Shoot for the Future: HONMA Golf's Steady Growth

During the first televised debate for the 2024 U.S. Presidential election held on the evening of June 27th, local time in the United States, Trump and Biden even discussed setting a time to compete on the golf course to prove their superior physical fitness. In response, renowned American commentator Ben Shapiro put it humorously on X, "This is one of the most hilarious things I've seen in politics." A netizen joked, "Next time, instead of a debate, Biden and Trump should have a golf match to see who can drive the ball farther, and let the winner be the President of the United States." 

Beyond the jokes, what deserves deeper insight is the potential investment opportunities within the golf industry. In recent years, the golf industry has shown steady development globally. According to Golf Datatech and Yano Research Institute, The U.S. and Korea were the primary drivers of much of the world’s equipment and apparel sales growth since 2019, with Korean equipment sales +93% (+$549 million) while U.S. sales were +43% (+$1.6 billion). This upward trend is mainly due to the continuous growth of the golf-playing population and increased participation as a result of the lifestyle changes brought by technology. Billionaire hedge-fund boss Steve Cohen even said that a 4-day workweek is coming — and it's part of why he made a big investment in golf. 

HONMA Golf Announces Fiscal Year 2024 Results: A Dual Victory in Operational Efficiency and Market Strategy 

In today's highly competitive golf industry, HONMA Golf (hereinafter referred to as "HONMA") has once again solidified its business resilience and brand value. 

Significant Improvement in HONMA's Profitability. 

In a market environment where overall revenue growth is moderate, HONMA has demonstrated its exceptional ability in cost control and profitable growth. For the fiscal year ending March 31, 2024, the company's net profit increased by 48.3% YOY, the net profit margin improved by 7.4 percentage points, and the EBITDA% increased by 7.5 percentage points compared to the previous year. These figures fully illustrate the continuous improvement in the company's operational efficiency and the significant effects of refined operations, with profitability steadily increasing. 

Excellent financial condition, with a healthy balance sheet and strong cash flow. 

In terms of liquidity and cash flow management, HONMA's cash and cash equivalents increased by 18% compared to the previous fiscal year, totaling 16.6 billion yen; meanwhile, net cash significantly increased by 41.7%, reaching 9.6 billion yen. 

Additionally, HONMA's net operating cash flow achieved significant growth, increasing by 47.3% year-over-year. Over the past six years, the company's net operating cash flow CAGR reached 18.7%, representing a stable trend of cash flow growth. 

The excellent financial condition provides solid support for HONMA's future development, allowing it to confidently face market challenges and actively invest in product innovation and brand expansion. 

Although experiencing short-term volatility in revenue, the company has established multi-dimensional drivers for medium and long-term profitable growth. At the same time, there were still many highlights in operation during the fiscal year 2024. 

HONMA experienced a slight decline in revenue levels during the fiscal year 2024, with a year-over-year decrease of 11.1%, mainly due to the reduction in distribution  channels triggered by channel optimization in Japan and Korea. At the same time, the sales cycle of the previous generation of BERES and TOUR WORLD has come to an end (BERES Aizu and TW757 were launched in November 2021 and March 2022, respectively). However, the company has already launched new products BERES 09 and BeZEAL 3 in the first quarter of this year, expecting to achieve better revenue growth in the coming fiscal year. 

In terms of channels, the company has significantly increased its revenue through self-operated stores and e-commerce by improving operational efficiency. The overall DTC channels in Japan (+16.0%), Mainland China (+15.7%), and the United States (+17.1%) all achieved good revenue growth. As of distribution footprints, channel optimization was primarily conducted in Japan and Korea during FY24, fully preparing for HONMA's continuous market share expansion and profitable growth. 

In terms of products, despite the ongoing global economic downturn, it still achieved a growth of 4.9% in apparel sales, with a gross profit margin increase of 16.8 percentage points; its growth reached 23.2% in mainland China, with a gross profit of 62%. Although sales of golf clubs saw a slight decline due to channel optimization, the new products BERES 09 and BeZEAL 3 launched in Feb this year have achieved great sales performance, with BERES series increasing by 19.6% in Japan and BeZEAL growing nearly sixfold. Additionally, to meet consumers' personalized needs, several series of SAKATA LAB putters have been launched since the end of 2023, achieving an overall growth of 19.6%. These once again prove HONMA's brand value and resilience across cycles, as well as the company's accurate grasp of market trends. 

Overall, the company's sales growth experienced some volatility. But there are expected to be multiple growth drivers in FY2025, when the company's stock price is also expected to return to an upward trend. 

Revenue growth is expected to recover, with positive expectations building up  

The company’s potential growth space has shown. 

Firstly, in terms of the golf equipment business, BERES 09 and BeZEAL 3 were launched in early 2024, and the sales growth they’ll bring is expected to be more evident in the new fiscal year; TW767, targeting the premium-performance market, will also be launched in 24H2. The two flagship products are expected to unleash more energy for sales growth in the new fiscal year. 

As for apparel business, the company has collaborated with a new design firm, and the 2025 Spring/Summer collection will be completely refreshed, bringing designs more characteristic of the HONMA brand while maintaining high quality. Additionally, the tailoring will also be modified to meet the on-course and off-course needs of the golf community in China, Japan, and Korea. The company has also upgraded the fabrics used to enhance product quality and wearing experience. 

Secondly, in terms of channel optimization, the company has essentially completed its channel optimization in Europe and America, and significant progress has been made in adjusting third-party channels in Japan and Korea. After six months of renovation and upgrades, the company's flagship store in Seoul has recently reopened, equipped with simulators, product customization, and tuning areas, creating a complete golf product purchasing experience for customers. The CRM system in Korea has also been established and will launch its direct sales e-commerce platform in August. It is expected that these initiatives will become new highlights driving the company's business growth in the next one or two years, promoting steady development. 

HONMA's Flagship Store in Seoul, South Korea 

Additionally, the company is also actively expanding into Southeast Asia and the Middle East markets, enhancing brand recognition and market share locally and injecting new momentum into the company's long-term growth. 

Furthermore, in terms of marketing activities, to ensure the brand maintains a leading position in market competition, HONMA continues refined CRM system, constantly improving customer loyalty. It also continuously enhances media exposure, selects suitable brand ambassadors and KOLs for collaboration, and establishes a strong network of coaches, conveying an image of the brand as relevant, professional, and premium. Over the last two years, repeat purchase rate among existed customers has steadily increased, while the conversion rate of new customers has also significantly improved. 

Profit expectations improve, supporting a steady increase in dividend yield 

Dividend yield is an important indicator of dividend-paying capability and shareholder return for HONMA, a company listed on Hongkong stock market. Although HONMA’s current stock price is relatively low, its dividend yield reflects the company's generous returns to shareholders. The company's good profitability and healthy cash flow condition provide a stable basis for HONMA's dividends. The company's payout ratio for FY2024 is 37.64%, with a dividend yield (TTM) of 4.91%. 

Note: HONMA's "2024 Annual Report" is for the fiscal year ending March 31, 2024 

With the steady growth of the company's performance and the capital market's re-evaluation of the company's value, HONMA's dividend yield is expected to become an important factor attracting long-term investors. Especially in the future environment where domestic market interest rates will gradually decrease, a high dividend yield may be more attractive as it not only provides investors with stable cash flow but also potentially generates capital gains with the stock price rising. Considering factors such as the company's dividend payout history, profitability, financial condition, and industry prospects, the company's positive earnings outlook can support a steady increase in its future dividend yield. 

HONMA’s valuation is relatively low compared to peers, expected to open mean reversion upwards 

Acushnet Holdings’ stock price has been on the northward journey, reaching a historical high this year, showing investors' firm confidence in its future development. 

Meanwhile, although Topgolf Callaway faces challenges due to declining performance, its PE ratio TTM is still over 30 times, reflecting the market's recognition of different golf brands' value and the entire industry's long-term potential. 

In contrast, HONMA's performance in the H-share market has been more stable. Currently, the company's stock price is in the bottom area, with a PE ratio TTM of less than 10 times, not even half of that of the former two, offering a compelling investment opportunity for value investors. 

Conclusion 

As a top global golf lifestyle brand, HONMA not only achieved good results during this challenging fiscal year but also laid a solid foundation for future development. 

HONMA's current ultra-low valuation contrasts sharply with its continuously improving performance growth, offering investors a rare investment opportunity. 

Meanwhile, the company's dividend yield leads by a wide margin compared to those of peers. Considering the positive outlook for earnings, it will support further increases in its future dividend yield. 

With the continuous growth of the company's performance and the capital market's re-evaluation of its value, HONMA is expected to attract more long-term investors, and investors can also look forward to dual benefits from the company's stable dividends and stock price rises. 

Finally, in the current sluggish H-share market, investors tend to prefer targets characterized by low valuation, high dividends, and marginally improving performance. HONMA, with its ultra-low valuation, ample cash flow, generous dividend payout policy, and steadily improving fundamentals, will undoubtedly become an ideal choice for investors to share the dividends of the global golf industry's booming growth.