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

Misumi Group (9962 JP): Weak 1Q Points to Downward Revisions to Guidance

Misumi Group (9962 JP): FA Sales Down 9.5% in August

Misumi Group (9962 JP): Another Downward Revision

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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

Data for May shows total consolidated sales down 10.5% year-on-year, the third straight month of decline. Factory Automation sales were down 19.3%, Die Component sales down 5.9% and VONA sales down 5.7%. May was worse than April for all three divisions. For the six months to September, management is guiding for 0.9% year-on-year sales growth and a 6.9% decline in operating profit. This already looks difficult to achieve. For FY Mar-20 as a whole, they are guiding for 6.9% sales growth and an 11.1% increase in operating profit, implying 13.1% year-on-year sales growth and a 28.9% increase in operating profit in 2H. This looks very optimistic. In our view, significant recovery is unlikely until next year. For FY Mar-20, we are forecasting flat sales and a 6% decline in operating profit. At ¥2,635 (Monday, June 24, closing price), the shares are selling at 29x management's EPS guidance for FY Mar-20. On our estimates, the projected P/E ratios are 34X for this fiscal year and 27X for FY Mar-21. These multiples are on the high side of their 5-year historical ranges.The company continues to invest in production capacity, logistics and IT, aiming to expand its Factory Automation and VONA e-commerce businesses in Japan, Asia, America and Europe. The goal is to create a unified, cloud-based, rapid-response distribution system with the world's largest components and production materials database. The anticipated success of this plan appears to explain both the reasonably stable share price and relatively high current valuations. But we expect recovery to take longer and come with lower margins than investors might expect.

Data for May shows total consolidated sales down 10.5% year-on-year, the third straight month of decline. Factory Automation sales were down 19.3%, Die Component sales down 5.9% and VONA sales down 5.7%. May was worse than April for all three divisions. For the six months to September, management is guiding for 0.9% year-on-year sales growth and a 6.9% decline in operating profit. This already looks difficult to achieve. For FY Mar-20 as a whole, they are guiding for 6.9% sales growth and an 11.1% increase in operating profit, implying 13.1% year-on-year sales growth and a 28.9% increase in operating profit in 2H. This looks very optimistic. In our view, significant recovery is unlikely until next year. For FY Mar-20, we are forecasting flat sales and a 6% decline in operating profit. At ¥2,635 (Monday, June 24, closing price), the shares are selling at 29x management's EPS guidance for FY Mar-20. On our estimates, the projected P/E ratios are 34X for this fiscal year and 27X for FY Mar-21. These multiples are on the high side of their 5-year historical ranges.The company continues to invest in production capacity, logistics and IT, aiming to expand its Factory Automation and VONA e-commerce businesses in Japan, Asia, America and Europe. The goal is to create a unified, cloud-based, rapid-response distribution system with the world's largest components and production materials database. The anticipated success of this plan appears to explain both the reasonably stable share price and relatively high current valuations. But we expect recovery to take longer and come with lower margins than investors might expect.

Misumi Group (9962 JP): Sales Down Again in May, Guidance Already Looks Too High