVID-19 variants, occurred thereafter. Accordingly, the company's FY12/22 forecast announced in February 2022 calls for sales of JPY98.7bn (+6.0% YoY), operating profit of JPY14.2bn (+6.5% YoY), and net income attributable to owners of the parent of JPY9.5bn (+8.1% YoY).

In the FY12/21 full-year results briefing, the company stated that over the medium term, it aims to improve GPM by 1pp each fiscal year by concentrating management resources on relatively high-margin nursing bottles and nipples and skincare products to differentiate them and improve profitability. Moreover, the company aims to achieve earnings growth by creating new categories in each of its businesses, such as prenatal and postpartum care for mothers, new technology-based products, and products for men engaged in childrearing.

Themes under the seventh medium-term business plan

Over the next three years, Pigeon is looking to apply the factors that have been the key to its success in the China market to its businesses in other countries around the world. The company aims to sustain a healthy rate of growth and further improve profitability in all geographic regions by implementing its brand strategy, product strategy, and regional strategy as detailed below.

In a revised plan announced in February 2021, Pigeon made no changes to its brand, product, and regional strategies, but the ratio of e-commerce sales to total sales has increased especially in the China and Lansinoh segments because of the pandemic. The company believes it is easier for newcomers to gain market share in the context of e-commerce than in offline markets, as long as they are offering distinctive products. Under the revised plan, it says it intends to shorten the time from product planning to launch to better respond to market changes.

Brand strategy

The company plans to switch from a “chosen by customers who buy a product” approach to a “chosen by customers who buy into a business” approach.

Product strategy

The company aims to accelerate growth in global product markets where it can play to its strengths. It plans to focus on R&D and sales expansion for the core product categories of nursing bottles, nipples, breast pumps, skincare, and oral care. In addition to sales growth by expanding sales of core products, it aims to improve GPM and the sales mix. With respect to market share, the plan calls for increasing the company’s share of the global nursing bottle and nipple market from 11.0% in 2019. Pigeon says in the medium term it will spend about 3% of sales on R&D for new products.

Regional strategy

In FY12/19, Pigeon designated its head office as the global head office (GHO) overseeing the entire group. At the same time, it made plans to divide its business departments by region into four segments: Japan, China, Singapore, and Lansinoh. It clarified the roles and responsibilities of these segments in operating and growing their respective businesses and aims to realize lasting growth by having the segments coordinate with the GHO. Using this structure, the company aims to quickly create a cycle of development, production, and sales suited to the market characteristics of the various regions. It will also promote cooperation between the various regions.

As of its announcement of the seventh medium-term business plan (February 2020), organizational reforms have already produced the following results.

Electric breast pumps (ASEAN and emerging countries): Pigeon launched the GoMini electric breast pump, which attempts to achieve a good balance of cost, functionality, and design, and so far in 2020 has been selling at least 2.1x the number of units per month (projected figures) that it did in 2019. The GoMini was developed by the China business’ development division for the Indonesian market, but Pigeon says it plans to roll it out throughout Asia, and in emerging markets in Central and South America.

Electric breast pumps (China): Lansinoh, which has abundant expertise about breast pumps, worked together with the China business, which has a significant potential market, to develop the QA56 electric breast pump, which was launched in the Chinese market. Sales of the QA56 (wholesale basis in China via Pigeon Shanghai) in 2019 were 3.8x the 2018 figure. The QA56 was the first Pigeon brand product to be produced at Lansinoh’s factory.

Cleanser for nursing bottles and vegetables (Indonesia): Pigeon previously procured cleanser for nursing bottles and vegetables to be sold in Indonesia from its Thai factory, but shifted procurement to local suppliers in Indonesia. This improved price competitiveness and the company in 2019 sold more than 18x the number of units it did in 2018. It says it is considering exporting the product to Central and South America and the Near and Middle East in the future.

Japan

The decline in birth rate in Japan will negatively impact sales, but increased market share in strollers and skin care will be a factor in sales growth. In addition, the company will continue to launch relatively high margin premium products, which will increase the average unit price and contribute to increasing sales.

Key initiatives include achieving a top share of the stroller market (seventh medium-term plan target is 33.4% versus Q4 FY12/20 share of about 15%) and investing to enhance the skincare category. From FY12/22 onward, the company will develop new categories such as mother care including prenatal and postpartum care, technology-based FemTech, and products for men engaged in childrearing. According to the company, the combined market size of mother care and FemTech in Japan is approximately JPY60bn, and it intends to launch products for the market of approximately JPY30bn, excluding sanitary napkins and other products.

China

During the period covered by the medium-term business plan, the number of births in China is likely to decline by several percent each year, but the company expects the Chinese market scale to hold steady as economic growth means a higher ratio of households will have ample income to purchase Pigeon brand products. The company aims to achieve performance growth by enhancing the lineup of relatively high priced products based on research results.

Key initiatives include the aforementioned enhancement of the lineup of higher-priced premium products, realization of a new business model for its Ssence* line of new skincare products launched in June 2020, and founding of Shenzhen Creative Studio. In addition, Pigeon plans to launch nursing bottles suited to the characteristics of individual regions within China. The company says demand differs by region in terms of the material and shape of nursing bottles, so it hopes that product development conducted locally will help it capture regional demand.

*Pigeon launched Ssence, a skincare cream containing no preservatives, in June 2020. The selling price will be 2–3x that of conventional skincare products, so this product will mainly target affluent consumers. The company will only take orders via e-commerce sites and will distribute the product to consumers directly from its factory, without going through retail stores.

Since the COVID-19 outbreak began, the ratio of e-commerce sales has increased, especially in the China segment. The company believes it is easier for newcomers to gain market share in the context of e-commerce than in offline markets, as long as they are offering distinctive products. Under the revised medium-term plan, it says it intends to shorten the time from product planning to launch to better respond to market changes. In addition, it says it is conducting basic research into skincare in the China segment as it seeks to make its skincare products stand out from the competition.

Singapore

The company forecasts higher sales and profit on earnings growth in Indonesia and India, which have a relatively high annual number of births. Key initiatives include increasing production capacity by expanding the production facility in India and building up local procurement in emerging markets (Indonesia and India).

Pigeon plans to conduct the following efforts in the key markets of Indonesia and India.

Indonesia

As of February 2021, households that could purchase Pigeon brand products were only those in the top 10% in terms of annual income, but the company expects to increase the potential customer base by expanding its lineup of lower-priced products.

Pigeon aims to increase production capacity at its Indonesian factory. Previously, the Indonesia factory produced only relatively inexpensive nursing bottles, but in FY12/20 the company will revamp its production facilities to improve production capacity and make it possible to produce a full range of plastic products, including pacifiers and toddler cups. It plans to invest JPY1–2bn in this effort.

In FY12/20 the company acquired a certain share of the demand from middle class consumers for nursing bottles and nipples. From FY12/21, it plans to launch products with higher value-added to expand its share of the Indonesia market. During the period covered by its medium-term business plan, it aims to acquire a share of about 60% for nursing bottles and nipples. In terms of other products, the conventional lineup was relatively expensive. However, with the cooperation of local suppliers, the company plans to launch less expensive versions targeting the middle class.

India

Pigeon says that in India, as of February 2021, its product lineup targeted households with annual incomes in the top 10%, but it plans to increase its share of sales to middle-class households by enhancing its lineup of relatively inexpensive nursing bottles and nipples in particular.

The company plans to utilize the local factory and cooperate with local suppliers to lower CoGS per product and improve price competitiveness.

Lansinoh

The company plans to increase sales and profit primarily by expanding sales of breast pumps. In the Lansinoh business, it expects YoY growth in both sales and profit to accelerate from FY12/20 onward, as it expands the brand’s reach from breastfeeding to maternal health and steadily increases the number of product categories.

Key initiatives include entering the new category of prenatal and postpartum care products by leveraging its experience in providing pain-relieving solutions cultivated through its development of nipple cream. The company launched prenatal and postpartum care products in May 2021. It expects to expand the lineup of prenatal and postpartum care products to account for 4% of Lansinoh business sales. Moreover, it aims to establish the Lansinoh brand as the market leader in breast pumps (by conducting more clinical studies and developing hospital-use products).

Long-term outlook (roughly 10 years)

Looking over the longer term, by which the company means roughly 10 years starting in FY12/19, Pigeon aims to achieve annual sales of JPY200.0bn, OPM of 20.0%, and an ROE of 22.0% or higher.

Previously, the Pigeon brand was centered on Japan, China, and Singapore, while the Lansinoh brand was centered on North America, Europe, and China, so the only overlapping region was China. In the long term, the company aims to sell products for babies under the Pigeon brand and products for mothers under the Lansinoh brand, with both brands available in all regions. Using this approach, it aims to double sales (versus the FY12/19 figure) over roughly 10 years. General sales targets for 10 years from now are JPY80.0bn for the China business and JPY40.0bn each for the Japan, Singapore, and Lansinoh business.

Business

Business description

Performance by segment

Pigeon operates in four segments: Japan, China, Singapore, and Lansinoh. The Japan segment comprises three businesses: Baby Care, Health & Elder Care, and Childcare Service. Nursing bottles and nipples are its mainstay products, generating about 25% of sales (about 13% of Baby Care sales and about 48% of China segment sales) according to Shared Research estimates. Other main products are skincare products, baby wipes, strollers, breast pads, breast pumps, and maternity products.

Earnings by segment

(JPYmn)				FY01/18					FY01/18	FY01/19	FY12/19					FY12/19	FY12/20	FY12/21
Sales				102,563	Sales				102,563	104,747	100,017	Sales				100,017	99,380	93,080
	YoY			8.4%		YoY			8.4%	2.1%	-		YoY			-	-	-6.3%
	Domestic Baby & Mother Care			48,440		Domestic Baby & Mother Care			48,440	47,051	40,851		Japan			44,560	44,977	38,264
		YoY		5.0%			YoY		-	-2.9%	-			YoY		-	-	-14.9%
		% of sales		47.2%			% of sales		47.2%	44.9%	40.8%			% of sales		44.6%	45.3%	41.1%
		Baby Care		33,841			Baby Care		33,841	35,593	30,813			Baby Care		30,813	30,518	25,701
			YoY	6.3%				YoY	-	5.2%	-				YoY	-	-	-15.8%
		Child Care Service		7,541			Child Care Service		7,541	4,472	3,492			Child Care Service		3,492	3,592	3,504
			YoY	2.0%				YoY	-	-40.7%	-				YoY	-	-	-2.4%
		YoY		7,058			YoY		7,058	6,986	6,546			YoY		6,546	7,466	5,616
			YoY	2.3%				YoY	-	-1.0%	-				YoY	-	-	-24.8%
	Overseas (incl. China)			59,921		China			34,305	35,581	36,824		China			37,350	37,732	37,239
		YoY		11.8%			YoY		-	3.7%	-			YoY		-	-	-1.3%
		% of sales		58.4%			% of sales		33.4%	34.0%	36.8%			% of sales		37.3%	38.0%	40.0%
		Overseas (excl. China)		25,427		Singapore			10,286	12,133	11,482		Singapore			13,588	12,184	12,619
			YoY	10.3%			YoY		-	18.0%	-			YoY		-	-	3.6%
			% of sales	24.8%			% of sales		10.0%	11.6%	11.5%			% of sales		13.6%	12.3%	13.6%
		China		34,494		Lansinoh			12,523	12,753	13,213		Lansinoh			13,214	12,473	13,320
			YoY	13.0%			YoY		-	1.8%	-			YoY		-	-	6.8%
			% of sales	33.6%			% of sales		12.2%	12.2%	13.2%			% of sales		13.2%	12.6%	14.3%
	Other current assets			1,289		Other current assets			1,289	1,402	1,343		Other current assets			-	-	-
	Adjustments			-7,090		Adjustments			-4,284	-4,176	-3,700		Adjustments			-8,696	-7,986	-8,363

Operating profit				19,412	Operating profit				19,412	19,612	17,072	Operating profit				17,072	15,316	13,336
	YoY			21.2%		YoY			21.2%	1.0%	-		YoY			-	-	-12.9%
	Operating profit margin			18.9%		Operating profit margin			18.9%	18.7%	17.1%		Operating profit margin			17.1%	15.4%	14.3%
	Domestic Baby & Mother Care			6,614		Domestic Baby & Mother Care			6,614	6,618	5,132		Japan			4,084	3,008	2,065
		YoY		20.8%			YoY		-	0.1%	-22.5%			YoY		-	-	-31.3%
		Operating profit margin		13.7%			Operating profit margin		13.7%	14.1%	12.6%			Operating profit margin		9.2%	6.7%	5.4%
		% of sales		17.5%			% of sales		29.8%	28.9%	24.0%			% of sales		19.9%	16.2%	12.4%
		Domestic Baby & Mother Care		5,928			Domestic Baby & Mother Care		5,928	6,096	4,697			Baby Care		4,697	3,210	2,359
			YoY	23.0%				YoY	-	2.8%	-				YoY	-	-	-26.5%
			Operating profit margin	17.5%				Operating profit margin	17.5%	17.1%	15.2%				Operating profit margin	15.2%	10.5%	9.2%
		Child Care Service		218			Child Care Service		218	169	49			Child Care Service		49	109	159
			YoY	3.3%				YoY	-	-22.5%	-				YoY	-	-	45.9%
		YoY		468			YoY		468	353	386			YoY		386	690	504
			YoY	5.2%				YoY	-	-24.6%	-				YoY	-	-	-27.0%
	Overseas (incl. China)			15,557		China			11,514	11,972	12,483		China			12,685	12,600	11,792
		YoY		17.7%			YoY		-	4.0%	-			YoY		-	-	-6.4%
		Operating profit margin		26.0%			Operating profit margin		33.6%	33.6%	33.9%			Operating profit margin		34.0%	33.4%	31.7%
		% of sales		69.8%			% of sales		51.6%	51.9%	58.1%			% of sales		61.7%	67.7%	70.9%
		Overseas (excl. China)		5,841		Singapore			2,488	2,744	2,007		Singapore			1,965	1,647	1,811
			YoY	20.2%			YoY		-	10.3%	-26.9%			YoY		-	-	10.0%
			Operating profit margin	23.0%			Operating profit margin		24.2%	22.6%	17.5%			Operating profit margin		14.5%	13.5%	14.4%
			% of sales	26.2%			% of sales		11.2%	11.9%	9.3%			% of sales		9.6%	8.8%	10.9%
		China		9,716		Lansinoh			1,553	1,576	1,784		Lansinoh			1,823	1,370	953
			YoY	16.3%			YoY		-	1.5%	13.2%			YoY		-	-	-30.4%
			Operating profit margin	28.2%			Operating profit margin		12.4%	12.4%	13.5%			Operating profit margin		13.8%	11.0%	7.2%
			% of sales	43.6%			% of sales		7.0%	6.8%	8.3%			% of sales		8.9%	7.4%	5.7%
	Other current assets			126		Other current assets			126	142	72		Other current assets			-	-	-
	Adjustments			-2,887		Adjustments			-2,885	-3,442	-4,408		Adjustments			-3,486	-3,310	-3,286

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Starting FY01/19, Pigeon split its Overseas business and separated the Lansinoh brand business from the China business, thereby creating the Singapore business, which handles Pigeon brand products mainly in ASEAN and Middle East countries, and the Lansinoh business, which handles Lansinoh brand products mainly in the US and Europe.
In April 2019, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that had fiscal years ending in January.
Starting FY12/20, the company reports results for four segments: Japan, China, Singapore, and Lansinoh. The company’s Japan segment includes its Domestic Baby & Mother Care (now "Baby Care"), Child Care Service, and Health & Elder Care businesses. Also included under the Japan segment are the group’s domestic manufacturing subsidiaries (previously reported under the Other business) that produce and sell products to companies outside the Pigeon group.
In FY12/2021, the company changed the revenue recognition criteria for its Japan and China segments. Under the previous standard, rebates, incentives, etc. were recorded as SG&A expenses, but from FY12/21 onward, they will be deducted from sales. YoY changes for FY12/21 are percentages of change relative to FY12/20 results based on the previous standard.

Japan (41.1% of total sales in FY12/21, 12.4% of OP before adjustments)

Japan segment performance

(JPYmn)			FY12/19	FY12/20	FY12/21
			(12mo eqv.)	Cons.	Cons.
Sales			48,421	44,977	38,264
	YoY		-	-7.1%	-14.9%
	External sales			42,175	35,313
		YoY		-	-16.3%
	Internal sales/transfer			2,801	2,950
Gross profit			19,370	17,770	13,120
	YoY		-	-8.3%	-26.2%
	Gross profit margin		40.0%	39.5%	34.3%
SG&A expenses			15,059	14,762	11,055
	YoY		-	-2.0%	-25.1%
	SG&A ratio		31.1%	32.8%	28.9%
Operating profit			4,311	3,008	2,065
	YoY		-	-30.2%	-31.3%
	Operating profit margin		8.9%	6.7%	5.4%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Gross profit and SG&A expenses are calculated by Shared Research based on company data.
In FY12/19, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that had fiscal years ending in January.
The above figures for FY12/19 (12 mo. eqv.) have been calculated on a 12-month equivalent basis (using the figures from January through December 2019) for the parent company and all domestic subsidiaries; these 12-month equivalent figures are shown for comparison purposes only.
Starting FY12/20, the company has reported results for four segments: Japan, China, Singapore, and Lansinoh. The Japan segment includes its Domestic Baby & Mother Care (now "Baby Care"), Child Care Service, and Health & Elder Care businesses. Also included under the Japan segment are the group’s domestic manufacturing subsidiaries (previously reported under the Other business) that produce and sell products to companies outside the Pigeon group. The figures shown for FY12/19 are reference figures based on the new segmentation.
In FY12/21, the company changed the revenue recognition criteria for its Japan and China segments. Under the previous standard, rebates, incentives, etc. were recorded as SG&A expenses, but from FY12/21 onward, they will be deducted from sales. YoY changes for FY12/21 are percentages of change relative to the FY12/20 results based on previous standard.

The Japan segment comprises Baby Care (products for infants), Child Care Service (nursery school operations), and Health & Elder Care (healthcare products and products for seniors). The bulk of segment sales and profit are generated by the Baby Care business.

Baby Care (27.6% of total sales in FY12/21, 14.2% of OP before adjustments)

Baby Care earnings

(JPYmn)		FY01/18	FY01/19	FY12/19	FY12/20	FY12/21
		Cons.	Cons.	(12mo eqv.)	Cons.	Cons.
Sales		33,841	35,593	33,205	30,518	25,701
	YoY	6.3%	5.2%	-	-8.1%	-15.8%
Gross profit		16,550	17,300	16,270	14,280	10,380
	YoY	10.6%	4.5%	-	-12.2%	-27.3%
	Gross profit margin	48.9%	48.6%	49.0%	46.8%	40.4%
SG&A expenses		10,620	11,200	11,210	11,070	8,020
	YoY	4.7%	5.5%	-	-1.2%	-27.6%
	SG&A ratio	31.4%	31.5%	33.8%	36.3%	31.2%
Operating profit		5,928	6,096	5,063	3,210	2,359
	YoY	23.0%	2.8%	-	-36.6%	-26.5%
	Operating profit margin	17.5%	17.1%	15.2%	10.5%	9.2%

Pigeon’s core products are nursing bottles and nipples and its main targets are parents of babies 0–24 months old. These two product types represented approximately 12.6% of Baby Care sales in FY12/21 (Shared Research understands the number to be about 25% of total consolidated sales, including overseas sales). Apart from nursing bottles and nipples, the main product lineup includes skincare goods (18.3% of Baby Care segment sales in FY12/21), food and drink (16.8%), baby wipes (11.3%), and strollers and baby slings (3.7%).

The product cycle is two to three years for baby food and about five years for other products. The product-renewal cycle offers a chance to secure shelf space and negotiate with store owners. R&D expenses tend to be 2–3% of consolidated sales, and in FY12/21 were 3.9%. Pigeon products enjoy exceptional support of its Japanese consumers as illustrated by the following market share chart. The strong brand allows the company to maintain premium pricing and avoid discounting. This not only helps to perpetuate the brand image but contributes to high profitability.

Baby Care products

Source: Company data

Market share and position of mainstay products (for the month of January 2020)

Source: Shared Research based on company data

Pigeon makes about 60% of its products in house. The company did not have its own manufacturing facilities till the mid-80s when it established Pigeon Home Products Corp. in Shizuoka Prefecture. Pigeon opened its first overseas factory in Thailand in 1996. As of FY01/13, the in-house manufacturing is carried out by several domestic and overseas manufacturing subsidiaries. The remaining 40% of the products are sourced from over 100 partner manufacturers.

In general, the company’s products sold wholesale to distributors are sold at drugstores and baby goods retailers. Main clients are major drugstore chains like drugstores of Tsuruha Holdings, Inc. (TSE1: 3391), Matsumotokiyoshi Holdings Co., Ltd. (TSE1: 3088), Sundrug Co., Ltd. (TSE1: 9989), Sugi Holdings Co., Ltd. (TSE1: 7649), and Cosmos Pharmaceutical Corporation (TSE1: 3349), and baby goods retailers including Nishimatsuya Chain Co., Ltd. (TSE1: 7545) and Akachan Honpo. The company has three-way sales negotiations with a retailer and distributor in attendance. As an exception to this practice, Pigeon deals directly with Toys “R” Us and Akachan Honpo.

The company also sells online, at third-party e-commerce sites such as Amazon.co.jp, and in FY12/21 sales via such e-commerce sites (wholesale basis, excluding cross-border e-commerce) accounted for 9% of total sales (9% in FY12/20).

Child Care Service (3.8% of total sales in FY12/21, 1.0% of OP before adjustments)

Child Care Service earnings

(JPYmn)		FY01/18	FY01/19	FY12/19	FY12/20	FY12/21
		Cons.	Cons.	(12mo eqv.)	Cons.	Cons.
Sales		7,541	4,472	3,816	3,592	3,504
	YoY	2.0%	-40.7%	-	-5.9%	-2.4%
Gross profit		780	630	500	520	560
	YoY	0.0%	-19.2%	-	4.0%	7.7%
	Gross profit margin	10.4%	14.0%	13.0%	14.5%	16.1%
SG&A expenses		560	460	420	410	400
	YoY	-1.8%	-17.9%	-	-2.4%	-2.4%
	SG&A ratio	7.4%	10.3%	11.0%	11.4%	11.4%
Operating profit		218	169	77	109	159
	YoY	3.3%	-22.5%	-	41.6%	45.9%
	Operating profit margin	2.9%	3.8%	2.0%	3.0%	4.5%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
GPM and SG&A expenses are calculated by Shared Research based on company data.
In FY12/19, the company changed its fiscal year-end from January to December. The change resulted in an 11-month accounting period (February to December 2019) during the transitional year (FY12/19) for companies included in consolidated results that had fiscal years ending in January.
The above figures for FY12/19 (12 mo. eqv.) have been calculated on a 12-month equivalent basis (using the figures from January through December 2019) for the parent company and all domestic subsidiaries; these 12-month equivalent figures are shown for comparison purposes only.

This business operates licensed and certified childcare centers, including on-site company childcare centers, contracted centers, Kids World preschool, and other facilities. As of end-FY12/21, the business operated 64 sites.

A “licensed childcare center” is one approved under the provisions of the Child Welfare Act, which cover standards (e.g., facility size, number of caregivers, kitchen facilities, disaster management, and hygiene management) set by the national government and approved by the prefectural governor. In contrast, a “certified childcare center” is particular to Tokyo. The Tokyo Metropolitan Government felt that the licensed centers were not likely to fill the needs of citizens of Tokyo, because many of the requirements for “licensed” centers were not applicable to large cities (in densely populated Japanese cities, it is fairly difficult to secure enough space meeting the national standard), and some centers do not accept babies under one-year-old. The local government set its own standards that match the characteristics of Tokyo, and established its own centers and designed a system to cope with diversified childcare needs, through promoting competition among service providers by soliciting a large number of new entrants.

Pigeon hires its own childcare workers and cooking staff, providing training depending on the type of employment and services. Childcare staff receives training at Pigeon Heartner College to ensure safe and reliable care. Pigeon Hearts Corporation, a group company, offers licensed and certified childcare facilities, as well as in-house childcare services for companies. Kids World, a childcare center, offers childcare, English classes, and preschool activities and is primarily a franchise operation that generates royalty revenues for Pigeon.

Health & Elder Care (6.0% of total sales in FY12/21, 3.0% of OP before adjustments)

Health & Elder Care earnings

(JPYmn)		FY01/18	FY01/19	FY12/19	FY12/20	FY12/21
		Cons.	Cons.	(12mo eqv.)	Cons.	Cons.
Sales		7,058	6,986	7,094	7,466	5,616
	YoY	2.3%	-1.0%	-	5.2%	-24.8%
Gross profit		2,210	2,260	2,230	2,490	1,710
	YoY	1.8%	2.3%	-	11.7%	-31.3%
	Gross profit margin	31.3%	32.4%	31.5%	33.4%	30.4%
SG&A expenses		1,740	1,910	1,820	1,800	1,210
	YoY	0.6%	9.8%	-	-1.1%	-32.8%
	SG&A ratio	24.7%	27.3%	25.7%	24.1%	21.5%
Operating profit		468	353	412	690	504
	YoY	5.2%	-24.6%	-	67.5%	-27.0%
	Operating profit margin	6.6%	5.1%	5.8%	9.2%	9.0%

This business offers two brands: Habinurse (nursing products) and Recoup (for active seniors). These brands cover products and services related to toilet use, bathing, hygiene, meals, sleeping, and mobility. Pigeon plans to use its expertise and quality control cultivated though its development of baby products to fulfill unmet needs in the senior market.

Health & Elder Care products

Pro Fit Care series

Seiketsu Care series

Pigeon Manaka Day Service “San San”

Source: Shared Research based on company data

Pigeon Tahira Corporation sells products in this segment to retail shops and care facilities. In 1991, Tahira (now Pigeon Tahira) moved away from direct sales and introduced a distributor system (a first in the Japanese elder care industry). It has been a Pigeon subsidiary since 2004. The subsidiary began to strengthen sales activities at elder care facilities in FY01/14, and in FY01/15 it combined its salesforce with that of Pigeon’s Health & Elder Care segment, in a bid to enhance its marketing capacity and efficiency.

Pigeon Manaka Corporation provides in-home elder care support services and products in and around its home prefecture of Tochigi. The group offers house call services, in-home bathing assistance, daycare, assisting devices, home renovation, and care consultation. Pigeon Manaka hires care workers with level 1 and 2 helper qualifications and standard driver’s licenses.

In August 2011, it opened centers in Ohira-machi and Kanuma City in Tochigi Prefecture, offering home-visit elder care and in-home bathing services. In December 2011, it also opened adult daycare center “San San” in Tochigi City (on the premises of Pigeon Manaka’s head office) where clients needing elder care or assistance can go to receive help with bathing and meals (including associated elder care services) as well as advice, health checks, help with everyday living, and functional training.

China segment (40.0% of total sales in FY12/21, 70.9% of OP before adjustments)

China segment earnings

(JPYmn)				FY01/18		(JPYmn)				FY01/18	FY01/19	FY12/19	FY12/20	FY12/21
				Cons.						Cons.	Cons.	(12mo eqv.)	Cons.	Cons.
Sales				34,494		Sales