Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Mitsubishi Heavy Industries / Equity Bottom-Up

Mitsubishi Heavy Industries, Ltd. is a comprehensive heavy machinery maker. The Company manufactures machinery, ships, turbines and engines, prime movers, aircrafts, and machine parts for military and commercial use.  Mitsubishi Heavy Industries also researches and develops nuclear power plants.

<ul>
<li>The next leader of Japan's ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation's defense policy.</li>
<li>Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.</li>
<li>MHI's valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.</li>
</ul>


The next leader of Japan's ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation's defense policy.
Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.
MHI's valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.


MHI (7011 JP): Election Unlikely to Affect Defense Budget

SCREEN Holdings Co Ltd.  manufactures and sell semiconductors, FPD devices, commercial printing and printed circuit boards(PCB). The company also provides additional services for its products.

<ul>
<li>Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. </li>
<li>However, management is guiding for slightly lower operating profit in 2H, and Intel's capex cuts also support a cautious outlook. </li>
<li>Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. </li>
</ul>


Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. 
However, management is guiding for slightly lower operating profit in 2H, and Intel's capex cuts also support a cautious outlook. 
Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. 


Screen Holdings (7735 JP): Still a Buy for the Bounce

IHI Corporation manufactures heavy machinery. The Company produces aircraft jet engines, rocket propulsion systems, and ships for military and commercial use. Ishikawajima-Harima also constructs petroleum refineries and nuclear power plants.

<ul>
<li>1Q results supported management's full-year sales and profit guidance, which remains unchanged. Operating profit was up 2.7x YoY on a 17% increase in sales.</li>
<li>Total new orders received increased by only 4.2% YoY and fell short of sales, but Aerospace &amp; Defense orders were up 35.5% and slightly exceeded sales.</li>
<li>Our own forecast - above management's guidance this year with further growth next year - and our share price target are unchanged. 21% potential upside.</li>
</ul>


1Q results supported management's full-year sales and profit guidance, which remains unchanged. Operating profit was up 2.7x YoY on a 17% increase in sales.
Total new orders received increased by only 4.2% YoY and fell short of sales, but Aerospace &amp; Defense orders were up 35.5% and slightly exceeded sales.
Our own forecast - above management's guidance this year with further growth next year - and our share price target are unchanged. 21% potential upside.


IHI (7013 JP): Buy Back in for Post-Crash Recovery

NIDEC CORPORATION is the world's leading manufacturer of small precision motors mainly used in HDD and optical disk drives. The company has extended its focus to the home appliance and automotive markets. NIDEC is active in M&A and its subsidiaries include the world's leading manufacturers of LCD panel handling robots and camera shutters.

<ul>
<li>If further restructuring can be avoided, profitability should return to an acceptable level while sales growth continues. </li>
<li>The decline of EV prices has probably run its course and global demand for factory automation continues to rise despite weakness in China.</li>
<li>Projected valuations are at a 10-year low. Investor attention can now shift to economic and operating risks.</li>
</ul>


If further restructuring can be avoided, profitability should return to an acceptable level while sales growth continues. 
The decline of EV prices has probably run its course and global demand for factory automation continues to rise despite weakness in China.
Projected valuations are at a 10-year low. Investor attention can now shift to economic and operating risks.


Nidec (6594 JP): Buy into Current Decline

Thematic (Sector/Industry)

<ul>
<li>Irate U.S. politicians have gunned down their own tech sector, triggering declines of 7% to 20% among leading semiconductor equipment stocks outside China. </li>
<li>We expect a bounce after such large declines - and further gains for Naura and AMEC in China. </li>
<li>Investors now face difficult questions about the future of Chinese demand, the sustainability of the AI boom, and valuations. We are not optimistic.</li>
</ul>


Irate U.S. politicians have gunned down their own tech sector, triggering declines of 7% to 20% among leading semiconductor equipment stocks outside China. 
We expect a bounce after such large declines - and further gains for Naura and AMEC in China. 
Investors now face difficult questions about the future of Chinese demand, the sustainability of the AI boom, and valuations. We are not optimistic.


Semiconductor Equipment Stocks: A Bounce Before the Reckoning

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.