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

Mabuchi Motors--Strong 1Q but No Guidance Change Yet

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

Bottom-up Japan Equities Research

Equity Bottom-Up

Mabuchi Motors—one of the world’s most profitable auto parts makers—will likely have strong results for 1Q of FY17 on April 28th. Consensus is looking for Y6.45bn in 1Q operating profit (OP), which would be up +10% YoY, but the result could be higher than Y7bn, as vehicle production in Mabuchi’s biggest customer regions of Asia, China, Japan and North America in 1Q have seen significantly higher levels of vehicle production than the company’s assumption of 1% growth, which is premised on a slowdown in the US and China.While there are still currency headwinds in 1Q, we expect the company to significantly revise its outlook to the upside by 2Q, at the latest. While Mabuchi is infamous for its conservative guidance, this year’s assumptions are particularly cautious.The stock has always traded at rich valuations (based on FY17 and FY18 consensus, the PER is at 22x and 20x, respectively, although our numbers yield 19x and 17x) but this is largely due to powerful earnings growth (OP has grown at a 10-year CAGR of 9.2%), high operating margins of nearly 20%; a strong balance sheet (net cash/equity ratio of 53%) and now, a newfound openness towards shareholder returns (retiring roughly 15% of treasury shares since FY09; payout ratio of over 40% since FY14 and roughly 1.5% share buybacks each year since FY15). Mabuchi essentially trades at a 50% premium to other parts makers’ average PER of 12x, but its operating margin of 19% (at a time of heavy growth investment burdens) is 160% higher than the auto parts sector average of 7%. And considering a much higher growth profile than the average parts maker due to its niche products' growing market share, valuations may actually be too low. The company's profitability is high because it enjoys 60% to 70% market share in the power mirror,  power door lock and electronic parking brake market, which allows it to grow its share in the power window and power seat markets currently, taking share from giants like Denso and Bosch. Automation of production facilities is also a key factor behind Mabuchi's profitability, with a 30% increase in plant automation between 2011 and 2016, and a target for another 30% increase by 2019.

Mabuchi Motors—one of the world’s most profitable auto parts makers—will likely have strong results for 1Q of FY17 on April 28th. Consensus is looking for Y6.45bn in 1Q operating profit (OP), which would be up +10% YoY, but the result could be higher than Y7bn, as vehicle production in Mabuchi’s biggest customer regions of Asia, China, Japan and North America in 1Q have seen significantly higher levels of vehicle production than the company’s assumption of 1% growth, which is premised on a slowdown in the US and China.While there are still currency headwinds in 1Q, we expect the company to significantly revise its outlook to the upside by 2Q, at the latest. While Mabuchi is infamous for its conservative guidance, this year’s assumptions are particularly cautious.The stock has always traded at rich valuations (based on FY17 and FY18 consensus, the PER is at 22x and 20x, respectively, although our numbers yield 19x and 17x) but this is largely due to powerful earnings growth (OP has grown at a 10-year CAGR of 9.2%), high operating margins of nearly 20%; a strong balance sheet (net cash/equity ratio of 53%) and now, a newfound openness towards shareholder returns (retiring roughly 15% of treasury shares since FY09; payout ratio of over 40% since FY14 and roughly 1.5% share buybacks each year since FY15). Mabuchi essentially trades at a 50% premium to other parts makers’ average PER of 12x, but its operating margin of 19% (at a time of heavy growth investment burdens) is 160% higher than the auto parts sector average of 7%. And considering a much higher growth profile than the average parts maker due to its niche products' growing market share, valuations may actually be too low. The company's profitability is high because it enjoys 60% to 70% market share in the power mirror,  power door lock and electronic parking brake market, which allows it to grow its share in the power window and power seat markets currently, taking share from giants like Denso and Bosch. Automation of production facilities is also a key factor behind Mabuchi's profitability, with a 30% increase in plant automation between 2011 and 2016, and a target for another 30% increase by 2019. 

Mabuchi Motors—1Q Earnings Preview and FY17 Outlook