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

SMC (6273 JP): Profit Decline Accelerates

SMC (6273 JP): Getting in Line with Reality

SMC (6273 JP): Share Price Down 18%, Profits Leveling Off

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

Sales and operating profit growth rates continued to decline in the three months to June - sales growth to 7.1% from 11.3% the previous quarter and operating profit growth to 13.9% from 19.7%. Net profit growth bounced to 15.6% from -8.2%, but that was due to a large forex gain. On the positive side, the absolute sales and profit numbers increased by enough to indicate that 1H guidance is probably conservative.1Q performance by application and regional market was mixed, indicating a deterioration of the operating environment. Semiconductor related sales were strong in Japan and China, but weak in the rest of Asia and in North America. Auto related sales were strong in Japan and Europe, but weak in North America. Total North American sales were down.For 1H of FY Mar-19, management is guiding for year-on-year growth in sales and operating profit of 4.7% and 4.8%, respectively. The corresponding figures for the full year are 3.2% and 3.9%. Sales and profit estimates for 1H and 2H are equal, indicating a lack of visibility. But it seems likely that year-on-year comparisons will continue to deteriorate.At ¥37,760 (Friday, August 17 closing price), the shares are selling at 17.8x management's EPS guidance for FY Mar-19. This is below the mid-point of their 5-year historical range of 13.8x - 28.5x, and the share price appears to be finding support, but in the last downturn year-on-year operating profit comparisons turned negative for three quarters in a row. <div class="content-highlight">A leading supplier of pneumatic and other automated control equipment for the electronics, auto, machine tool and other industries, SMC is highly geared to investment in semiconductor production capacity and factory automation. </div>

Sales and operating profit growth rates continued to decline in the three months to June - sales growth to 7.1% from 11.3% the previous quarter and operating profit growth to 13.9% from 19.7%. Net profit growth bounced to 15.6% from -8.2%, but that was due to a large forex gain. On the positive side, the absolute sales and profit numbers increased by enough to indicate that 1H guidance is probably conservative.1Q performance by application and regional market was mixed, indicating a deterioration of the operating environment. Semiconductor related sales were strong in Japan and China, but weak in the rest of Asia and in North America. Auto related sales were strong in Japan and Europe, but weak in North America. Total North American sales were down.For 1H of FY Mar-19, management is guiding for year-on-year growth in sales and operating profit of 4.7% and 4.8%, respectively. The corresponding figures for the full year are 3.2% and 3.9%. Sales and profit estimates for 1H and 2H are equal, indicating a lack of visibility. But it seems likely that year-on-year comparisons will continue to deteriorate.At ¥37,760 (Friday, August 17 closing price), the shares are selling at 17.8x management's EPS guidance for FY Mar-19. This is below the mid-point of their 5-year historical range of 13.8x - 28.5x, and the share price appears to be finding support, but in the last downturn year-on-year operating profit comparisons turned negative for three quarters in a row. A leading supplier of pneumatic and other automated control equipment for the electronics, auto, machine tool and other industries, SMC is highly geared to investment in semiconductor production capacity and factory automation. 

SMC (6273 JP): Deceleration Continues in 1Q

SMC Corp

SMC (6273 JP): Deceleration Continues in 1Q