Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

SC Capital has over 20 years' experience covering the global automotive industry both on the Sell Side (UBS & Morgan Stanley) and Buy Side (Och-Ziff), along with a wealth of industry contacts. 

Current focus is on electric vehicle stocks & their supply chains. Aim is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well.  

From time to time. we cover opportunistic events with stocks in the manufacturing sector, food & beverage, healthcare and tech, where we also have coverage experience.

Global Automotive Stocks/EV Focus/Event Driven

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

Equity Bottom-Up

<ul><li>FCC (7296) is a Honda-affiliated clutch supplier which had a blow-out Q2 result on October 27th, booking an OP of Y3.6bn, which beat the consensus estimates of Y2.8bn by 36%. The company raised its full-year estimates by 27% to Y13bn, which was only 1.7% above the consensus of Y12.8bn, but bullish given that FCC is usually more conservative than the Street.</li><li>The stock was up nearly 10% the day after the announcement, which is a big spike, given how well the stock had performed up until the announcement. Not only was the upward revision larger than expected, but the company's US operations--which has had weak profitability due to start-up costs related to new 10-speed clutches for Ford's F-150 truck series--generated a profit for a second quarter in a row.</li><li>Amid the electric vehicle (EV) boom, auto parts makers with high exposure to gasoline engine vehicles have seen their valuations decline. But FCC could stand to see its valuations expand as (a) over half of its profits come from its growing motorcycle clutch sales (with OP margins of 11%); (b) its competitive edge in clutches allows for better mileage and emissions for its customers' cars; and (c) its growth over the next 5 years comes from new orders to Ford and GM, for their gas-guzzling light truck series, which will most likely not go electric. </li><li>Furthermore, while there is lots of Tesla-related hype about all cars going electric some day, there is also the view that this will take time given the complexities with battery materials and EV-charging infrastructure, which could lead to hybrid cars filling the gap. FCC would benefit from such a trend, given its gas-saving clutch technology and existing track record for supplying Honda's hybrid cars.</li><li>While FCC is a small-cap stock ($1.3bn market-cap), it does trade at cheap valuations relative to other Japanese auto suppliers who stand to lose business if 100% of the cars on the road go electric. Most notably, its FY17 and FY18 PER of 13x and 10x (based on our estimates) appear cheap when compared to Aisin Seiki (7259)'s valuations of 12.6x and 11.6x, despite FCC being much more profitable (FCC should see 9% OP margins in FY18, whereas consensus sees Aisin at 6.8%). </li><li>Furthermore, the growth that FCC will see from supplying Ford and GM's large pick-up truck models makes FCC's growth trajectory not only more visible, but also most likely the highest in Japan's auto parts industry. The Ford F-150 series is the largest-selling vehicle in the US and GM's Silverado is the largest rival to the F-150. The recent floods in Texas and Florida--where the market share of large pick-up trucks is quite high--could provide further upside to FCC's FY17 US earnings. </li><li>While the growth prospects from higher sales of motorcycle clutches in India and Vietnam are huge, the sales from here on to Ford and GM of FCC's gas-saving clutches for their gas-guzzling large pick-ups should lead to over 50% revenue growth in the US over the next 3 years.   </li></ul>

FCC (7296) is a Honda-affiliated clutch supplier which had a blow-out Q2 result on October 27th, booking an OP of Y3.6bn, which beat the consensus estimates of Y2.8bn by 36%. The company raised its full-year estimates by 27% to Y13bn, which was only 1.7% above the consensus of Y12.8bn, but bullish given that FCC is usually more conservative than the Street.The stock was up nearly 10% the day after the announcement, which is a big spike, given how well the stock had performed up until the announcement. Not only was the upward revision larger than expected, but the company's US operations--which has had weak profitability due to start-up costs related to new 10-speed clutches for Ford's F-150 truck series--generated a profit for a second quarter in a row.Amid the electric vehicle (EV) boom, auto parts makers with high exposure to gasoline engine vehicles have seen their valuations decline. But FCC could stand to see its valuations expand as (a) over half of its profits come from its growing motorcycle clutch sales (with OP margins of 11%); (b) its competitive edge in clutches allows for better mileage and emissions for its customers' cars; and (c) its growth over the next 5 years comes from new orders to Ford and GM, for their gas-guzzling light truck series, which will most likely not go electric. Furthermore, while there is lots of Tesla-related hype about all cars going electric some day, there is also the view that this will take time given the complexities with battery materials and EV-charging infrastructure, which could lead to hybrid cars filling the gap. FCC would benefit from such a trend, given its gas-saving clutch technology and existing track record for supplying Honda's hybrid cars.While FCC is a small-cap stock ($1.3bn market-cap), it does trade at cheap valuations relative to other Japanese auto suppliers who stand to lose business if 100% of the cars on the road go electric. Most notably, its FY17 and FY18 PER of 13x and 10x (based on our estimates) appear cheap when compared to Aisin Seiki (7259)'s valuations of 12.6x and 11.6x, despite FCC being much more profitable (FCC should see 9% OP margins in FY18, whereas consensus sees Aisin at 6.8%). Furthermore, the growth that FCC will see from supplying Ford and GM's large pick-up truck models makes FCC's growth trajectory not only more visible, but also most likely the highest in Japan's auto parts industry. The Ford F-150 series is the largest-selling vehicle in the US and GM's Silverado is the largest rival to the F-150. The recent floods in Texas and Florida--where the market share of large pick-up trucks is quite high--could provide further upside to FCC's FY17 US earnings. While the growth prospects from higher sales of motorcycle clutches in India and Vietnam are huge, the sales from here on to Ford and GM of FCC's gas-saving clutches for their gas-guzzling large pick-ups should lead to over 50% revenue growth in the US over the next 3 years.   

FCC (7296)--Bright Spot in the Gloomy Automotive World

Fcc Co Ltd

FCC (7296)--Bright Spot in the Gloomy Automotive World