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

Hamamatsu Photonics (6965 JP): Strong 1Q, Buy-Back Underway

Hamamatsu Photonics (6965 JP): Good Results, Conservative Guidance

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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

Hamamatsu Photonics Kk / Equity Bottom-Up

On Friday, May 11, Hamamatsu Photonics hit a new high of ¥4,480 and closed at ¥4,470 on the back of good 1H results and a convincing presentation to analysts and investors on Wednesday. The share price has risen 18% since January and is up 35% from its 52-week low of ¥3,310, which was recorded last August.Consolidated sales were up 12.5%, operating profit was up 34.3% and net profit was up 17.0% year-on-year in the six months to March, exceeding the guidance issued three months earlier by wide margins.  FY Sep-18 full-year sales and profit guidance has been raised significantly. Guidance for FY Sep-19 and FY Sep-20 remains unchanged.The shares are now selling at 36x management's EPS guidance for this fiscal year and, assuming no change in the share count, 35x implied EPS guidance for next year and 30x implied EPS guidance for FY Sep 20 (management has issued net profit guidance for these two years, but not EPS guidance). This puts them at the top of their historical valuation range. The charts (see below) show the absolute share price just starting to touch overvalued territory while the relative price is not even close.FY Sep-18 guidance, which was extremely conservative three months ago, now looks reasonable, suggesting that the shares are likely to consolidate until we have convincing visibility into next fiscal year. Year-on-year growth in sales to the medical equipment market (35% of total sales) dropped below 5% in 1H and North American sales were down. Growth in sales to the semiconductor and factory automation industries, and the instrument and academic research markets, declined in 2Q.<div class="content-highlight">Hamamatsu Photonics is one of Japan's most successful makers of optical and electronic devices, with more than 90% of the global market for photon multiplier tubes (PMTs - highly sensitive light sensors) and a leading position in opto-semiconductors. It is more profitable than the average Japanese technology company, with an operating margin of 17.5% last fiscal year, and it is financially sound, with a current ratio of 3.8x and net cash equal to 33% of equity at the end of Mar-18. </div>

On Friday, May 11, Hamamatsu Photonics hit a new high of ¥4,480 and closed at ¥4,470 on the back of good 1H results and a convincing presentation to analysts and investors on Wednesday. The share price has risen 18% since January and is up 35% from its 52-week low of ¥3,310, which was recorded last August.Consolidated sales were up 12.5%, operating profit was up 34.3% and net profit was up 17.0% year-on-year in the six months to March, exceeding the guidance issued three months earlier by wide margins.  FY Sep-18 full-year sales and profit guidance has been raised significantly. Guidance for FY Sep-19 and FY Sep-20 remains unchanged.The shares are now selling at 36x management's EPS guidance for this fiscal year and, assuming no change in the share count, 35x implied EPS guidance for next year and 30x implied EPS guidance for FY Sep 20 (management has issued net profit guidance for these two years, but not EPS guidance). This puts them at the top of their historical valuation range. The charts (see below) show the absolute share price just starting to touch overvalued territory while the relative price is not even close.FY Sep-18 guidance, which was extremely conservative three months ago, now looks reasonable, suggesting that the shares are likely to consolidate until we have convincing visibility into next fiscal year. Year-on-year growth in sales to the medical equipment market (35% of total sales) dropped below 5% in 1H and North American sales were down. Growth in sales to the semiconductor and factory automation industries, and the instrument and academic research markets, declined in 2Q.Hamamatsu Photonics is one of Japan's most successful makers of optical and electronic devices, with more than 90% of the global market for photon multiplier tubes (PMTs - highly sensitive light sensors) and a leading position in opto-semiconductors. It is more profitable than the average Japanese technology company, with an operating margin of 17.5% last fiscal year, and it is financially sound, with a current ratio of 3.8x and net cash equal to 33% of equity at the end of Mar-18. 

浜松ホトニクス（6965 JP）：上半期は好調、ガイダンスを引き上げ、評価額は満額