Founded in 1933 in Osaka, Japan, AS ONE is a prominent company with a workforce of over 711 employees, primarily engaged in the sale of scientific equipment and apparatus for various laboratories, research institutes, production facilities and medical establishments.

The company operates across four segments: Scientific, which accounts for 62% of FY24 sales; Industrial, contributing 20%; Hospital and Nursing Care, at 17%; and Others, making up the remaining 1%. By FY24, AS ONE has built partnerships with 4,200 suppliers and boasts a strong sales network of 4,700 dealers across 13,000 locations.

The company offers around 10.6mn items in its product database, up from 9.0mn in FY23, and ensures prompt delivery by guarantees same-day shipping on 95% of orders.

Lower leverage boosts competitiveness

The company delivered a 7.4% CAGR in revenues over the period FY19-24, reaching JPY95.5bn, driven by strong demand from research labs and factories. During the same period, EBITDA increased from JPY8.5bn to JPY12.2bn, maintaining stable margins approximately 12.8%. Similarly, net income grew by 7.3% CAGR to reach JPY 7.5bn in FY24, while maintaining stable margins around 7.8%.

Driven by strong profit performance, the company demonstrated consistent positive FCF during the period. It maintained a stable net cash position of approximately JPY10bn and increased its debt to JPY 3.6bn in FY24 from JPY 2.0bn in FY19, funding essential capex ranging from JPY660mn to JPY 942mn. This proactive financial approach ensures the company remains well-positioned for growth and innovation. Consequently, the debt-to-equity ratio increased from 3.8% in FY19 to 5.5% in FY24 but stayed within a comfortable range.

As One outperformed its global peers, Henry Schein and Ship Healthcare. Henry Schein’s revenue grew at a 5.5% CAGR, reaching USD12.3bn, while Ship Healthcare reported a CAGR growth of over 7.2%, reaching JPY631bn.

Furthermore, As One excelled in terms of EBITDA margin, surpassing Henry Schein’s 7.6% and Ship Healthcare’s 5.0%. Both peers saw an increase in capex over the last five years, and their leverage ratio remained at elevated levels. Henry Schein's leverage ratio ranged from 51% to 53%, while Ship Healthcare's leverage ratio ranged from 40% to 70% over FY19-24.

Strategic initiatives to drive innovation

In the first half of FY25, the company embarked on several strategic initiatives to drive growth and innovation. A major focus was the expansion of its e-commerce systems, introducing innovative inventory management solutions for medical use, including the development of e-commerce platforms and the integration of RFID technology.

Additionally, the company enhanced its services through the Nakanoshima Qross Lab, a newly established Cell Processing Center for regenerative medicine. The acquisition of JCSS calibration and a partnership with Mutsui Link Lab facilitated the hosting of educational seminars, bolstering the company's market position.

The company also forged new alliances to diversify its product offerings and extend its market reach, including collaborations with SHIMADZU Rika to assist schoolteachers, Sanwa Seisakusho for a disaster prevention catalog, and GL Science to expand chromatography product sales. Additionally, it expanded the Kyushu Logistics Center to enhance delivery services to 65 by FY25 and improve loading efficiency.

Strong fundamentals boost valuations

The company is currently trading at a P/E ratio of 22x, based on projected EPS of JPY118 for FY25. This valuation is significantly below its 10-year average of 28x and lower than its peer, Henry Schein, which stands at 24x. Additionally, in terms of EV/EBITDA, the company is trading at 13x, based on a projected EBITDA of JPY13.4bn for FY25. This is considerably lower than its 10-year average of 15x, yet it exceeds Henry Schein at 11x.

The premium in the EV/EBITDA valuation relative to its peers is due to its higher expected EBITDA growth over the next three years. Analysts project an EBITDA CAGR of over 9%, reaching JPY15.9bn by FY27, with a margin of 13.4%, reflecting an expansion of over 60bps from the current 12.8%. In contrast, analysts expect a CAGR growth of just 7% and margins of 8.8% for its peer, Henry Schein.

However, the company currently has limited coverage, with only two analysts covering the stock. One has rated it as "Buy” and the other as “Outperform", with an average target price of JPY3,600. This suggests a potential upside of over 45% from the current market price.

AS ONE Corp is a leading player in the laboratory instruments sector, known for its diverse product range, efficient logistics, and strong profitability. However, investors should note that competitors are focusing on direct sales pricing strategies, which could result in missed opportunities in low-margin markets and slow growth in the core laboratory instruments market.