Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Equity Bottom-Up

Eizo was established in1968 by the founder of Murata (thus its significant holding in Murata, more later) and listed in 2002. It makes high-end monitors for a variety of commercial uses (75% of sales) but also has a very close relationship with Sanyo Bussan, Japan’s number 1 but unlisted maker of Pachinko machines for whom it makes monitors, undertakes software development and R&amp;D work (c 25% of sales).The monitor business has seen and should continue to see steady but pedestrian growth but the pachinko business unsurprisingly has been somewhat volatile and this year is very poor due to another change in the pay-out ratio of machines.The shares are, however, very cheap. The company has a cash filled balance sheet, c Y33bn worth of investments and owns 6.2% in itself. Thus, although its market cap is Y93bn, EV is currently about Y35bn. On our numbers, ebitada for next year is about Y12bn putting the shares on EV/ebitda of 2.9x. The shares yield 2.4% and trade at 0.9x book. Earnings will bounce next year after a poor 3/19. We would thus buy on a six to twelve month view. Longer term, however, the pachinko market may well remain problematic and we would question the growth in their niche monitor business as well.

Eizo was established in1968 by the founder of Murata (thus its significant holding in Murata, more later) and listed in 2002. It makes high-end monitors for a variety of commercial uses (75% of sales) but also has a very close relationship with Sanyo Bussan, Japan’s number 1 but unlisted maker of Pachinko machines for whom it makes monitors, undertakes software development and R&amp;D work (c 25% of sales).The monitor business has seen and should continue to see steady but pedestrian growth but the pachinko business unsurprisingly has been somewhat volatile and this year is very poor due to another change in the pay-out ratio of machines.The shares are, however, very cheap. The company has a cash filled balance sheet, c Y33bn worth of investments and owns 6.2% in itself. Thus, although its market cap is Y93bn, EV is currently about Y35bn. On our numbers, ebitada for next year is about Y12bn putting the shares on EV/ebitda of 2.9x. The shares yield 2.4% and trade at 0.9x book. Earnings will bounce next year after a poor 3/19. We would thus buy on a six to twelve month view. Longer term, however, the pachinko market may well remain problematic and we would question the growth in their niche monitor business as well.

Eizo (6737) A Very Cheap Company with Earnings Set to Recover Next Year.

Eizo Corp

Eizo (6737) A Very Cheap Company with Earnings Set to Recover Next Year.