Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Equity Bottom-Up

<p>On Friday, Keyence dropped another 3.4% to ¥62,970 on rising fears of a trade war. It is now once again near the bottom of it recent trading range. The potential impact of American tariffs and Chinese retaliation on the company's business is difficult to estimate, but as Mio Kato points out in <a href="https://www.smartkarma.com/insights/factory-automation-and-trade-wars" target="_blank" data-smartkarma-citation="insights:18679">Factory Automation and Trade Wars</a>, it is almost certainly negative for industrial capital spending and, therefore, the rate of growth in demand for products supplied by Keyence.</p><p>Most probably, that growth rate is already falling, as we wrote in <a href="https://www.smartkarma.com/insights/keyence-6861-jp-peak-quarterly-growth-rates" target="_blank" data-smartkarma-citation="insights:17393">Keyence (6861 JP): Peak Quarterly Growth Rates</a> and as can be seen in the charts below. In the three months to December, sales, gross profit and operating profit were up 34.0%, 36.4% and 40.7% YoY, respectively, marking the fifth straight quarter of accelerating growth. As comparisons become more difficult, this looks unsustainable. The comparable QoQ growth rates in the three months to December were 0.2%, 0.4% and -2.0%.</p><p>Keyence shares are now selling at 38x our EPS estimate for FY Mar-18 and at 24x estimated EV/EBITDA, 5.6x book value and 15x sales. These valuations are higher than any reached in the 10 years to Mar-17. The year lows for FY Mar-17 (also the highest in the past decade) were 24x earnings, 13x EV/EBITDA, 3.1x book value and 8.8x sales. This gives an indication of the potential downside if sentiment continues to deteriorate.</p><div class="content-highlight"><p>Keyence supplies a wide range of industries (electronics, autos, metal products, materials, food, pharmaceuticals, packaging, etc.) and has more than 200,000 customers in about 100 countries and territories worldwide. These are served by offices in 30 countries in the Americas, Europe and Asia-Pacific, and by representatives elsewhere. Products, parts and materials are sourced from numerous suppliers, mostly in Japan, but in the case of parts and materials also in other countries. Goods for sale are finished in Japan. </p></div>

On Friday, Keyence dropped another 3.4% to ¥62,970 on rising fears of a trade war. It is now once again near the bottom of it recent trading range. The potential impact of American tariffs and Chinese retaliation on the company's business is difficult to estimate, but as Mio Kato points out in Factory Automation and Trade Wars, it is almost certainly negative for industrial capital spending and, therefore, the rate of growth in demand for products supplied by Keyence.Most probably, that growth rate is already falling, as we wrote in Keyence (6861 JP): Peak Quarterly Growth Rates and as can be seen in the charts below. In the three months to December, sales, gross profit and operating profit were up 34.0%, 36.4% and 40.7% YoY, respectively, marking the fifth straight quarter of accelerating growth. As comparisons become more difficult, this looks unsustainable. The comparable QoQ growth rates in the three months to December were 0.2%, 0.4% and -2.0%.Keyence shares are now selling at 38x our EPS estimate for FY Mar-18 and at 24x estimated EV/EBITDA, 5.6x book value and 15x sales. These valuations are higher than any reached in the 10 years to Mar-17. The year lows for FY Mar-17 (also the highest in the past decade) were 24x earnings, 13x EV/EBITDA, 3.1x book value and 8.8x sales. This gives an indication of the potential downside if sentiment continues to deteriorate.Keyence supplies a wide range of industries (electronics, autos, metal products, materials, food, pharmaceuticals, packaging, etc.) and has more than 200,000 customers in about 100 countries and territories worldwide. These are served by offices in 30 countries in the Americas, Europe and Asia-Pacific, and by representatives elsewhere. Products, parts and materials are sourced from numerous suppliers, mostly in Japan, but in the case of parts and materials also in other countries. Goods for sale are finished in Japan. 

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Thematic (Sector/Industry)

<ul>
<li>The huge investment being made in autonomous vehicles will dramatically boost the use of robots in new sectors, as sensors such as Lidar give them real-time awareness of their environment.</li>
<li>Japan still dominates the industry and even as local Chinese brands benefit from state support, most value add in the form of actuators, servos and other key components will have to imported.</li>
<li>Amazon which has integrated Kiva, Midea which now owns Kuka, Honda which has teamed with SenseTime and UK online…</li>
</ul>


The huge investment being made in autonomous vehicles will dramatically boost the use of robots in new sectors, as sensors such as Lidar give them real-time awareness of their environment.
Japan still dominates the industry and even as local Chinese brands benefit from state support, most value add in the form of actuators, servos and other key components will have to imported.
Amazon which has integrated Kiva, Midea which now owns Kuka, Honda which has teamed with SenseTime and UK online…


Online Retail Boom and Autonomous Car Sensors Transforming Robotics…

United States

Cognex Corporation designs, develops, manufactures, and markets machine vision systems.  The Company's systems are used to automate the manufacture of a variety of discrete items and to assure their quality.  Cognex has regional offices located throughout North America, Japan, Europe, and Southeast Asia.

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Cognex Corp (CGNX US)

Keyence (6861 JP): Where from Here?

On Friday, Keyence dropped another 3.4% to ¥62,970 on rising fears of a trade war. It is now once again near the bottom of it recent trading range....

Scott Foster

Online Retail Boom and Autonomous Car Sensors Transforming Robotics…

The huge investment being made in autonomous vehicles will dramatically boost the use of robots in new sectors, as sensors such as Lidar give them...

Sean Maher

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