Japan Power Pick

09/08/2006 12:00 am EST

Focus:

Vivian Lewis

Editor and Publisher, Global Investing

In Vivian Lewis’ Global Investing, staff and editors trot around the globe to discover and explore the best international investments for their readers. Here, Chris Loew drills for profits, uncovering a solid opportunity in the Far East…

 

“We are buying Makita (MKTAY NASDAQ), a Japanese maker of power tools competing with Black & Decker. With home sales off, we expect a pick up in do-it-yourself this autumn, and what better way for guys to start than new tools?

 

“Makita had a very good fiscal year in 2005. World’s largest in its segment, the company enjoyed strong profitability and market position in Europe. In North America, Makita introduced lithium ion batteries for its rechargeable portable power tools ahead of competitors, and made this the centerpiece of a successful X’mas season sales campaign, which targeted home centers. In Europe, the company’s cost-of-sales were lowered by the strengthening euro. But US margins were tighter due to discounting pressure from mass merchandisers and price competition from rival Black & Decker. To strengthen its position in the automatic nailer business as a comprehensive supplier of tools for professional use, Makita acquired the automatic nailer business of Kanematsu-NNK Corp.

 

“Last year, Makita also rehabilitated and sold a golf course (a popular boom-time investment in Japan), and took a large tax write-off. The company’s most recently released results, for the three months ended June 30, showed net sales up 23.4%, but operating, pre-tax, and net income were down 33.9%, 31.3%, and 49.9% respectively, reflecting last year’s one-off boost from the golf course sale. MKTAY upped its second half and fiscal year outlook to reflect improved European sales and prospects of a slightly lower yen (a big relief for all Japanese exporters). Makita is expanding its Chinese factories to reduce its production costs. In Europe, where sales have been favored by the appreciation of the euro and growth of the Eastern European and Russian economies, Makita is establishing a new production base in low-wage Romania to reduce shipping costs and exchange risk.

 

“Makita leads its field, improving its products and localizing production for lower costs. The company faces stiff competition in the US from Black & Decker’s DeWalt brand power tools, but seems to be getting the jump in product innovation.”

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