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): FA Sales Down 9.5% in August

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

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

Misumi Group's quarter performance has taken a sudden turn for the worse, with sales down 7.5%, operating profit down 35.3% and net profit down 33.8% year-on-year in the three months to June. By division, Factory Automation sales were down 15.4% and operating profit down 45.1%, Die Component sales were down 3.6% and operating profit down 37.4%, and VONA sales were down 3.1% but operating profit up 1.0% due to cost cutting. Sales were down 3.% in Japan, down 12.1% in China, down 21.6% in the rest of Asia and down 3.9% in Europe, but up 3.0% in North America.Despite weak 1Q results, management continues to guide for a strong rebound - starting now. This seems unlikely. 1H guidance implies a 10% year-on-year increase in sales in 2Q and 30% increases in operating and net profit. As before, we expect results to fall well short of guidance, with no significant recovery until next year. At ¥2,530 (Friday, July 26, closing price), the shares are selling at 28x management's EPS guidance for FY Mar-20. On our estimates, the projected P/E ratios are 33x for this fiscal year and 26x for FY Mar-21. These and other projected valuation multiples are on the high side of their 5-year historical ranges. Given the weak 1Q results, the likelihood of one or more downward revisions to guidance this fiscal year, and the damage caused to investment sentiment by trade friction and slowing economic growth, we expect the shares to retest their 52-week low (¥2,001). A share price of ¥2,000 (21% below the current price) would put the shares on 20x our EPS estimate for FY Mar-21.

Misumi Group's quarter performance has taken a sudden turn for the worse, with sales down 7.5%, operating profit down 35.3% and net profit down 33.8% year-on-year in the three months to June. By division, Factory Automation sales were down 15.4% and operating profit down 45.1%, Die Component sales were down 3.6% and operating profit down 37.4%, and VONA sales were down 3.1% but operating profit up 1.0% due to cost cutting. Sales were down 3.% in Japan, down 12.1% in China, down 21.6% in the rest of Asia and down 3.9% in Europe, but up 3.0% in North America.Despite weak 1Q results, management continues to guide for a strong rebound - starting now. This seems unlikely. 1H guidance implies a 10% year-on-year increase in sales in 2Q and 30% increases in operating and net profit. As before, we expect results to fall well short of guidance, with no significant recovery until next year. At ¥2,530 (Friday, July 26, closing price), the shares are selling at 28x management's EPS guidance for FY Mar-20. On our estimates, the projected P/E ratios are 33x for this fiscal year and 26x for FY Mar-21. These and other projected valuation multiples are on the high side of their 5-year historical ranges. Given the weak 1Q results, the likelihood of one or more downward revisions to guidance this fiscal year, and the damage caused to investment sentiment by trade friction and slowing economic growth, we expect the shares to retest their 52-week low (¥2,001). A share price of ¥2,000 (21% below the current price) would put the shares on 20x our EPS estimate for FY Mar-21.

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