November 12th 2004.

Shoei, the leading manufacturer of high-spec helmets, has successfully revived its global sales.

When business was thriving in the latter half of Eighties, the company built new production facilities and spent a lot of money on commercials starring top racing car drivers such as Ayrton Senna.

However, its profligate ways caused Shoei to seek court protection from creditors in 1992, under the Corporate Rehabilitation Law - a process that continued until 1998.

The company went public on the Jasdaq market in July this year.

According to Hirotaka Tosaki, an analyst with Cosmo Securities, Shoei owes its dramatic turnaround to current President Masaru Yamada.
Amidst the business crisis, Yamada became convinced that the firm would recover, despite witnessing plants that were nearly overflowing with unsold products.

Ever since, the company has made rigorous use of the just-in-time production system of Toyota Motor, helping to minimise inventories surplus of parts and other supplies.
Shoei also ended conveyor belt-type mass production and had each worker handle a single step in the production process - a move designed to give it the flexibility to turn out a greater variety of goods.

The company thoroughly reviewed its production process to eliminate wasteful practices and began using a more sophisticated technique to estimate and streamline inventory levels.
Consequently, the firm's pre-tax profit margin has risen to 12.2 per cent and its return on equity to 15.2 per cent. Interest-bearing debt, which peaked at 15 billion yen, has been reduced to 800 million yen.

The company also owes its turnaround to the superior brand-value of its products. It jealously guards this value and its production expertise by making helmets only in Japan, using fibre-reinforced plastic specially ordered from a local chemical firm.

The company posted a consolidated pre-tax profit of 1.2 billion yen, up 70.7 per cent, on sales of 9.8 billion yen, up 2.3 per cent, in this fiscal year. The success is thanks in large part to the streamlining of painting work and reduced spending on product liability insurance.

Shoei has the potential to boost sales, over the medium term, in the US, Eastern Europe and other Asian countries, where its market presence remains modest.

Taking this into account, as well as the stock's dividend yield and the firm's overall condition, the price of Shoei shares seems undervalued.

Source: The Nikkei Financial Daily