The equipment of the Chinese national badminton team has long been sponsored by Japanese brand Yonex Co Ltd (TYO:) (7906.JP). Founded in 1946, this company was originally a small company that only produced wooden products. With its persistence in quality and pursuit of innovation, it has now grown into the number one brand in the badminton market in China and even the world.
Recently, this brand, which has disappeared from public opinion for many years, has once again attracted widespread attention because it has made badminton unaffordable for China’s middle class with a monthly income of 20,000 yuan.
What was transmitted to the capital market was not only the re-exposure of the brand, but also the company’s stock price and performance, which had almost stopped growing for many years, suddenly revived, ushering in a period of growth as they were about to enter their octogenarian years.
1. One of the most familiar Japanese brands to Chinese people
Frequently appearing on CCTV as a national team sponsor brand is the key for Yonex to quickly open up the Chinese market.
In the early 1980s, Yonex sponsored the Chinese national badminton team for nearly 30 years. Although it was replaced by Li Ning in 2009 as the sponsor of the Chinese national badminton team. However, the signing of the then-unparalleled Super Dan in 2015 still made Yonex’s brand image deeply rooted in the hearts of the people.
In 2021, Yonex once again won the Chinese National Badminton Team apparel and equipment sponsorship partner investment cooperation project for 8 years. At this point, the iconic blue-green “YY” LOGO has been deeply rooted in the hearts of the people, and Yonex, endorsed by national athletes, has also become the number one badminton equipment brand in China and even the world.
According to Li Ning’s financial report data, in 2023, the sales revenue of my country’s badminton industry will be approximately 2.63 billion yuan. By brand, Yonex has the largest market share.
Source: “2024-2029 China Badminton Industry In-depth Analysis and Development Research Consulting Report” by Zhongyan Puhua Industrial Research Institute
In the past two years, the fall in pork prices has squeezed the duck and goose consumer market, resulting in a decrease in slaughter volume. The reduction in duck and goose production has also led to a reduction in the production of badminton, which uses duck and goose feathers as the main raw material. But the market demand is still rising at this time. Taking the Chinese market as an example, according to statistics from the “2024-2029 China Badminton Industry In-depth Analysis and Development Research Consulting Report”, my country’s badminton consumption will reach 334 million in 2022, a year-on-year increase of 12.1%. Consumption will further expand in 2023.
Affected by rising raw material costs and market consumption trends in which supply exceeds demand, most of Yonex’s products have begun to increase prices frequently. The brand’s AS-03EX ball has increased from 94.1 yuan/tube to 185 yuan/tube. This made Zhao Xian, who works in Shanghai and earns 20,000 yuan a month, complain endlessly, saying, “I can’t afford to play badminton anymore!”
After the cost has been successfully passed on to consumers, Yonex’s life is better than that of consumers, and its latest performance has been impressive. In the first quarter of fiscal year 2025, the company’s sales increased by 11.0% year-on-year to 31.07 billion yen (approximately US$210 million), a significant increase from 27.99 billion yen (approximately US$190 million) in the previous fiscal year.
Among them, the Chinese market (including Taiwan Province), which accounts for 47.3% of total revenue and has the largest share, saw sales increase by 23.3% year-on-year to 14.69 billion yen (approximately US$100 million), and operating income was 2.35 billion yen ( US$16.57 million), a year-on-year increase of 36.5%.
Under the law of inflation and wage levels increasing with economic growth, it is not unusual for consumer goods prices to rise, but the recent price slope of Yonex-related products is significantly steeper and denser, which is an abnormal phenomenon.
Origin: Sarabad Blog Author: Kotaro
In addition to badminton, Yonex’s price-increasing products also include rackets and other equipment. It is unreasonable to use the increase in raw material prices as an excuse. The rackets cannot be made of duck feathers.
Therefore, the abnormal price increase may be an intentional move by the company to avoid competition with mid-range brands and establish a high-end brand image.
But high-end brands are currently having a hard time in China. As economic growth slows down, the assets and income of high-net-worth individuals shrink one after another. Lululemon, a symbol of the middle class, will suddenly become unsaleable. In 2023, Lululemon’s inventory once reached US$1.66 billion, and its inventory turnover days exceeded 160 days. Compared with 2018, when sales exploded, the former increased by more than US$1 billion, while the latter was nearly 70 days slower.
In China, badminton has a participating population of 250 million, making it one of the sports with the largest number of participants. The reason why this movement can have a huge consumer group is that in addition to the low requirements for professional skills, the low economic threshold is also an important driving factor.This means the sport is highly price sensitive.
The current Chinese market does not have much potential for high-end development. The speed and intensity of price increases of Yonex seem to have also consumed the price increase opportunities in the following years. If market sales are not as expected and costs are difficult to control, then it will It is difficult to guarantee performance in China.
Since we have factories in Taiwan Province, the Asian market, which mainly includes mainland China and Taiwan, is not only the company’s largest overseas market, but also the market with the highest profit margins. This shows the importance of China to the company’s performance. Any slight disturbance may affect the overall revenue. .
However, putting aside the risk of short-term profit fluctuations in China, it is really commendable that this brand, which was founded by Japanese Yutaka Yoneyama in 1946 and has a history of nearly 80 years, can re-enter the growth stage.
Source:wind
In China and Japan, Yonex’s badminton business has reached the top, and the basically mature markets and businesses have become difficult to promote the rapid development of the company’s performance. In future planning, the company also intends to promote the currently relatively weak tennis business and the North American market. .
2. Americans love to play tennis
Tennis in China lacks development potential, firstly because of the high venue requirements, secondly because of the high requirements for professional skills, and thirdly because of the high asset requirements for participants. Considering the first two factors, the third one is easy to understand. Professional tennis courts are usually operated by professional clubs, which require monthly or annual membership fees; and proficient skills usually require long-term training from professional coaches. Therefore, wealthy and leisurely middle-class and high-net-worth people are the mainstream consumers of this sport.
This kind of consumer portrait is very suitable for the North American market.
As of 2023, tennis, which has been popular for centuries, is still the racket sport of choice for most Americans. Although the growth rate of this sport has slowed down, as the USTA has used measures such as lowering the skin color threshold to expand the market, the proportion of people playing tennis for the first time has increased, ensuring the fourth consecutive year of net growth in the sports market, eliminating the need for people to There is skepticism that the surge in participation is just a short-lived craze caused by the coronavirus.
This transformation is largely due to USTA providing $9.4 million in facility assistance and grants over the past three years (20-23). In the next three years, the association has also committed to provide US$6 million to promote the growth of participant numbers and infrastructure construction to ensure that the market has continued growth momentum.
In the first quarter of fiscal year 2025, Yonex’s sales in North America recorded negative growth. However, the increase in the number of sports people of different races has further expanded the market potential of this sport, which already has the highest consumer base. In order to make the regional revenue composition ratio more balanced, the company also plans to strengthen development in this area where potential demand is expected to be large.
Although the tennis business is not as famous as badminton, the company entered the field of tennis racket production as early as 1973 and officially entered the North American market in 1984. At this year’s Paris Olympics, Yonex rackets received high exposure due to their sponsorship of Paolini, the tennis player who won Italy’s first tennis gold medal.
Source: Forbes (No. 5 women’s player in the world, Italy’s Jasmine Paolini, has been working with Yonex since the Junior Tour)
The company’s brand ambassadors also have an all-star lineup such as Casper Ruud, Jessica Pegula, and Ben Shelton.This is the same strategy as sponsoring the national team in China and letting Lin Dan endorse it. Having a local hero can further expand its reputation in North America. In addition, Yonex’s registration in the clothing category is almost 0 compared to Nike and Adidas. During the brand’s rising period, if it pursues its success and releases clothing and new racket series, it has a high chance of success.
At present, the North American market and tennis business account for a small proportion of the company’s overall performance, but the growth momentum cannot be underestimated.
Its brand’s share of the North American tennis racket market has nearly tripled from 5.6% in 2019 to 14.7% in 2023, ranking fourth in the market. When focusing on high-end models priced at $250 or more, that share climbed to 27.9%, ranking second in the market.
Source: Company’s FY24 report
In addition, according to AS’s recent announcement of raising its full-year guidance, Yonex’s main competitor Wilson has resumed growth, which also shows that the company’s tennis business in North America has a good sign in the near future.
But another trend that cannot be ignored is that new American tennis fans are not very loyal to high-end brands.
Before the outbreak, 90% of racquet sales in specialty stores came from the three largest brands on the market, but as of the first quarter of 2023, this number was below 80%.The attitude of the new group of people towards this sport is more about “trying it out”. They are not very loyal to professional brands and are unwilling to pay exorbitant prices to seek the sports benefits brought by professional equipment. Although Yonex currently occupies a major position in the high-end market in North America, its high price may not be friendly to new entrants.
In addition, the company’s sales channels in North America are composed of a single large dealer, the retail scale is small and scattered, and DTC channels have not yet been established, which further increases the difficulty of the company’s performance in the face of changes in consumer trends in unfamiliar markets.
Although the tennis business and the North American market currently do not account for a high proportion of the company’s operating income, there is still much room for development in the future, but how to develop will become the biggest problem. Due to the low “visibility” of stable long-term performance development, Yonex’s current valuation is not cheap.
3. Valuation is not cheap
The new president Yoneyama Yusai, who will take office in 2022, is the granddaughter of the founder of Yonex. Although the latest performance profits are lower than the previous fiscal year, the performance is much better than before the epidemic, and the new president’s business management capabilities have been demonstrated to a certain extent. After all, among a group of managers who are over 60 years old, the 34-year-old Yusai Yoneyama should be more ambitious and innovative.
Source: Company website
However, it should also be noted that during the above-mentioned period of rapid performance growth, there were also years when the epidemic factors were beneficial to the growth of the sports market. The management capabilities of the new president may require more fiscal year performance to be considered.
According to the market’s latest 12-month performance forecast consensus, Yonex’s PE is 16.4 times.
Source: yahoo
This is not a relatively cheap valuation, and covers almost all expectations for positive performance this year such as price increases + dealer inventory optimization.
The latest performance data shows that if the profit from the improvement in gross profit driven by price increases is excluded, the company’s comprehensive operating profit only increased by 1.4% year-on-year.
With China’s consumer market still not recovering strongly, there are questions about whether the radical price increases are sustainable. In addition, the North American market may encounter many obstacles in its growth process, calling into question the company’s ability to sustain high growth.
Taken together, the current valuation is already at a reasonable level.
Conclusion
From badminton, tennis to golf, from rackets to uniforms, Yonex is famous for its excellent products across sports categories. The company is currently trying to establish a global, multi-category coherent brand image, but the challenge can be difficult. Just imagine.
However, there are also many successful cases in the market where small brands have grown into big brands. These successful experiences include common development paths with high winning rates, which have an important guiding role for Yonex as it re-enters the growth stage.
In addition, companies have also established “brands”, the most critical moat in the consumer market competition, and future development depends on the wisdom of management. This can also explain why the market is willing to give a high valuation after the new president takes office and achieves good results, because the biggest catalytic factor, the “rule of man” part has already started.
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