Investing in Japan: Kagome, a pioneer in Japan’s tomato business, helps Japanese to stay healthy

 Japanese diet falls short of required vegetable intake

Kagome Co., Ltd., founded in 1899 and headquartered in Nagoya, manufactures and sells condiments, foods and beverages in Japan. It is also involved in purchase, production and sale of seeds, seedlings, fruits and vegetables. Kagome has a history of more than 100 years in a tomato processing business. 

It has 60.9% share of the tomato ketchup market in Japan and 61.2% share of the mixed vegetable and fruit juice market. Kagome who supplies 17.7% of Japan's green and yellow vegetable consumption and 4.4% of vegetable consumption has been greatly contributing to maintain the health of Japanese people. 

The Ministry of Health, Labor and Welfare recommends Japanese adult people to consume at least 350 g of vegetables per day to maintain their health. However, according to a survey by the Ministry, the intake of vegetables by each Japanese is 281.4 g a day, which is about 70 g short. Looking at the changes over the last 10 years, there has been no significant change in the data leaving most Japanese in chronic shortages of vegetable consumption.

Covid 19 augments demand for Kagome’s products

During pandemic, demand for juice products and seasonings Kagome produces was strong from people forced to stay home while sales of products to restaurant and food service industries are stagnant. Against those backdrops, Kagome sales increased by 0.3% year on year to 88.8 billion yen in the second quarter of FY2020.

 

Sales of vegetable juice of "Yasai Seikatsu" brand are increasing. This brand has been long time bestselling products among Japanese who are health conscious. In particular, demand for vegetable juice products in large containers such as 1 liter or 720 ml packages has increased further from people spending more time at home to refrain from going out after the spread of the coronavirus infection. 

On the other hand, demand for beverages and food products for institutional and industrial use fell as people were encouraged to work from home causing sales of convenience stores in office districts to fall and people refrained from going out, leading to sluggish sales in restaurants and other food businesses.

Kagome consolidates its business to cope with competition

Kagome is also focusing on expanding its agricultural business and developing projects having its focus on the cultivation and sale of fresh tomatoes with a scale of over 10 billion yen in sales. As a recent business development, Kagome Ag Refresh Co., Ltd. was established on October 1 to cope with intensifying competition with other large-scale vegetable gardeners. 

By transferring Kagome's domestic agricultural business to the new company, Kagome aims to develop professional human resources and work on the sophistication of vegetable garden management and cultivation techniques. Kagome is expected to further improve productivity and strengthen cost competitiveness of the agricultural busines. As for the stock valuation of Kagome, now trading for about 33 times of P/E ratio and paying a 0.95% dividend, Kagome seems to be a bit lofty, but it may be a proof of its attractiveness as an investment destination.

 

Valuation Metrics (As of Oct. 23, 2020)

Market Cap: 335.95 billion yen

The price-to-earnings ratio:  33.91

Price-to-book ratio:  2.91

Trailing Annual Dividend Yield:  0.98%