Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, 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.

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

Equity Bottom-Up

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>Japan's rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.</li>
<li>Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.</li>
<li>Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive. </li>
</ul>


Japan's rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.
Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.
Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive. 


IHI (7013 JP): 30% Upside Potential as Aerospace and Defense Rebound

ROHM COMPANY LIMITED manufactures custom linear integrated circuits and semiconductor devices for use primarily in consumer electronics.  The Company has plants and sales offices worldwide.  Rohm's subsidiaries include Wako Electric and Apollo Electronics.

<ul>
<li>Japanese semiconductor equipment stocks have started to drop back, but device maker Rohm is already down 25% year-to-date and down 43% from its 52-week high. </li>
<li>Rohm's operating profit fell 53% last fiscal year and management is guiding for a 68% decline in in FY Mar-25. Investment in power devices remains strong despite weak sales.</li>
<li>1H guidance is for an 80% year-on-year decline in operating profit on a 6% decline in sales. Buy into this weakness. Recovery should start in 2H.</li>
</ul>


Japanese semiconductor equipment stocks have started to drop back, but device maker Rohm is already down 25% year-to-date and down 43% from its 52-week high. 
Rohm's operating profit fell 53% last fiscal year and management is guiding for a 68% decline in in FY Mar-25. Investment in power devices remains strong despite weak sales.
1H guidance is for an 80% year-on-year decline in operating profit on a 6% decline in sales. Buy into this weakness. Recovery should start in 2H.


Rohm (6963 JP): Negative Scenario Discounted

Hamamatsu Photonics Kk / Equity Bottom-Up

HAMAMATSU PHOTONICS K.K. manufactures electron tubes, semiconductors, and image processors.  The Company's products include photosensitive electronic tubes, optical/image sensors, X-ray related products, laser related products, photodiodes, light-emitting diodes (LED) and video camera used for measuring equipment.

<ul>
<li>The company has slashed FY Sep-24 guidance after missing 1H sales and profit targets by wide margins. Dividend maintained, 2-for-1 split planned and buyback under consideration.</li>
<li>Capex has been cut, reflecting lower growth expectations. R&amp;D also. Inventory adjustments will eventually be completed, but Chinese competiton will remain a problem.</li>
<li>The share price has dropped 30% in the past year and 10.5% since May 8, putting the shares on 27 times EPS guidance. Still not cheap, but getting there.</li>
</ul>


The company has slashed FY Sep-24 guidance after missing 1H sales and profit targets by wide margins. Dividend maintained, 2-for-1 split planned and buyback under consideration.
Capex has been cut, reflecting lower growth expectations. R&amp;D also. Inventory adjustments will eventually be completed, but Chinese competiton will remain a problem.
The share price has dropped 30% in the past year and 10.5% since May 8, putting the shares on 27 times EPS guidance. Still not cheap, but getting there.


Hamamatsu Photonics (6965 JP): Look Cautiously to the Long Term

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>FY Mar-24 results were ahead of guidance, but management's FY Mar-25 forecast has sales flat and profits down in the second half.</li>
<li>The shares have dropped back 24% from their all-time high, bringing the forward P/E ratio down to 22X.</li>
<li>China and foundry remain strong while North America and memory pick up. Guidance is probably conservative. Buy into the weakness.</li>
</ul>


FY Mar-24 results were ahead of guidance, but management's FY Mar-25 forecast has sales flat and profits down in the second half.
The shares have dropped back 24% from their all-time high, bringing the forward P/E ratio down to 22X.
China and foundry remain strong while North America and memory pick up. Guidance is probably conservative. Buy into the weakness.


Screen Holdings (7735 JP): Guiding for Lower Profits in H2

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.