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

JEOL (6951 JP) Is a Late Add to FTSE All-World for 17 Sep Rebalance

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

JEOL hit a new record high of ¥6,770 on June 23 - up 2.3x from its 52-week low and up 72% since March - and has since dropped back only 4%. At ¥6,500 (Friday, July 2 closing price), the shares are selling at 49x management's EPS guidance for FY Mar-22. That, in comparison with the company's historical valuation ranges, is more than enough.Sales and profits were down last fiscal year, but new orders were up and the order backlog increased by 25% to a record 55% of sales. This fiscal year, management expects new orders to rise by 6.0%, helping support a 14.5% increase in sales and a 59% increase in operating profit in FY Mar-22. In our view, this has been discounted.What perhaps has not been discounted is a potential shortfall in sales and profits due to the semiconductor shortage, the severity of the pandemic in India, and a new tax exemption system in China, the guidelines for which have not yet been announced.Assuming these problems are overcome and the economy continues to recover, there is potential for sales and profit growth to continue for the next 2-3 years. Growth should be led by e-beam photomask writers and other equipment for the semiconductor industry, but all divisions have growth potential.On our estimates, this would bring the projected P/E ratio for FY Mar-24 down to 38x. This, in our estimation, is still too high.

JEOL hit a new record high of ¥6,770 on June 23 - up 2.3x from its 52-week low and up 72% since March - and has since dropped back only 4%. At ¥6,500 (Friday, July 2 closing price), the shares are selling at 49x management's EPS guidance for FY Mar-22. That, in comparison with the company's historical valuation ranges, is more than enough.Sales and profits were down last fiscal year, but new orders were up and the order backlog increased by 25% to a record 55% of sales. This fiscal year, management expects new orders to rise by 6.0%, helping support a 14.5% increase in sales and a 59% increase in operating profit in FY Mar-22. In our view, this has been discounted.What perhaps has not been discounted is a potential shortfall in sales and profits due to the semiconductor shortage, the severity of the pandemic in India, and a new tax exemption system in China, the guidelines for which have not yet been announced.Assuming these problems are overcome and the economy continues to recover, there is potential for sales and profit growth to continue for the next 2-3 years. Growth should be led by e-beam photomask writers and other equipment for the semiconductor industry, but all divisions have growth potential.On our estimates, this would bring the projected P/E ratio for FY Mar-24 down to 38x. This, in our estimation, is still too high.

JEOL (6951 JP): Growth Prospects in the Price

Jeol Ltd

JEOL (6951 JP): Growth Prospects in the Price