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

Optex (6914 JP): Factory Automation Slowdown in the Price

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>Optex has dropped by nearly 40% from its late July peak and is now selling at 19x our EPS estimate for FY Dec-18 and 21x our estimate for next year. These and other projected valuations are back in the middle of their historical ranges, but sales have stopped growing over the past three quarters despite the full consolidation of CCS on July 1, and operating profit is off its peak. </p><p>In the three months to September, consolidated operating profit was up 3.3% year-on-year on a 6.1% increase in sales, but all the profit increase came from the Sensing division (mostly security sensors). Operating profits from Factory Automation and Machine Vision were down. Quarterly results tend to be volatile, but there is cause for concern over the sustainability of demand from the manufacturing sector. We expect sales and profits to decline next year.</p><p>Optex is out of overvalued territory, but we see no reason to rush into buying mid-range valuations in a weakening economy.</p><div class="content-highlight"><p>Optex is one of the world’s top producers of infrared sensors and related equipment used in security systems, factory automation equipment and automatic doors. Security systems for residential and commercial buildings, industrial facilities, power plants and other public infrastructure account for more than 35% of sales. Sensors and related equipment used in factory automation account for about 20%, machine vision lighting for close to 25%, and sensors for automatic doors for most of the remainder.</p></div>

Optex has dropped by nearly 40% from its late July peak and is now selling at 19x our EPS estimate for FY Dec-18 and 21x our estimate for next year. These and other projected valuations are back in the middle of their historical ranges, but sales have stopped growing over the past three quarters despite the full consolidation of CCS on July 1, and operating profit is off its peak. In the three months to September, consolidated operating profit was up 3.3% year-on-year on a 6.1% increase in sales, but all the profit increase came from the Sensing division (mostly security sensors). Operating profits from Factory Automation and Machine Vision were down. Quarterly results tend to be volatile, but there is cause for concern over the sustainability of demand from the manufacturing sector. We expect sales and profits to decline next year.Optex is out of overvalued territory, but we see no reason to rush into buying mid-range valuations in a weakening economy.Optex is one of the world’s top producers of infrared sensors and related equipment used in security systems, factory automation equipment and automatic doors. Security systems for residential and commercial buildings, industrial facilities, power plants and other public infrastructure account for more than 35% of sales. Sensors and related equipment used in factory automation account for about 20%, machine vision lighting for close to 25%, and sensors for automatic doors for most of the remainder.

Optex (6014 JP): Not Overvalued, but Not Growing

Optex Co Ltd

Optex (6014 JP): Not Overvalued, but Not Growing