The Big Five trading companies in Japan： Marubeni Corporation，a diversified agricultural giant

Marubeni is headquartered in Tokyo and has dozens of subsidiaries and related companies throughout Japan and the world. Including Marubeni itself, several of its subsidiary companies' stocks are listed on major stock exchanges in Japan. Currently, the company's main strategy is to allocate resources to profitable and stable businesses.

Since the beginning of 24 years, the company's stock price has risen by about 30.29%, with excess returns relative to the Nikkei index reaching 82%.

As a large diversified trading company in Japan, Marubeni has a diverse investment portfolio in its industry structure, covering various fields such as trade and infrastructure investments, and continuously extending upstream and downstream to build a global and diversified business platform.

Marubeni has six industry groups classified by business type: Consumer Products Group, Food/Agri Group, Materials Industry Group, Energy/Infrastructure Solution Group, Transport/Construction Machinery, Financial Business Group, and CIDO (Next Generation Industry Group). Each industry group has several sub-business departments, each focusing on specific industries or functions. The structure is shown below:

In addition, Marubeni's target market is not limited to Japan, and it has diversified businesses around the world. The company has 130 overseas branches and over 484 investment enterprises in 75 countries, which provides Marubeni with global supply chain management and market penetration capabilities. Marubeni uses its global network for international trade, promoting cross-border flow of goods and services.

When classifying the revenue sources for the fiscal year 2023 by region, Marubeni's core market in Japan accounts for 41.25% of its revenue, while the second-largest revenue source market is the United States, accounting for 38.97%.

The following is the revenue overview of each department in 2024FY:

Based on the above data, it can be seen that the largest sub-business in terms of revenue is the Agri Business Division (20.0%), which is the core business unit of Marubeni. The other major sub-businesses are the Food Division-Ⅱ (15.6%), Food Division-Ⅰ (12.3%), and Energy Division (11.1%). These main business units in total account for 59.0% of all revenue.

Marubeni controls global grain resources and has a trading network for commodities such as corn, wheat, and soybeans, ranking first among Japan's trading companies. The company has a presence in different segments of the global industry chain, building a global agricultural cluster through professional management and on-site intervention. The company's overseas investment focuses on Helena in the United States, Adubos Real and MacroSource in Brazil, making it a leading provider of comprehensive agricultural solutions. In addition, the company expands its operations through global agricultural input companies, providing a range of related products and technical services such as fertilizers, seeds, and soil, forming a strong agricultural support network that combines property rights and products.

In fiscal year 2024, the Agri Business Division's revenue was approximately 18.625 billion yen, with a YoY growth of 10.12%; its gross profit was approximately 5.663 billion yen, with a YoY growth of 20.14%, demonstrating a good momentum of business growth.

According to Marubeni's latest financial report, as of March 31, 2024, its revenue decreased by 1.94 trillion yen to 72.505 trillion yen, a YoY decrease of 21.1%. The main reason for the revenue decline was the sale of the grain business unit of Gavilon, a subsidiary of Food II, which led to a decrease in related revenue.

Marubeni sold the grain business unit of its US subsidiary Gavilon in October 2022. The company originally had two departments: the grain and raw materials department, and the fertilizer department. After the sale, Marubeni retained the fertilizer department with relatively high profitability. Although this decision reduced the revenue for fiscal years 23 and 24, it increased the overall gross profit margin of the department, optimized the industrial structure, and could provide considerable returns in the future.

Gross Profit: The total gross profit increased by 14.5 billion yen YoY to 1.0658 trillion yen, a growth of 1.4%. The main reasons were as follows:

The Agri Business Division's gross profit increased by 27.6 billion yen due to the improvement of the US fertilizer wholesale business;

The Construction Machinery, Industrial Machinery, and Mobility Division's gross profit increased by 18.8 billion yen due to increased sales of automotive-related and construction machinery businesses;

The Metals and Mineral Resources Division's gross profit decreased by 28.8 billion yen due to the decrease in profits from Australian coking coal business, resulting in a decline in commodity prices (mainly coking coal and iron ore).

Operating profit was 276.3 billion yen, a YoY decrease of 64.5 billion yen, a decrease of 18.9%. Net profit after tax was 0.482 trillion yen, a YoY decrease of approximately 12.7%. The main reason for the profit decline was the increase in selling expenses, general expenses, and administrative expenses.

Marubeni announced a large-scale stock buyback plan during its shareholder meeting on May 2 to repurchase 50 billion yen (approximately up to 38 million shares). The execution period for the plan is scheduled from May 7 to September 30.

According to a report released on June 3, shares worth approximately 23.271 billion yen (7.768 million shares) have already been repurchased, and the repurchase process is progressing steadily. In addition, Marubeni plans to cancel all repurchased shares except for 1 million shares used for stock compensation on October 25 to reduce the number of outstanding shares and increase shareholder returns.

Performance growth expectations: Currently, Marubeni's financial condition has improved with the sale of Gavilon's grain business. Based on the management's environmental strategy and initiatives to optimize capital allocation through growth investments, more attention should be paid to the core operating profit generated by the main business in the future. In fiscal year 24, the gross profit of Marubeni's core non-resource businesses has increased significantly and is expected to continue its growth momentum after the economic situation improves. It is expected that Marubeni's net profit in fiscal year 25 will be about 498 billion yen, a YoY increase of 6.83%.

Sufficient cash reserves: According to the Q&A session of the financial results briefing on May 8th, the disposable cash for the fiscal year 24 is approximately 580 billion yen, of which a significant amount is from the sale of Gavilon's grain division. Among these cash reserves, 90 billion yen is used for growth investment, 50 billion yen is used for stock repurchases, and the remaining 440 billion yen is kept as internal reserves.

Shareholders' return: The stock dividend yield TTM is currently 2.84%, and the basic EPS for fiscal year 24 is 279.62 yen/share. Marubeni expects to increase EPS to 286.67 yen/share in its report for fiscal year 25, indicating the potential for an increase in shareholders' return. Marubeni Corporation pays dividends to shareholders every year, and after raising the annual dividend forecast from 78 yen/share to 83 yen/share, it is expected that the shareholders' return that can be generated in fiscal year 25, taking into account the current 50 billion yen stock repurchase plan, will be 3.79%, which is lower than the current 10-year risk-free yield of US Treasury bonds.

Valuation: The estimated forward PE for Marubeni's stock over the next 12 months is 9.85 times, which is in the middle of the same type of stocks, and the current price is basically reasonable.

Risks: The downward macroeconomic changes in Japan may lead to a decline in the company's stock price, and the depreciation of the Japanese yen exchange rate may also reduce the value of the stock. Since Marubeni's resource division still contributes a certain amount of revenue, fluctuations in commodity prices (such as iron ore, coal, and crude oil) and rapid foreign exchange changes may also damage the company's gross profit.