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

Lasertec (6920 JP): Orders Delayed, Guidance Unchanged

Lasertec (6920 JP): Time to Have Another Look

Lasertec (6920 JP): Base for Long-Term Investment

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

<ul><li>Lasertec's share price has tripled in the past year, reflecting strong demand for equipment used in the semiconductor and flat panel display (FPD) manufacturing processes and its own strong order book. A producer of photomask and mask blank, silicon wafer, lithography process and other inspection systems, the company is geared to the growth of the semiconductor industry, to finer design rules and, to a lesser degree, to investment in new FPD capacity. Management expects the advent of Extreme Ultraviolet (EUV) lithography and rapidly expanding demand in China to lift sales and profits to a much higher level over the next three years. </li><li>Sales were ¥17.4 billion in FY Jun-17, new orders received were ¥25.4 billion and the order backlog was ¥18.3 billion at the end of the term. In September, management announced new orders for semiconductor-related products amounting to about ¥16 billion. For FY Jun-18 as a whole, they are guiding for semiconductor-related orders of ¥32 billion and total orders, including services, of ¥40 billion. FY Jun-18 sales guidance is just ¥21 billion (+21.5%), probably too low but still indicating substantial growth ahead.</li><li>FY Jun-18 operating profit guidance is just ¥5 billion (+2%) due, according to management, to a planned doubling of R&amp;D spending. But this implies either unusually high growth in SG&amp;A expenses or a lower gross margin, neither of which were visible in 1Q ended September. An upward revision to profit guidance seems likely. In FY Jun-19, the orders trend indicates that sales could grow by 25% and profits by 40%.</li><li>The relative price chart (see below) suggests that Lasertec is overbought, but anticipated orders, sales and profits indicate a re-rating driven by a fundamental expansion of the company's business. At ¥3,450 (January 5 close), the shares are selling at 25x - 30x estimated earnings and 5x book value two years out - not excessive compared with other Japanese tech shares, but discounting much if not all of the anticipated growth. </li><li>2Q results are scheduled to be announced on February 5.</li></ul>

Lasertec's share price has tripled in the past year, reflecting strong demand for equipment used in the semiconductor and flat panel display (FPD) manufacturing processes and its own strong order book. A producer of photomask and mask blank, silicon wafer, lithography process and other inspection systems, the company is geared to the growth of the semiconductor industry, to finer design rules and, to a lesser degree, to investment in new FPD capacity. Management expects the advent of Extreme Ultraviolet (EUV) lithography and rapidly expanding demand in China to lift sales and profits to a much higher level over the next three years. Sales were ¥17.4 billion in FY Jun-17, new orders received were ¥25.4 billion and the order backlog was ¥18.3 billion at the end of the term. In September, management announced new orders for semiconductor-related products amounting to about ¥16 billion. For FY Jun-18 as a whole, they are guiding for semiconductor-related orders of ¥32 billion and total orders, including services, of ¥40 billion. FY Jun-18 sales guidance is just ¥21 billion (+21.5%), probably too low but still indicating substantial growth ahead.FY Jun-18 operating profit guidance is just ¥5 billion (+2%) due, according to management, to a planned doubling of R&amp;D spending. But this implies either unusually high growth in SG&amp;A expenses or a lower gross margin, neither of which were visible in 1Q ended September. An upward revision to profit guidance seems likely. In FY Jun-19, the orders trend indicates that sales could grow by 25% and profits by 40%.The relative price chart (see below) suggests that Lasertec is overbought, but anticipated orders, sales and profits indicate a re-rating driven by a fundamental expansion of the company's business. At ¥3,450 (January 5 close), the shares are selling at 25x - 30x estimated earnings and 5x book value two years out - not excessive compared with other Japanese tech shares, but discounting much if not all of the anticipated growth. 2Q results are scheduled to be announced on February 5.

Lasertec (6920 JP): A Fundamental Re-Rating

Lasertec Corp

Lasertec (6920 JP): A Fundamental Re-Rating