Guidance upgrade for MIURA driven by acquisition and demand for marine boilers

MIURA has updated its FY25 guidance on the back of strong demand for marine boilers from customers outside Japan. The revision in guidance was further made to include the revenue of the acquired Cleaver-Brooks, Inc. in May 2024. As a result, the company now anticipates revenue to be JPY257bn, compared to prior guidance of JPY175.5bn.

MIURA CO., LTD., established in 1959 and headquartered in Japan, is engaged predominantly in the manufacture and sale of industrial boilers and peripheral equipment and providing maintenance services for them. Additionally, employing over 6,100 people, the company boasts of a product line up comprising once-through boilers, water treatment equipment, food-processing equipment, medical equipment, and exhaust-gas boilers, catering to total solutions need for industrial customers.

Segment wise – Equipment Sales Business in Japan contributed to 48% of the sales mix in FY24; Maintenance Business in Japan, 26%; Equipment Sales Business outside Japan, 19%’ and Maintenance Business outside Japan, 7%.

Solidifying presence in the industrial boiler market

After establishing its industrial boiler business in Japan, MIURA gained its first foothold outside the country in the 1980s, and since then has grown to operate in 24 countries worldwide. The company has a market share of 49.9% in the overall 200,000t/h of steam generation in Japan, while it captures an encouraging 3% share in China’s 710,000t/h of steam generation. The company has a good opportunity to add to its 2% market share in the Americas with the acquisition of Cleaver-Brooks, Inc.

Additionally, the group views Indonesia as a promising market, with scope for growth in industrial boiler sales in the future, driven by the country’s booming economy. MIURA further plans to bolster boiler sales by encouraging users of old boilers to shift to its latest energy-efficient units.

Business outside Japan fueling sales

The company demonstrated a modest revenue CAGR of 2.8% over the period FY19-24 to JPY160bn. However, operating income surged ahead, growing by a CAGR of 6.7% to reach JPY22.9bn, aided by margin expansions of 242 bps to reach 14.3%. The cash position remained broadly flat during the same time, increasing by only JPY3bn to reach JPY37.3bn as of FY24 end, from JPY34.3bn as of FY19 end. The modest increase in cash has been aided by steady cash inflow from operations and offset by cash outflow from financing owing to debt repayment.

On the other hand, MIURA’s peer, Fanuc Corporation, demonstrated a better CAGR of 4.6% during the last five years to reach JPY795bn in FY24. However, operating income for Fanuc declined at a CAGR of 2.8% during the same time to reach JPY142bn, impacted by margin contraction.

The top line surged 59% YoY to JPY111.3bn in 1HFY25, aided by an increase in revenues from operations in Japan owing to the fulfilment of large project orders for food-processing equipment, and stronger boiler and marine equipment sales. Sales jumped from operations outside Japan, bolstered by the acquisition of U.S. based boiler manufacturer-The Clever-Brooks Company, Inc., and also supported by solid boiler sales in South Korea.

Additionally, strength in maintenance revenue as a result of closing-fee-based maintenance contracts with an increasing number of industrial customers enhanced the overall sales of the group. The operating profit grew 27% YoY to JPY12.4bn, impacted by margin contraction of 290 bps to 11.2%. The cash position of MIURA increased to JPY46.2bn as of 1HFY25 end, from JPY31.1bn as of 1HFY24 end, aided by an increasing bottom-line and cash inflow from financing.

The management has declared an interim dividend of JPY24 per share and plans to pay a final year dividend of JPY31 in FY25. This would bring the total dividends to JPY55 per share, reflecting a yield of 1.5% on current prices.

Attractive valuation levels offer comfort

MIURA’s P/E currently stands at 18.6x, based on the estimated FY25 EPS of JPY204.6, comparatively lower than its global peer average of 29.5x and historical 10-year average of 28.4x. The company is also trading lower compared to its Industrial Machinery peer, Fanuc Corporation, which is trading at a P/E of 31.3x. EV/EBITDA valuation approach also demonstrates a lower multiple of 13.5x for MIURA, compared to the global peer average of 17.1x and 18.6x for Fanuc.

Tracking positive fundamentals, the stock price surged over 36% in the past one year. Out of the 6 analysts covering the company, 2 have a ‘Buy’ rating and 3 gave an ‘Outperform’ recommendation for an average target price of JPY4,706, indicating a potential upside of around 24% from the current levels. Optimism amongst analysts is further corroborated by the expected revenue CAGR of 6.5% over the period FY25-27 to reach JPY292.2bn.

Overall, MIURA is poised for growth in the long term backed by its solid fundamental trajectory, revenue expansion through acquisitions and leading position in the industrial boiler market. Moreover, decent valuation levels provide an opportunity for investors to evaluate the stock from a long-term perspective. However, the business operations give rise to the risk of regulatory restrictions owing to the operations contributing to pollution increase through CO₂ emission. A few other risks include climate change, maintaining the ecosystem balance and the emergence of new technologies. Notwithstanding the inherent risks, MIURA appears set to leverage its leading position in the boiler market and leverage its expertise to capture market share in the different geographies it serves.