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

THK (6481 JP): New Orders Down by Two-Thirds in 4Q, Near the Bottom of the Cycle

THK (6481 JP): Downturn Discounted, Recovery Depends on New Orders

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

THK's share price has been volatile, dropping from an all-time high of ¥4,830 in February 2018 to ¥1,926 in January 2019, rebounding to ¥3,090 in April and closing at ¥2,321 on Friday, June 7. We attribute the 25% retreat since April to pessimism over the U.S.-China trade dispute.Sales were down 12.7% year-on-year in the three months to March, operating profit down 29.7% and net profit down 38.5% - weak numbers, but ahead of management's guidance for 1H of FY Dec-19, particularly at the operating level. New orders continued to decline, falling by 63% year-on-year on a domestic parent company basis and, judging from the available data, by a similar percentage on a worldwide consolidated basis. The rates of decline were similar for the three major applications for the company's linear motion guides - machine tools, general industry and electronics. Overseas, the rates of decline were greater than 70% in China and Taiwan, 45% in Europe and 32% in America. The rates of decline stabilized compared with 4Q of FY Dec-18. Year-on-year comparisons should improve going forward. Business should improve next year.The shares are now selling at 13.4x our estimate for FY Dec-19 and 11.8x our estimate for FY Dec-20E. These multiples are at the bottom of the company's recent P/E range. There appears to be support around ¥2,000.

THK's share price has been volatile, dropping from an all-time high of ¥4,830 in February 2018 to ¥1,926 in January 2019, rebounding to ¥3,090 in April and closing at ¥2,321 on Friday, June 7. We attribute the 25% retreat since April to pessimism over the U.S.-China trade dispute.Sales were down 12.7% year-on-year in the three months to March, operating profit down 29.7% and net profit down 38.5% - weak numbers, but ahead of management's guidance for 1H of FY Dec-19, particularly at the operating level. New orders continued to decline, falling by 63% year-on-year on a domestic parent company basis and, judging from the available data, by a similar percentage on a worldwide consolidated basis. The rates of decline were similar for the three major applications for the company's linear motion guides - machine tools, general industry and electronics. Overseas, the rates of decline were greater than 70% in China and Taiwan, 45% in Europe and 32% in America. The rates of decline stabilized compared with 4Q of FY Dec-18. Year-on-year comparisons should improve going forward. Business should improve next year.The shares are now selling at 13.4x our estimate for FY Dec-19 and 11.8x our estimate for FY Dec-20E. These multiples are at the bottom of the company's recent P/E range. There appears to be support around ¥2,000.

Thk Co Ltd

THK (6481 JP): Dropping Toward Support