A Halloween Treat from Japan

10/30/2014 10:00 am EST

Focus: STOCKS

Khoa Nguyen

Investment Analyst, Investing Daily

Halloween reminds us of candy’s cornerstone status in our culture. One candy I recall from my youth was a hard-to-find strawberry-coated pretzel stick variety of “Pocky”—creamy outside with a satisfying crunch from the pretzel inside—recalls Khoa Nguyen in Personal Finance.

In those days in the US, it was only available in Japanese-themed stores. Today, Pocky, which is made in Japan and comes in flavors from green tea to coconut, can be found in the international aisle of your local supermarket.
And on a recent trip to Southeast Asia, I found Pocky in shops throughout Vietnam, Thailand, and Cambodia.

It’s a good example of the global growth in confections. Candy consumption in the rest of the world is catching up and some confectioners, riding the sugar wave to foreign shores, are good prospects, including Pocky’s parent, Ezaki Glico (2206:JP).

Luckily for confectioners, the new sweet tooths come from emerging markets such as Latin America, the Middle East, North Africa, and the Asia Pacific region. An increase in disposable incomes and higher consumer spending makes life’s simple pleasures more affordable.

Based in Osaka, Japan, Ezaki makes confectionery products (about one-third of its total revenue) along with processed foods, milk products, and cosmetics.

Glico has only recently begun establishing its brand in emerging markets in Asia. With its recent expansions in Asia, the company expects to more than triple its Pocky revenue to $1 billion by 2020.

Strong sales and a change in promotional strategies at its stores helped boost its bottom line. Operating earnings for fiscal 2014 jumped 157.8% to JPY11.6 billion ($110 million), while net income surged 234% to JPY11 billion ($107.2 million).

Shares of Glico have surged in the past few months following its stellar earnings report. However, at a P/E of 13.5 and a forward P/E of 15, it is still a bargain compared with its industry average of about 23. Buy Ezaki Glico up to $41.50.

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