Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea. Permanent resident of Japan.

Senior Technology Analyst, Japanese Equities

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

Hamamatsu Photonics Kk / Equity Bottom-Up

<ul>
<li>Guidance was cut after disappointing 1H results, but management's new forecast for FY Sep-20 does not include the impact of COVID-19.</li>
<li>Instead, management notes that the pandemic could reduce 2H sales by another 10% - 15%. In our estimation, this would lead to a 25% - 34% decline in FY Sep-20 net profit.</li>
<li>Management's plan for the following two years remains unchanged. It implies a sharp rebound taking operating profit well above its FY Sep-18 peak.</li>
<li>This plan is based on capacity expansion and demand forecasts made before the outbreak of COVID-19. But capital spending is now being postponed.</li>
<li>The share price has rebounded by 47% since March. The projected P/E ratios implied by management's plan are 33x for FY Sep-22 and 28x for FY Sep-23. The 5-year historical P/E range is 22x - 38x. </li>
<li>As infections continue to rise and lockdowns are reimposed, management's plan looks over-optimistic, at least for the coming syear.</li>
<li>3Q results should be announced in early August.</li>
</ul>


Guidance was cut after disappointing 1H results, but management's new forecast for FY Sep-20 does not include the impact of COVID-19.
Instead, management notes that the pandemic could reduce 2H sales by another 10% - 15%. In our estimation, this would lead to a 25% - 34% decline in FY Sep-20 net profit.
Management's plan for the following two years remains unchanged. It implies a sharp rebound taking operating profit well above its FY Sep-18 peak.
This plan is based on capacity expansion and demand forecasts made before the outbreak of COVID-19. But capital spending is now being postponed.
The share price has rebounded by 47% since March. The projected P/E ratios implied by management's plan are 33x for FY Sep-22 and 28x for FY Sep-23. The 5-year historical P/E range is 22x - 38x. 
As infections continue to rise and lockdowns are reimposed, management's plan looks over-optimistic, at least for the coming syear.
3Q results should be announced in early August.


Hamamatsu Photonics (6965 JP): Set Up for Disappointment