Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Harmonic Drive Systems / Equity Bottom-Up

Harmonic Drive fell 10.7% today as revenue came in 1.6% below consensus and OP was 33% below consensus on increasing depreciation costs. Guidance was reasonable at ¥52bn in sales and ¥6.6bn in OP compared to consensus at ¥54bn and ¥8.1bn respectively. All-in-all not a particularly surprising set of results given margins are depressed, but the improvement in the order trend was striking, which is why we were taken aback by the extreme reaction.

Harmonic Drive fell 10.7% today as revenue came in 1.6% below consensus and OP was 33% below consensus on increasing depreciation costs. Guidance was reasonable at ¥52bn in sales and ¥6.6bn in OP compared to consensus at ¥54bn and ¥8.1bn respectively. All-in-all not a particularly surprising set of results given margins are depressed, but the improvement in the order trend was striking, which is why we were taken aback by the extreme reaction.

Harmonic Drive – 11% Share Price Drop on 137% Order Jump

We spoke to Yaskawa on Wednesday to gauge regional trends and get a better understanding of some of the company’s new initiatives. Broadly, checkpoints in terms of regional demand trends are unlikely to surprise investors who have been following earnings but there are a few things worth noting.

We spoke to Yaskawa on Wednesday to gauge regional trends and get a better understanding of some of the company’s new initiatives. Broadly, checkpoints in terms of regional demand trends are unlikely to surprise investors who have been following earnings but there are a few things worth noting.

Yaskawa – Some Thoughts After Our Call With IR

Event-Driven

Harmonic Drive reported middling results as revenue got back on track, increasing 11.1% QoQ and the company revised guidance upwards from a -¥800 operating loss to a ¥1bn operating profit (revenue guidance was raised from ¥35bn to ¥37bn). Valuations point to overextended expectations for the stock, however, and with the news of Nabtesco selling its stake it will be interesting to watch the market’s reaction to relatively benign results. This is especially so given the 9% drop in Daifuku’s share price today despite results which, while slightly below consensus, were also middling.

Harmonic Drive reported middling results as revenue got back on track, increasing 11.1% QoQ and the company revised guidance upwards from a -¥800 operating loss to a ¥1bn operating profit (revenue guidance was raised from ¥35bn to ¥37bn). Valuations point to overextended expectations for the stock, however, and with the news of Nabtesco selling its stake it will be interesting to watch the market’s reaction to relatively benign results. This is especially so given the 9% drop in Daifuku’s share price today despite results which, while slightly below consensus, were also middling.

Harmonic Drive – Recovery Coming Through but Will This Be Another Daifuku?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Yesterday, reducing gear maker <a href="https://www.smartkarma.com/entities/nabtesco-corp" target="_blank" data-smartkarma-citation="entities:13176:1" rel="noopener">Nabtesco Corp (6268 JP)</a> announced that it would dissolve its cooperative relationship with the specialist maker of the smallest reducing gears <a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a> which it had formed in 2008. This means they will dissolve their capital relationship too. Nabtesco has heretofore owned 19.03% since well over a decade ago, and also owns share options which were purchased in 2018 when harmonic Drive last issued shares. There is a <a href="https://www.nabtesco.com/pdf/39b194f5f075a6fc8bf15eb51036f2a6.pdf" target="_blank" rel="noopener">presentation</a>.This ends the "hopes" of many that eventually Nabtesco would buy out Harmonic Drive Systems.Nabtesco sold half their stake in the company to Nomura, will keep the other half to sell at a later date, will sell the options back to HDS, and due to the fact that HDS will no longer be an equity-method affiliate, Nabtesco will report a significant gain in Q1, currently estimated at ¥130.6bn, and approximately ¥100bn after tax, if the shares are sold at ¥8,000/share. Nabtesco will also sell its 49% ownership in a JV in the US with HDS' US subsidiary. There are some details worth looking at here. More below the fold.

Yesterday, reducing gear maker Nabtesco Corp (6268 JP) announced that it would dissolve its cooperative relationship with the specialist maker of the smallest reducing gears Harmonic Drive Systems (6324 JP) which it had formed in 2008. This means they will dissolve their capital relationship too. Nabtesco has heretofore owned 19.03% since well over a decade ago, and also owns share options which were purchased in 2018 when harmonic Drive last issued shares. There is a presentation.This ends the "hopes" of many that eventually Nabtesco would buy out Harmonic Drive Systems.Nabtesco sold half their stake in the company to Nomura, will keep the other half to sell at a later date, will sell the options back to HDS, and due to the fact that HDS will no longer be an equity-method affiliate, Nabtesco will report a significant gain in Q1, currently estimated at ¥130.6bn, and approximately ¥100bn after tax, if the shares are sold at ¥8,000/share. Nabtesco will also sell its 49% ownership in a JV in the US with HDS' US subsidiary. There are some details worth looking at here. More below the fold.

End of An Era: Nabtesco and Harmonic Drive Dissolve Their Alliance - Event Lost, Pressure On

Harmonic Drive (HDS) posted 2Q sales (¥8,384m) barely below consensus and OP of -¥295 vs. consensus forecasts of ¥593m in OP. Consensus margin estimates were unrealistic and fail to account for HDS’ significantly weaker margins due to its investment burden in the form of depreciation. Unfortunately for HDS orders fell 22.1% QoQ taking the shine off the 10.3% QoQ expansion in 1Q.

Harmonic Drive (HDS) posted 2Q sales (¥8,384m) barely below consensus and OP of -¥295 vs. consensus forecasts of ¥593m in OP. Consensus margin estimates were unrealistic and fail to account for HDS’ significantly weaker margins due to its investment burden in the form of depreciation. Unfortunately for HDS orders fell 22.1% QoQ taking the shine off the 10.3% QoQ expansion in 1Q.

Harmonic Drive – One Step Forward One Step Back

Japan

Harmonic Drive Systems Inc. manufactures speed reducers used in industrial robots, semiconductor manufacturing equipment, and other precision instruments. The Company offers cup type, hollow-shaft type, and rotary type speed reducers. Harmonic Drive Systems also produces gear heads and harmonic drive actuators.

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Harmonic Drive Systems (6324 JP)

Yaskawa – Some Thoughts After Our Call With IR

Speaking to Yaskawa after earnings provided us with some interesting insights on trends in China, its Sigma-X series, profitability for its Robots...

Mio Kato

Harmonic Drive – Recovery Coming Through but Will This Be Another Daifuku?

Harmonic Drive posted reasonable results and revised up guidance to more reasonable levels, but the real driver for the stock could be the sale of...

Mio Kato

End of An Era: Nabtesco and Harmonic Drive Dissolve Their Alliance - Event Lost, Pressure On

Harmonic Drive and Nabtesco have decided to dissolve their partnership and Nabtesco will sell the 19% it owns in the market over time. This means...

Travis Lundy

Harmonic Drive – One Step Forward One Step Back

Harmonic Drive orders fell 22.1% QoQ marking a setback from what had looked like a promising improvement in 1Q. While guidance looks conservative...

Mio Kato

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Harmonic Drive – 11% Share Price Drop on 137% Order Jump

The improvement in HDS' order trend was striking, which is why we were taken aback by the extreme reaction to slightly disappointing results and...

Mio Kato

Yaskawa – Some Thoughts After Our Call With IR

Speaking to Yaskawa after earnings provided us with some interesting insights on trends in China, its Sigma-X series, profitability for its Robots...

Mio Kato

Harmonic Drive – Recovery Coming Through but Will This Be Another Daifuku?

Harmonic Drive posted reasonable results and revised up guidance to more reasonable levels, but the real driver for the stock could be the sale of...

Mio Kato

End of An Era: Nabtesco and Harmonic Drive Dissolve Their Alliance - Event Lost, Pressure On

Harmonic Drive and Nabtesco have decided to dissolve their partnership and Nabtesco will sell the 19% it owns in the market over time. This means...

Travis Lundy

Harmonic Drive – One Step Forward One Step Back

Harmonic Drive orders fell 22.1% QoQ marking a setback from what had looked like a promising improvement in 1Q. While guidance looks conservative...

Mio Kato