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

Horiba (6856 JP): Japanese Technology Laggard

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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>FY Dec-17 sales and profits were above management's guidance and our own estimates due to strong demand for the company's automotive test and semiconductor production equipment. Sales increased by 14.9%, operating profit by 45.1% and net profit by 25.6%. In 4Q, sales were up 18.6% and operating profit up 55.9% year-on-year.</p><p>For FY Dec-18, management is guiding for a 7.5% increase in sales, an 8.1% increase in operating profit and a 16.7% increase in net profit. We believe this forecast is intended to be conservative (guidance was raised twice last fiscal year), but yen appreciation may be a drag on sales and earnings. Guidance is predicated on ¥110/US$; the current rate is 106. We have raised our own estimates and are now forecasting single-digit growth in sales and profits both this year and in FY Dec-19.</p><p>At ¥7,480 (February 15 close), the shares are selling at 16.6x our EPS estimate for this fiscal year and 15.8x our estimate for FY Dec-19. These and other valuations multiples are within their recent historical ranges and compare favorably with those of many other Japanese tech shares. Targeting 20x our new EPS estimate for FY Dec-18 indicates 20% potential upside to ¥9,000.</p><div class="content-highlight"><p>Horiba is a diversified Japanese maker of precision and analytical devices and systems with a significant presence in the global markets for automotive test, industrial process and environmental analysis, hematology, semiconductor production equipment and scientific instruments. It is by far the world's leading producer of automotive emission measurement systems (EMS), having supplied about 80% of the installed base worldwide, and also the world's top manufacturer of mass flow controllers for the semiconductor industry, with an estimated global market share of nearly 60%.</p></div>

FY Dec-17 sales and profits were above management's guidance and our own estimates due to strong demand for the company's automotive test and semiconductor production equipment. Sales increased by 14.9%, operating profit by 45.1% and net profit by 25.6%. In 4Q, sales were up 18.6% and operating profit up 55.9% year-on-year.For FY Dec-18, management is guiding for a 7.5% increase in sales, an 8.1% increase in operating profit and a 16.7% increase in net profit. We believe this forecast is intended to be conservative (guidance was raised twice last fiscal year), but yen appreciation may be a drag on sales and earnings. Guidance is predicated on ¥110/US$; the current rate is 106. We have raised our own estimates and are now forecasting single-digit growth in sales and profits both this year and in FY Dec-19.At ¥7,480 (February 15 close), the shares are selling at 16.6x our EPS estimate for this fiscal year and 15.8x our estimate for FY Dec-19. These and other valuations multiples are within their recent historical ranges and compare favorably with those of many other Japanese tech shares. Targeting 20x our new EPS estimate for FY Dec-18 indicates 20% potential upside to ¥9,000.Horiba is a diversified Japanese maker of precision and analytical devices and systems with a significant presence in the global markets for automotive test, industrial process and environmental analysis, hematology, semiconductor production equipment and scientific instruments. It is by far the world's leading producer of automotive emission measurement systems (EMS), having supplied about 80% of the installed base worldwide, and also the world's top manufacturer of mass flow controllers for the semiconductor industry, with an estimated global market share of nearly 60%.

Horiba (6856 JP): Results Above Guidance, Estimates Raised

Horiba Ltd

Horiba (6856 JP): Results Above Guidance, Estimates Raised