Pigeon 7956
ピジョン
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2021-11-05
2021-11-05
2021-09-30
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Summary
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 represent approximately half of sales in the China segment, which had the highest share of total operating profit among the company’s four segments.
Household Products
Key dates
2013-01-25
Coverage initiation
Executive summary
Business overview
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 represent 49.4% of sales in the China segment, which had the highest share of total operating profit among the company’s four segments, with 67.7% of operating profit before adjustments in FY12/20 (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 (45.3% of FY12/20 sales and 16.2% of operating profit), China (38.0%, 67.7%), Singapore (12.3%, 8.8%), and Lansinoh (12.6%, 7.4%).
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 63% of sales (on a sell-out basis) in FY12/20. A high ratio of sales (49.4% in FY12/20) comes from nursing bottles and nipples, the product categories with the highest value-added, attributing to the segment’s higher OPM (33.4% in FY12/20) compared to the other segments.
In the Singapore business, the company manufactures products for babies and mothers for sale in ASEAN 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 (30.0% in FY12/20), but in the medium term the company aims to expand sales of breast pumps (19.6%) to grow its earnings. North America accounts for about 70% of segment sales.
Trends and outlook
In FY12/20, Pigeon reported consolidated sales of JPY99.4bn (JPY100.0bn in FY12/19), operating profit of JPY15.3bn (JPY17.1bn), recurring profit of JPY16.1bn (JPY17.3bn), and net income attributable to owners of the parent of JPY10.6bn (JPY11.5bn). FY12/19 included only 11 months’ worth of results for the parent and all domestic subsidiaries due to the change in the fiscal year end.
In November 2021, the company revised its full-year FY12/21 earnings forecasts. The company lowered its sales forecast JPY6.5bn to JPY94.3bn (-5.1% YoY), operating profit forecast JPY3.3bn to JPY13.2bn (-13.8% YoY), recurring profit forecast JPY2.1bn to JPY14.6bn (-9.4% YoY), and net income attributable to owners of the parent forecast JPY2.0bn to JPY9.1bn (-14.5% YoY). In the Japan and Singapore businesses, the impact of the COVID-19 pandemic is lasting longer than the company expected, resulting in sales and profits falling short of the company's previous forecasts.
In February 2021, the company revised its seventh medium-term business plan, covering the three-year period from FY12/20 through FY12/22 (first announced in February 2020). For the final year of the new plan, the company is now targeting consolidated sales of JPY114.5bn (CAGR from FY12/20 onward of 7.3%), operating profit of JPY18.6bn (10.2%), and net income attributable to owners of the parent of JPY12.3bn (7.5%) according to the conventional revenue recognition standards without the impact of the aforementioned standards change. The earnings targets assume margin improvement, with GPM rising from 50.2% in FY12/20 to 52.1% in FY12/22, and OPM rising from 15.4% in FY12/20 to 16.2% in FY12/22.
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
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.
Recent updates
Revised its earnings forecasts
On November 4, 2021, Pigeon Corp. revised its earnings forecasts.
Revised FY12/21 earnings forecasts
Reasons for the revisions
Although sales in the China and Lansinoh businesses were up YoY thanks to forex and other factors, the company lowered its full-year sales forecast as it expects sales in the Japan and Singapore businesses to fall short of its previous forecasts. The Japan business was impacted by consumers refraining from going out and continuing to reduce the frequency of their purchases as a result of factors such as the government declaring a state of emergency for the fourth time. On the other hand, the Singapore business continued to be affected by reduced consumption and restraints being placed on corporate activity due to the renewed expansion of COVID-19 cases in India and the ASEAN community.
Reduced gross profit due to the drop in sales, as well as an increase in the SG&A to sales ratio resulted in earnings from the operating profit line down falling short of the company's previous forecast. SG&A expenses were impacted by an uptick in transport costs due to disruptions in global logistics.
Trends and outlook
Quarterly trends and results
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.
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.
Note: Figures may differ from company materials due to differences in rounding methods.
Results for Cumulative Q3 FY12/21
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 medium-term plan, the company seeks to implement three core strategies (brand strategy, core product strategy, and regional strategy). In cumulative Q3 FY12/21, the second year of the plan, the company rolled out a number of measures in line with its core strategies.
In cumulative Q3 FY12/21, sales declined YoY due to the continuing impact of the COVID-19 crisis and application of new accounting rules regarding revenue recognition. Profits were down YoY at all levels because of lower sales and spending on R&D and advertising and promotions.
The company began applying Accounting Standards Board of Japan (ASBJ) Statement No. 29 Accounting Standard for Revenue Recognition from the start of FY12/21. If this accounting standard was applied to the results of the previous year, cumulative Q3 sales would be down 1.0% YoY and operating profit down 16.3% YoY. Operating profit fell YoY on a JPY330mn YoY decline in gross profit due to the downturn in sales and a JPY1.7bn YoY increase in SG&A expenses. The increase in SG&A expenses breaks down to increases of JPY960mn in sales promotion and advertising expenses for the launch of new products and the expansion of sales, JPY480mn in personnel expenses, and JPY200mn in R&D expenses.
Cumulative Q3 FY12/21 results reflect an average exchange rate of JPY108.54/USD and JPY16.77/CNY used to translate the financial statements of major overseas subsidiaries into yen; this compares with JPY107.55/USD and JPY15.37/CNY in cumulative Q3 FY12/20.
From the start of FY12/21, the company applied the revised accounting standard for revenue recognition to the Japan and China businesses.
Japan
Sales declined due to the application of the revised accounting standard for revenue recognition..
The Japan business comprises Domestic Baby & Mother Care, Health & Elder Care, and Child Care Service businesses. Year-on-year comparisons for each business reflect the percentage increase or decrease when the accounting standard now in use is applied to results for the same period in the previous year.
Domestic Baby & Mother Care sales were down 5.4% YoY. Sales dropped in reaction to the extraordinary demand for wipes and other consumables in the same period last year. The sales decline was also attributed to inbound demand disappearing, an end to extraordinary demand for wet tissues and cleaning and disinfection-related products, and the national resurgence in the COVID-19 pandemic. However, sales of breast pumps (a focus product) were brisk.
In this segment, the company in July 2021 launched advance sales at some stores of Wuggy, a bouncer that claims to brighten life at home for families and foster a circle of happiness. In September 2021, it launched BASIS Polka Dot Denim, the fifth product in the popular company-limited series of BASIS strollers.
As part of its direct communication initiatives, the company livestreamed via social media an event describing features of its products, which attracted more than 5,000 viewers. It also had more than 1,300 participants in a breastfeeding webinar Oppai College, targeting women close to giving birth. In addition, to ease the concerns of mothers and fathers during the ongoing pandemic, the company beefed up support content it provides via social networking services and its own websites. The company also made improvements to its Pigeon.info website, which provides support for women on matters including pregnancy, childbirth, and childcare.
Health & Elder Care sales were down 15.2% YoY, falling as the one-time spike in demand for some products a year earlier eased and the company revised its product lineup. In addition to upgrading the company's oral care series of products into the "Clean Smile Series" and launching related product sales in February 2021, the company in August 2021 launched Ekitai Toromi Kakeru Dake, a food thickener that allows users to enjoy their meals without sacrificing flavor or appearance. Sales after the launch expanded steadily. GPM was up 0.5pp YoY on an improvement in the product mix.
In Child Care Services, sales were down 2.1% YoY. After closing one facility in Q3, the company now operates a total of 63 childcare facilities.
Segment profit fell YoY due to lower sales.
China
In September 2021, the company upgraded its “Bonyu-jikkan” lineup of nursing bottles, which according to its own research holds the largest market share for the category in Japan and China. The products were developed using more than 60 years of research and the upgraded items were launched first in China. Sales of skincare products were up 18% YoY on a local currency basis thanks to the upgrades to existing products and the launch of a new series of products containing ingredients from hot springs.
Segment profit declined YoY due to changes in the sales composition ratio and spending to strengthen sales promotions in the e-commerce business, which is expanding at an accelerated pace. The e-commerce ratio was up 4.0pp YoY.
The company sought to stimulate communication with consumers through social media and livestreams, provided childcare support information amid the COVID-19 pandemic, promoted instore sales and delivery of new products, and continued to strengthen activities at general and maternity hospitals to increase contact points with customers.
Singapore
Conditions remain severe in the ASEAN region and India due to a resurgence of the COVID-19 pandemic, with intermittent restrictions on corporate activities and weak consumption. The business also saw reduced shipments of products produced in the Thai factory destined for Japan and a slowdown in exports to the Middle East. On the other hand, some regions showed signs of recovery, with domestic sales in India up 14% YoY (in local currency terms) and sales in Malaysia on the same basis up 7% YoY. On the products front, in August 2021 the company launched the new Botanical Skincare series it has been focusing on for some time in Singapore and Malaysia. Advertising and promotional expenses increased due to marketing activities in various countries.
Lansinoh
Despite product arrival and shipment delays due to logistics disruptions, sales in North America increased on a local currency basis by 0.4% YoY thanks to firm sales of nipple creams and prenatal and postnatal care products, a new product category.
Segment profit was down YoY. GPM fell 1.7pp YoY due to a jump in procurement and logistics costs included in CoGS. In addition to the impact of a sharp increase in transportation costs, which are included in SG&A expenses, SG&A expenses also rose because of proactive investment in R&D among other SG&A items.
Company forecast
Notes: Figures may differ from company materials due to differences in rounding methods.
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 i
In November 2021, the company revised its full-year FY12/21 earnings forecasts. The company lowered its sales forecast JPY6.5bn to JPY94.3bn (-5.1% YoY), operating profit forecast JPY3.3bn to JPY13.2bn (-13.8% YoY), recurring profit forecast JPY2.1bn to JPY14.6bn (-9.4% YoY), and net income attributable to owners of the parent forecast JPY2.0bn to JPY9.1bn (-14.5% YoY).
Although sales in the China and Lansinoh businesses were up YoY thanks to forex and other factors, the company lowered its full-year sales forecast as it expects sales in the Japan and Singapore businesses to fall short of its previous forecasts. The Japan business was impacted by consumers refraining from going out and continuing to reduce the frequency of their purchases as a result of factors such as the government declaring a state of emergency for the fourth time. On the other hand, the Singapore business continued to feel the effects from reduced consumption and restraints being placed on corporate activity due to the renewed expansion of COVID-19 cases in India and the ASEAN community.
Reduced gross profit due to the drop in sales, as well as an increase in the SG&A to sales ratio resulted in earnings from the operating profit line down falling short of the company's previous forecast. SG&A expenses were impacted by an uptick in transport costs due to disruptions in global logistics.
The following section reflects the company's FY12/21 forecast prior to the recent revision. Shared Research intends to update the section following interviews with company representatives.
Notes: Figures may differ from company materials due to differences in rounding methods.
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.
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.
Although a change in revenue recognition standards (see following explanation) will have a negative impact on sales, Pigeon still expects higher sales and profit YoY due to the launch in the China business of new nursing bottles products and a skincare series based on a new concept.
In FY12/21, Pigeon projects R&D expenses (total costs for R&D activity, including personnel costs) of JPY3.9bn (3.8% of total sales, +24.3% YoY). The medium-term business plan indicates the company’s intention to enhance R&D for core products (nursing bottles, nipples, breast pumps, skincare, and oral care) and in the medium term to spend about 3% of sales on R&D for new products (in FY12/20, it spent JPY3.1bn, which amounted to 3.1% of sales).
In FY12/21, the company is changing the revenue recognition standards it uses for the Japan and China businesses. Under the previous standards, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales. The change of standards is likely to reduce sales and SG&A expenses by some JPY3.5bn and JPY3.3bn respectively in the Japan business and by about JPY2.2bn each in the China business.
Based on the conventional standards, the company’s FY12/21 earnings forecast would have called for sales of JPY106.5bn (+7.2% YoY) and operating profit of JPY16.7bn (+9.0% YoY).
Pigeon projects average exchange rates of JPY104.00/USD and JPY16.00/CNY for translating the financial statements of overseas consolidated subsidiaries into yen; this compares with JPY106.77/USD and JPY15.47/CNY in FY12/20.
The company’s projections by segment are as follows. It expects the COVID-19 pandemic to have a lingering impact on its businesses in the various regions in 1H, but little impact from 2H onward. The company says the pandemic has little impact on demand for its products in any case.
Japan
Pigeon projects sales of JPY41.5bn (-7.7％ YoY) and operating profit of JPY2.9bn (-5.3% YoY).
As mentioned, the change in revenue recognition standards will reduce both sales and SG&A expenses. Based on the conventional standards, the company expects sales of JPY45.0bn (+0.1% YoY) and operating profit of JPY3.1bn (+1.4% YoY).
By business in the Japan segment, Pigeon projects sales (conventional standards) of JPY31.6bn (+3.4% YoY) for Domestic Baby & Mother Care, JPY3.6bn (-0.3% YoY) for Child Care Service, and JPY5.9bn (-21.3% YoY) for Health & Elder Care.
Domestic Baby & Mother Care: Pigeon expects domestic births to decline by about 10% YoY and the market for the Domestic Baby & Mother Care product line to fall by about 6% YoY, but sales to rise nonetheless on expanded sales of strollers and the launch of new products. In FY12/20, sales to inbound tourists were almost nonexistent due to the pandemic, and the company does not currently anticipate any recovery in this area in FY12/21.
Sales of strollers were subdued in 1H FY12/20 due to the pandemic, but began recovering in Q3 FY12/20 and were up 70% YoY in Q4. Pigeon expects the recovery trend in stroller sales to continue in FY12/21, giving a YoY sales boost of roughly JPY500mn.
In terms of new products, the company plans to concentrate on developing and selling premium products with relatively high selling prices. In FY12/21, it has plans to launch new products including magmag coron (a training mug that allows infants to practice drinking on their own, starting from JPY1,430 including tax) and premium extra thick baby wipes (JPY1,208 including tax for six 50-sheet packs).
Health & Elder Care: In this business, Pigeon has previously purchased products from other companies for resale at relatively low margins. However, in FY12/21, it plans to discontinue such sales, which will result in a YoY drop in sales for this business.
Based on the conventional standards, the company expects GPM of 40.3% (+0.8pp YoY), with the improvement realized by its halting of sales of other companies relatively low margin products for elder care. It expects operating profit to increase YoY on higher gross profit and projects SG&A expenses of JPY15.1bn (+2.2% YoY) and an SG&A expenses ratio of 33.5% (+0.8pp YoY). The higher SG&A expenses ratio will be due to the facts that Pigeon plans sales promotions for strollers, a new product category, and that it expects to return sales promotion spending in the Health & Elder Care business to the level it was at prior to the pandemic (after keeping such spending in check during FY12/20).
China
Pigeon forecasts sales of JPY42.0bn (+11.3% YoY) and operating profit of JPY14.3bn (+13.1% YoY).
As in the Japan business, the change in revenue recognition standards will reduce both sales and SG&A expenses YoY. Based on the conventional standards, the company projects sales of JPY44.2bn (+17.1% YoY) and operating profit of JPY14.3bn (+13.1% YoY).
Pigeon projects an increase in sales based on the conventional standards due to the launch of new nursing bottle products in fall 2021, the launch of a new skincare series, and a change in the handling of Central and South America operations. In FY12/21, the company plans to launch at least 80 items centered on core products as determined by the medium-term business plan (nursing bottles, nipples, breast pumps, skincare, and oral care). In China, demand differs by region in terms of the material and shape of nursing bottles, so it says it aims to develop and launch products in a more localized manner to capture regional demand. Central and South America business (annual sales of roughly JPY400mn) was included in the Lansinoh segment through FY12/20, but Pigeon transferred it to the China business in FY12/21.
In addition, the China business is preparing to sell Pigeon brand products in the Canada market and on Amazon in the US. The company says it has already concluded distributor contracts for the Canada market, but as of March 2021 has yet to begin shipping products because of the ongoing impact of the COVID-19 pandemic. It plans to begin selling products on Amazon in the US starting in October 2021 or later in 2022
Pigeon projects GPM of 56.0% (+1.7pp YoY), with the expectation of higher ratios of e-commerce sales and sales of nursing bottles and nipples, all of which have relatively high margins. It expects operating profit to increase YoY on higher gross profit. Although GPM is set to rise, OPM is likely to slip 1.2pp lower YoY. As in FY12/20, the company expects the higher ratio of e commerce sales to be accompanied by increases in sales promotion and logistics costs, resulting in higher SG&A expenses.
Singapore
The company expects sales of JPY12.9bn (+5.9% YoY) and operating profit of JPY1.8bn (+6.3% YoY).
In FY12/20, sales were weak due to the pandemic. Although some impact remains as of the beginning of FY12/21, Pigeon expects the segment to recover during the fiscal year, leading to double-digit sales growth in Indonesia, Malaysia, and India. It plans to add new designs for nursing bottles targeting middle-class customers and to launch at least 70 items centered on core products (nursing bottles, nipples, breast pumps, skincare, and oral care).
The company expects gross profit to increase YoY on higher sales, while GPM remains flat YoY at 38.4%. In FY12/20, sales to inbound tourists in the Japan business were almost nonexistent, so the Thai subsidiary’s factories were operating at well below capacity, and this weighed on GPM. Pigeon is not anticipating recovery in inbound demand in the Japan business in FY12/21, so capacity utilization at the Thai factories will remain low. It expects operating profit to increase on higher gross profit, despite an increase in SG&A expenses to JPY3.2bn (+5.6% YoY).
Lansinoh
The company expects sales of JPY12.8bn (+2.6% YoY) and operating profit of JPY1.4bn (+2.2% YoY).
It expects the aforementioned transfer of operations in Central and South America (annual sales of roughly JPY400mn) to the China segment to have a negative impact on Lansinoh segment sales, on top of which there is likely to be intensified price competition in regard to single-use products such as breast pads and breast milk storage bags. Nevertheless, Pigeon aims to achieve sales growth by concentrating on sales of mainstay products including nipple cream, and of breast pumps. In addition, leveraging its experience in providing pain relief cultivated through its development of nipple cream and other products, the company will enter the new category of “postpartum self-care.” It plans to launch seven postpartum self-care products in May 2021.
Pigeon expects GPM of 57.0% (+0.1pp YoY). Sales promotion expenses will increase in preparation for entry into a new product category, but it still aims for an increase in operating profit on higher sales.
Dividends
The company aims to raise the dividend amount YoY and achieve a total shareholder returns ratio of about 55%. In FY12/21, it plans to pay an interim dividend of JPY37 per share (+JPY1 YoY) and a year-end dividend of JPY37 per share (+JPY1 YoY), for a total of JPY74 per share (+JPY2 YoY; payout ratio of 79.8%).
Historical forecast accuracy
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 new plan, the company is now targeting consolidated sales of JPY114.5bn (CAGR from FY12/20 onward of 7.3%), operating profit of JPY18.6bn (10.2%), and net income attributable to owners of the parent of JPY12.3bn (7.5%). The earnings targets assume margin improvement, with GPM rising from 50.2% in FY12/20 to 52.1% in FY12/22, and OPM rising from 15.4% in FY12/20 to 16.2% in FY12/22.
Note: Figures may differ from those appearing in company materials due to differences in rounding methods.
Note: 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 have fiscal years ending in January. The above figures for FY12/19 have been calculated on a 12-month equivalent basis (using 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.
Note: In FY12/21, the company is changing the revenue recognition standards it uses for the Japan and China businesses. Under the previous standards, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales.
Note: Figures may differ from those appearing in company materials due to differences in rounding methods.
Note: With Pigeon having moved its fiscal year-end from January to December, FY12/19 was a transition period that included only 11 months’ worth of results (February 2019 through December 2019) for the parent company and all domestic subsidiaries. The above figures for FY12/19 have been calculated on a 12-month equivalent basis (using the figures from January 2019 through December 2019) and are for comparison purposes only.
Note: In FY12/21, the company is changing the revenue recognition standards it uses for the Japan and China businesses. Under the previous standards, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales.
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.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: With Pigeon having moved its fiscal year-end from January to December, FY12/19 was a transition period that included only 11 months’ worth of results (February through December 2019) for the parent company and all domestic subsidiaries. The above figures for FY12/19 have been calculated on a 12-month equivalent basis (using the figures from January through December 2019) for comparison purposes only.
Note: In FY12/21, the company is changing the revenue recognition standards it uses for the Japan and China businesses. Under the previous standards, it booked rebates and incentives under SG&A expenses, but from FY12/21 is deducting them from sales.
Japan
Pigeon targets FY12/22 sales (based on conventional standards) of JPY46.6bn (CAGR of 1.8% from FY12/20 to FY12/22) and operating profit of JPY3.5bn (CAGR of 7.1%).
The decline in birth rate in Japan will negatively impact sales, but Pigeon aims to maintain sales growth (based on conventional standards) by increasing its market share for strollers and skincare products. In addition, it will continue to launch relatively high margin premium products, which will increase the average unit price and contribute to increasing sales. Pigeon expects operating profit to rise 1.4% YoY in FY12/21 and 13.1% YoY in FY12/22. In FY12/20, it curbed its sales promotions in light of the pandemic and so expects an increase in expenses with the removal of that curb in FY12/21, and therefore a rise in operating profit of just 1.4% YoY. In FY12/22, it intends to keep SG&A expenses under control and increase the ratio of products with relatively high unit prices, thereby increasing YoY operating profit growth. It assumes there will be no sales to inbound tourists during the period covered by the seventh medium-term plan.
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. In terms of progress during FY12/20, Pigeon launched the premium stroller model nautR (JPY79,750 including tax) in October 2020. The nautR is the company’s first stroller to use department stores as a sales channel.
China
Pigeon targets FY12/22 sales (conventional standards) of JPY48.3bn (CAGR of 13.1% from FY12/20 to FY12/22) and operating profit of JPY15.4bn (CAGR of 10.6%).
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 forecasts higher sales and profit as it enhances its lineup of higher-priced premium 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.
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
Pigeon targets FY12/22 sales of JPY14.3bn (CAGR of 8.3% from FY12/20 to FY12/22) and operating profit of JPY1.8bn (CAGR of 5.7%).
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).
The medium-term plan as revised in February 2021 assumes no sales to inbound tourists in the Japan segment, so the Thai factories will be operating below capacity and OPM will be just 12.9% in FY12/22 (versus 16.7% according the plan before revision).
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
Pigeon targets FY12/22 sales of JPY14.0bn (CAGR of 5.9% from FY12/20 to FY12/22) and operating profit of JPY1.7bn (CAGR of 11.4%).
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 “postpartum self-care” by leveraging its experience in providing solutions to relieve pain cultivated through its development of nipple cream among others. It plans to launch seven postpartum self-care products in May 2021. In addition, it aims to establish the 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
Pigeon operates four segments: Japan, China, Singapore, and Lansinoh. The Japan segment comprises three businesses: Domestic Baby & Mother Care, Health & Elder Care, and Child Care Service. Nursing bottles and nipples are its mainstay products, generating more than 25% of sales (about 13% of Domestic Baby & Mother Care sales and about 49% of China segment sales) according to Shared Research estimates. Other main products are skincare products, baby wipes, strollers, breast pads, breast pumps, and maternity-related products.
Note: Starting with 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.
Note: 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.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Starting in FY12/20, the company reports results for four segments: Japan, China, Singapore, and Lansinoh. Accordingly, starting in FY12/20, the company’s Japan segment includes its Domestic Baby & Mother 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.
Japan (45.3% of total sales in FY12/20, 12.6% of OP before adjustments)
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Gross profit and SG&A expenses are calculated by Shared Research based on company data.
Note: 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.
Note: 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.
Note: Starting in FY12/20, the company reports results for four segments: Japan, China, Singapore, and Lansinoh. Accordingly, starting in FY12/20, the Japan segment includes its Domestic Baby & Mother 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.
The Japan segment comprises Domestic Baby & Mother 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 Domestic Baby & Mother Care business.
Domestic Baby & Mother Care (30.7% of total sales in FY12/20, 17.2% of OP before adjustments)
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Gross profit and SG&A expenses are calculated by Shared Research based on company data.
Note: 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.
Note: 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.
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 13.0% of Domestic Baby & Mother Care sales in FY12/20 (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 (17.8% of Domestic Baby & Mother Care segment sales in FY12/20), food and drink (14.6%), baby wipes (14.3%), and strollers and baby slings (3.9%).
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 FY12/20 were 3.1%. 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.
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 FY12/20 sales via such e-commerce sites (wholesale basis, excluding cross-border e-commerce) accounted for 9% of total sales (7% in FY12/19).
Child Care Service (3.6% of total sales in FY12/20, 0.6% of OP before adjustments)
Note: Figures may differ from company materials due to differences in rounding methods.
Note: GPM and SG&A expenses are calculated by Shared Research based on company data.
Note: 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.
Note: 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-FY12/20, the division had 71 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 (7.5% of total sales in FY12/20, 3.7% of OP before adjustments)
Note: Figures may differ from company materials due to differences in rounding methods.
Note: GPM and SG&A expenses are calculated by Shared Research based on company data.
Note: 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.
Note: 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 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.