Welcome to our new scuttlebutt series by our 8I Education Investment Analyst, Kelvin. In this series of articles, Kelvin will share a variety of companies that’s all around us that you might not even know that they are listed!
First up! When we think of a pen brand, what is the de facto brand in our mind? My guess would be Pilot. The brand has since become synonymous with pens. But why? Pilot occupies a considerable mindshare of consumers because we are exposed to this brand when we were young. We grow up with it.
With an approx. S$2.6 billion market capitalization, Pilot Corporation manufactures, purchases, and sells writing instruments and other stationery products primarily in Japan, the Americas, Europe, and Asia.
As of Last Twelve Months (LTM) FY2016, Pilot recorded a revenue of US$971mil and earned a net profit of US$125.1mil, amounting to a net profit margin of 13.0%. From the balance sheet perspective, the company is supported by its growing cash pile and healthy current ratio of 2.3x. It managed to reduce its net debt to net tangible asset ratio from 1.01x in FY2008 to a -0.28x in LTM FY2016.
A big part of Pilot’s ability to command a ROE of 18.9% is linked to its profitability margins. The high margins in a supposedly commodity-like industry showcased Pilot’s superior pricing power, differentiated product offerings, economies of scale and a strong market position. This is seen in Pilot’s gross profit margins of 53.2% and net profit margin of 13.0%. A company has to earn high enough gross profit margins in order to earn a sizable net profit margin.
Founded in 1918, Pilot is reaching towards 100 years old in 2 years’ time. In fact, they are one of the oldest and largest writing instrument manufacturer in Japan. To differentiate themselves away from competition, Pilot innovates on many product fronts such as “Dr. Grip”, “Acroball”, “Board Master S”, and “FriXion” to provide better options to consumers. For example, FriXion uses an erasable ink that allows consumers to erase their writing mistakes with ease. Instead of utilising third party distributors who may not be motivated, Pilot develops their own sales and distribution network to market their own products. At the same time, this gives Pilot the ability to alter its sales mix by pushing more profitable products such as the FriXion.
According to Pilot Pen Singapore, the most expensive foundation pen sold in Singapore was “the limited-edition Namiki Sakura”, which was sold for $24,000 in 2003. In fact, there is a Singapore Fountain Pen Lovers Facebook group with more than 3,600 members, some of whom meet once a month.
A big part of their trusted reputation is their marketing. For example, on Pilot’s Facebook, you can see videos of Pilot demonstrating the quality of their pens. When consumers buy a Pilot pen, they know they are getting a quality pen that is able to last and this assurance provides Pilot the ability to charge premium pricing for their products.
*disclaimer: This article and its contents contain opinions and ideas of its author. It is not a recommendation to purchase or sell securities of any of the companies or investments herein discussed. The article is written with the understanding that its author is not engaged in rendering legal, accounting, investment or other professional services. If the participant requires expert financial or other assistance or legal advice, a Competent Professional should be consulted. The author will not guarantee the accuracy of the information contained in the article. The author has no vested interest in the above company.