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

Topcon (7732 JP): Ready for the Fourth Industrial Revolution

Topcon (7732 JP): Strong 1Q Led by Infrastructure & Positioning

Equity Bottom-Up

<p>Sales were up 17.4% and operating profit was up 21.6% year-on-year in the six months to September, exceeding management's guidance by substantial margins. Flat sales in China were offset by double-digit growth in the rest of Asia &amp; Oceania, North America, Europe, Japan and Other Regions. Smart Infrastructure sales were up 13.6%, Positioning sales up 29.4% and Eye Care sales up 9.0%. Eye Care returned to profitability in 2Q. A shift from forex losses to forex gains contributed to a 2.9x increase in net profit.</p><p>Management has raised sales guidance for FY Mar-18, but left profit guidance unchanged, and is now targeting 7.5% sales growth and 25.6% growth in operating profit in the year as a whole. Our own full-year profit estimates are above guidance, while our sales estimate, which now looks conservative, is below. We will review our forecast after discussing project timing and profitability with management. Our price target remains ¥2,600, indicating 10% potential upside from the October 27 close of ¥2,363. </p><div class="content-highlight"><p>Topcon is a Japanese manufacturer of precision optical instruments. It has also invested in and tied-up with several companies and research institutes overseas in order to incorporate software, data analytics, mobile connectivity and cloud services into its business model, which should enable it to ride the wave of the Fourth Industrial Revolution rather than being left behind as a low margin supplier of basic hardware. It stands to benefit from rising demand for IT-enhanced infrastructure construction and agriculture, and the growing need for early identification and treatment of eye diseases in an aging population. </p></div>

Sales were up 17.4% and operating profit was up 21.6% year-on-year in the six months to September, exceeding management's guidance by substantial margins. Flat sales in China were offset by double-digit growth in the rest of Asia &amp; Oceania, North America, Europe, Japan and Other Regions. Smart Infrastructure sales were up 13.6%, Positioning sales up 29.4% and Eye Care sales up 9.0%. Eye Care returned to profitability in 2Q. A shift from forex losses to forex gains contributed to a 2.9x increase in net profit.Management has raised sales guidance for FY Mar-18, but left profit guidance unchanged, and is now targeting 7.5% sales growth and 25.6% growth in operating profit in the year as a whole. Our own full-year profit estimates are above guidance, while our sales estimate, which now looks conservative, is below. We will review our forecast after discussing project timing and profitability with management. Our price target remains ¥2,600, indicating 10% potential upside from the October 27 close of ¥2,363. Topcon is a Japanese manufacturer of precision optical instruments. It has also invested in and tied-up with several companies and research institutes overseas in order to incorporate software, data analytics, mobile connectivity and cloud services into its business model, which should enable it to ride the wave of the Fourth Industrial Revolution rather than being left behind as a low margin supplier of basic hardware. It stands to benefit from rising demand for IT-enhanced infrastructure construction and agriculture, and the growing need for early identification and treatment of eye diseases in an aging population. 

Topcon (7732 JP): 1H Results Above Guidance

Topcon Corp

Topcon (7732 JP): 1H Results Above Guidance