■ Business Overview

3. Commodity ETF Strategy

Kosmedo Co., Ltd. (7819) aims to become a "niche market Share NO.1 manufacturer collective" in beauty and health. As part of the Commodity ETF strategy, the focus is on enhancing the brand value of "Kosmedo" and establishing priority categories in niche markets through product development and strengthening product capabilities, advancing the development and sales expansion of in-house planned products (including OEM). The facial cleansing brush series "Rich Whip," launched in 2015, surpassed cumulative sales of 1 million units and achieved the No.1 market share in the facial cleansing brush market in 2019. A brand renewal was later conducted to improve usability, winning the Good Design Award in 2021.

The "Double Eyelid Cosmetic Declaration TWOOL" brand, which was launched in September 2021 after a three-year development period, is reinforcing sales expansion through a new brand promotion focused on digital promotion via social media and influencers. The brand has improved its strength as evidenced by winning the Japan Package Design Award in the Body & Health Care category, the Grand Prix and Semi Grand Prix in the Student Category at the 60th Advertising Conference Awards, and the Red Dot Design Award 2023, one of the world's three major design awards. Additionally, products like "Decorative Nail Jewelry Remover" and "Heat Curlers That Clip Up" have been featured by popular influencers, enhancing brand awareness.

Among the handled products, particularly strong performance is shown in low-priced cosmetics. Low-priced cosmetics are expected to spread primarily among the younger generation, similar to Korean cosmetics, in this current era dominated by social media. The company excels in swiftly planning such low-priced cosmetics under proper quality control and can supply them in large quantities, which is considered an important factor supporting the company's growth.

Low-priced cosmetic is an abbreviation of 'petit-price cosmetic,' which refers to cosmetics that, despite their low prices, possess quality features such as trendy designs, colors, and actual usability. They are often compared to high-priced branded cosmetics typically sold in Department Stores, known as "Depako."

Regarding character cosmetics, there are contracts with many character licensors, including Disney and Sanrio, allowing for product planning using popular characters of the time without fluctuations. The recognition that "character cosmetics are Kosmedo" has spread within the industry and among licensors, creating a barrier to entry for competing companies and serving as a differentiation factor, including price competitiveness against sales destinations.

As for improving the unit price of products, the strategy is not simply to raise the prices of standard products, but to enhance unit prices through new product launches and design changes focusing on character products, expanding the target areas to include pet supplies and recreational goods. As a result of such strategies, the ratio of products priced at over 1,000 yen has increased from 17.5% in the September 2023 period to 22.7% in the September 2024 period, reflecting ongoing efforts to improve unit prices and added value centered around new products.

Reduce inventory risk through "selection and concentration" and expansion of OEM Business.

4. Risk Factors, Revenue Characteristics, Challenges, and Countermeasures.

The main risk factors for the company include dependence on specific customers, delays in responding to changes in popularity of self-planned products and obsolescence, and the impact of foreign exchange on procurement prices, etc.

Regarding dependence on specific customers, the revenue composition ratio for the top 20 companies identified as key sales targets is 70% as of the fiscal year ending September 2024. However, the major customers such as PALTAC <8283> (mainly for Daiso), Seria <2782>, Don Quijote Co., Ltd., and Shimamura <8227> account for about 10% of total revenue each, indicating diversification. While the strategy of focusing on key sales targets has increased the revenue composition ratio for the top 20 companies, considering that the operational efficiency has dramatically improved as a result of this strategy, it is not particularly concerning given that the company maintains good relations with these companies and is involved in their respective private brand strategies as mentioned later.

For the planning and development of self-planned products and OEM products, a robust marketing, planning, and design framework along with ample character licenses ensures continuous development that meets consumer needs, thereby reducing the risk of delays in responding to trends and product obsolescence.

Regarding the impact of foreign exchange on procurement prices, the ratio of foreign currency-based purchases accounts for approximately 40% of total procurement (about 90% of which is in US dollars). Measures to mitigate foreign exchange fluctuations include passing on increased procurement costs to product prices, reviewing suppliers, and hedging against foreign exchange fluctuations within the scope of actual demand.

Notably, as factors contributing to the company's unique quarterly operating profit fluctuations, the first quarter (October to December) and the second quarter (January to March), which include events such as year-end and New Year, as well as school admissions, have a higher composition ratio, while the fourth quarter (July to September) tends to decrease significantly compared to other quarters due to inventory disposal and the payment of year-end bonuses to maintain soundness. However, the expansion of OEM Business, which is produced on order and has no return or inventory disposal risks, is being promoted to gradually standardize.

(Authored by FISCO guest analyst Masanobu Mizuta)