An +11.2% Yield, No Debt, and +75% Returns on Capital (Yes +75%)

The Japan Company Handbook Expedition Part 8

In the last seven parts of The Japan Company Handbook Expedition, I’ve been focused on deep value, the classic Benjamin Graham stuff. Stocks trading below liquidation value etc. However I’ve run out of ideas in that category. There are probably still more out there, but either I’ve missed them, or they sit outside my circle of competence.

So to keep the series moving forward, I’m shifting. Instead of hunting only for the cheapest names. I’m looking for something closer to a Munger-style setup of high-quality companies selling at a fair price.

Going forward, posts might be longer than the deep-value ones because quality is harder to judge. A stock trading below liquidation value can be spotted in minutes by scanning the balance sheet, but assessing a high-quality business at a fair price requires looking at many more factors. That said, I’ll still do my best to keep things concise and respect your time.

Shoei Co (TSE:7839)

Founded in 1959 Shoei makes premium motorcycle helmets. That’s the whole business they design helmets, manufactures them in Japan, then sells them worldwide through regional subsidiaries and distributors.

Its range covers the main helmet types full-face, modular (flip-up), open-face, and off-road/adventure. Shoei’s strategy is clear be the helmet riders choose when they care about safety, comfort, fit, and build quality, and are willing to pay more for something they trust.

Shoei makes money through a straightforward mix of pricing power from a strong brand, global demand, and running its factories efficiently. “Made in Japan” supports the premium reputation, but it also means costs and production capacity have to be managed carefully.

Operationally, Shoei is a quality-first manufacturer. Helmets are a safety product, so trust and reputation are everything. The company focuses on tight process control, heavy inspection, and consistent performance rather than competing on price.

Furthermore looking online the helmets are rated very highly which is a good sign that customers actually like the product. (price in NZD)

Business Quality

“The single most important decision in evaluating a business is pricing power” - Warren Buffett

In 2016, Shoei sold 479,000 helmets and generated $139.4mn (USD) in revenue, implying an average price of about $291 per helmet. By 2025, sales rose to 635,000 helmets and revenue increased to $218.9m, meaning the average price was roughly $345 per helmet. That’s a +18.5% increase over nine years.

This works out to about +1.9% annual growth in realized pricing, achieved while unit volumes increased meaningfully (up +33%). In other words, Shoei has been able to raise prices gradually without hurting demand. Pricing power exists, but it’s measured and restrained. Most of the company’s growth has come from selling more helmets, not from aggressive price hikes.

Ideally, you might want to see faster price growth but this is fairly typical for Japanese companies. Japanese corporate culture tends to prioritize customer trust and long-term relationships over frequent price increases.

A well-known example is Akagi Nyugyo, the maker of the GariGari-kun ice pop. In 2016, the company raised prices by about +17% for the first time in over 25 years and publicly apologized in TV ads, with executives bowing to customers. The episode highlighted how sensitive price increases can be in Japan, even when they are long overdue.

Importantly, despite modest price increases, profitability improved. Gross margins rose from +41.5% in 2016 to +46.4% in 2025, suggesting Shoei is capturing more value per helmet through a combination of pricing, premium mix, and operating efficiency.

‘‘Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earnings six percent on capital over forty years and you hold it for those forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result’’ – Charlie Munger

To measure return on invested capital, I use Joel Greenblatt’s definition which is EBIT divided by net working capital plus net fixed assets.

As you can see from above the ROIC is very high. Since 2016 the average ROIC has been +74.7%. Shoei’s +74.7% average ROIC shows how efficiently it turns a small amount of operating capital into a lot of profit. This reflects the nature of the business of a strong global brand, premium pricing, disciplined Japanese manufacturing, and limited need for heavy reinvestment. Riders are willing to pay for Shoei’s quality and safety reputation, allowing the company to earn high returns without chasing volume or leverage. In short, the high ROIC at this level over many years suggests Shoei has a durable competitive advantage.

“We rarely use much debt and, when we do, we attempt to structure it on a long term fixed basis. We will reject interesting opportunities rather than over leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable” - Warren Buffett letter to shareholders 1983.

Shoei has basically 0 debt risk. EBIT / Interest expense for this company is 402.9x which means Operating profit covers interest 402.9 times over and compared with equity the total debt is 1.9% of total equity.

In conclusion Shoei is a high-quality business in my opinion. It has demonstrated genuine pricing power by steadily raising prices over time while still growing unit volumes. Furthermore they have a very high average ROIC of nearly +75% for almost a decade and Shoei carries no balance-sheet risk.

Management

Capital allocation has been conservative and good. Dividends grew a lot, which rose from $9.8m to $24.9m, while buybacks were used sparingly and opportunistically. There were no acquisitions or debt-funded payouts which is good since most acquisitions typically fail. Management returned excess cash without stretching the balance sheet which is good.

Shoei looks clean on governance it has outside oversight, formal compliance/internal controls, and an internal audit framework typical of well-run Japanese firms.

On alignment, insiders have some skin in the game, but it’s not founder-level. In the latest AGM notice, President Kenichiro Ishida owns 100,000 shares. With 53,713,716 shares issued and 1,136,342 treasury shares, that’s about 0.19% of shares outstanding.

So good governance signals, modest insider ownership, and alignment shows up more through policy/structure than huge insider stakes. Keep in mind they have pretty good capital allocation skills. Very low debt and high ROIC normally signals good capital allocation.

In short Shoei passes with flying colours they have good management.

Valuation

“Warren talks about these discounted cash flows, I’ve never seen him do one” - Charlie Munger

“We prefer demonstrated consistent earnigns powder (future projections are of little interest to us, nor are “turn around” situations)” - Warren Buffett letter to shareholders 1982

I like to keep things simple. Lets focus on the owner’s yield (what actually goes into your pocket). And just to make things even more simpler lets pretend this company is a farm.

Imagine you buy a farm for $564.5 million.

That farm produces $62.8 million of real cash every year.

About $39.4 million comes from the crops left over after maintaining the land’s true free cash flow (+7%). Another $19.1 million is sent directly to you as rent in the form of dividends (+3.38%). A further $4.3 million is used to buy back pieces of the farm from other owners, increasing your share (+0.76%).

Add it together and the farm pays you +11.2% of what you paid, every year, in cash you can actually use. That is simply what the land produces today assuming no growth to keep things very conservative.

Even better, the farm is essentially debt-free, so none of that cash is siphoned off by lenders. And every dollar reinvested back into the land has earned an exceptional return an average ROIC of +74.7% over the last 9 years

Other

Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial advice, investment recommendations, or an offer to buy or sell any securities. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author may hold positions in the companies mentioned, but the opinions expressed are their own and are subject to change without notice. Investing involves risk, and past performance is not indicative of future results.