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

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

New orders appear to be bottoming out, but at less than 60% of sales, and the order backlog could be gone within six months. Orders remain weak this quarter, but customers' inventory adjustments are coming to an end. Year-on-year orders comparisons are starting to improve. Consolidated sales were down 16.9% year-on-year in the six months to June, operating profit was down 46.7%, net profit down 49.7%. Sales fell 3% short of management's guidance, but operating profit was 1% above. Full-year guidance (operating profit down 44% on a 12% decline in sales) may be achievable.In the three months to June, new orders received by the parent company were down 56.0% year-on-year to ¥14.3 billion, sales were down 25.3% to 24.9 billion, and the order backlog was down 59.4% to ¥29.3 billion. New orders were less than 60% of sales for the third straight quarter. The order backlog dropped to 2.0x quarterly sales. If new orders and sales remain at 2Q levels, the backlog will disappear in 1Q of 2020.New domestic orders from all three of the company's user industry groups appear to be near the bottom of the cycle. The year-on-year change in orders improved for electronics (from -69% in 1Q to -50% in 2Q) and general industry (from -65% to -62%), but continued to deteriorate for machines tools (from -71% to -76%). Overseas orders for industrial machinery continued to decline in Japan, Europe and America, but were up in Taiwan and China due to progress with inventory adjustments in those two markets. At ¥2,443 (August 21 closing price), the shares are now selling at 14x management's EPS guidance for FY Dec-19. The 5-year P/E range is 11x - 30x. The orders trend and projected valuation are positive, but a V-shaped profit recovery seems unlikely.

New orders appear to be bottoming out, but at less than 60% of sales, and the order backlog could be gone within six months. Orders remain weak this quarter, but customers' inventory adjustments are coming to an end. Year-on-year orders comparisons are starting to improve. Consolidated sales were down 16.9% year-on-year in the six months to June, operating profit was down 46.7%, net profit down 49.7%. Sales fell 3% short of management's guidance, but operating profit was 1% above. Full-year guidance (operating profit down 44% on a 12% decline in sales) may be achievable.In the three months to June, new orders received by the parent company were down 56.0% year-on-year to ¥14.3 billion, sales were down 25.3% to 24.9 billion, and the order backlog was down 59.4% to ¥29.3 billion. New orders were less than 60% of sales for the third straight quarter. The order backlog dropped to 2.0x quarterly sales. If new orders and sales remain at 2Q levels, the backlog will disappear in 1Q of 2020.New domestic orders from all three of the company's user industry groups appear to be near the bottom of the cycle. The year-on-year change in orders improved for electronics (from -69% in 1Q to -50% in 2Q) and general industry (from -65% to -62%), but continued to deteriorate for machines tools (from -71% to -76%). Overseas orders for industrial machinery continued to decline in Japan, Europe and America, but were up in Taiwan and China due to progress with inventory adjustments in those two markets. At ¥2,443 (August 21 closing price), the shares are now selling at 14x management's EPS guidance for FY Dec-19. The 5-year P/E range is 11x - 30x. The orders trend and projected valuation are positive, but a V-shaped profit recovery seems unlikely. 

THK (6481 JP): YoY Orders Comparisons Starting to Improve

Thk Co Ltd

THK (6481 JP): YoY Orders Comparisons Starting to Improve