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): 1H Results Above Guidance

Equity Bottom-Up

<p>Smart Infrastructure (surveying, 3D laser scanning &amp; mapping) and Positioning (GNSS receivers, machine control, precision agriculture) equipment led a strong 1Q, with operating profit up 79.6% year-on-year on a 20.4% increase in sales in the three months to June. External sales of Smart Infrastructure were up 25.1% year-on-year and the division's operating profit rose 2.7x. Positioning sales were up 31.9% and operating profit rose 2.3x. On the negative side, Eye Care sales (opthalmic &amp; refraction instruments) were up only 3.1% and the division dropped into the red due to weak demand in Europe and higher R&amp;D expenses. Smart Infrastructure sales were led by automation in the Japanese construction industry. Positioning sales were also driven by automation, supporting our thesis that the company  stands to benefit from rising demand for IT-enhanced infrastructure construction and agriculture. </p><p>We have revised our sales and profit forecast for this fiscal year and next to reflect these factors and a higher effective tax rate, and added new estimates for FY Mar-20. Our share price target remains ¥2,600, indicating 38% potential upside from the August 1 closing price of ¥1,888.</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>

Smart Infrastructure (surveying, 3D laser scanning &amp; mapping) and Positioning (GNSS receivers, machine control, precision agriculture) equipment led a strong 1Q, with operating profit up 79.6% year-on-year on a 20.4% increase in sales in the three months to June. External sales of Smart Infrastructure were up 25.1% year-on-year and the division's operating profit rose 2.7x. Positioning sales were up 31.9% and operating profit rose 2.3x. On the negative side, Eye Care sales (opthalmic &amp; refraction instruments) were up only 3.1% and the division dropped into the red due to weak demand in Europe and higher R&amp;D expenses. Smart Infrastructure sales were led by automation in the Japanese construction industry. Positioning sales were also driven by automation, supporting our thesis that the company  stands to benefit from rising demand for IT-enhanced infrastructure construction and agriculture. We have revised our sales and profit forecast for this fiscal year and next to reflect these factors and a higher effective tax rate, and added new estimates for FY Mar-20. Our share price target remains ¥2,600, indicating 38% potential upside from the August 1 closing price of ¥1,888.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): Strong 1Q Led by Infrastructure & Positioning

Topcon Corp

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