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

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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

Since June 7, when Japan's Nikkei newspaper reported that Hitachi Ltd. (6501 JP) is thinking about making Hitachi High-Technologies (8036 JP) a wholly-owned subsidiary and then reorganizing its various businesses to fit its new strategic plan, the shares of Hitachi Ltd. have risen by 5%. Hitachi Ltd. currently owns 51.6% of Hitachi High-Technologies, which makes semiconductor production equipment, medical equipment, electron microscopes and other analytical instruments, and distributes industrial &amp; IT systems and industrial materials &amp; components.Both companies issued press releases denying that they they had disclosed this information but, as noted by David Rubenstein in <a href="https://www.smartkarma.com/insights/hitachi-s-hidden-gem-out-of-the-bag" target="_blank" data-smartkarma-citation="insights:30275">Hitachi's Hidden Gem Out Of The Bag</a>, "the Nikkei usually bases its speculation on factual sources." A spin-off of Hitachi High-Technologies' semiconductor equipment business would be consistent with the sale of Hitachi Kokusai's semiconductor equipment business to KKR in 2017, while medical equipment, microscopes and other analytical instruments would probably fit with Hitachi Ltd.'s health care and other businesses. The distribution businesses could also be folded into the parent company's existing operations.As we noted in <a href="https://www.smartkarma.com/insights/hitachi-ltd-6501-jp-new-mid-term-plan" target="_blank" data-smartkarma-citation="insights:29427">Hitachi Ltd. (6501 JP): New Mid-Term Plan</a>, Hitachi High-Technologies and three other listed subsidiaries - Hitachi Construction Machinery (6305 JP - 50.2% owned), Hitachi Metals (5486 JP - 52.7% owned) and Hitachi Chemical (4217 JP - 51.2% owned) - are now classified as independent segments in the parent company's consolidated accounts, suggesting that they are candidates for restructuring. In late April, the Japanese press reported that Hitachi Ltd. is planning to sell Hitachi Chemical.At ¥4,000 (Wednesday, June 12, close), Hitachi Ltd. shares are now selling at 9x management's EPS guidance for FY Mar-20, which compares with a 6-year P/E range of 6x - 24x. Assuming no major write-downs and a normal tax rate, the achievement of management's mid-term targets could bring the P/E down to 7x. In our view, Hitachi's restructuring efforts are not sufficiently appreciated and, from a long-term perspective, its shares are under-valued.

Since June 7, when Japan's Nikkei newspaper reported that Hitachi Ltd. (6501 JP) is thinking about making Hitachi High-Technologies (8036 JP) a wholly-owned subsidiary and then reorganizing its various businesses to fit its new strategic plan, the shares of Hitachi Ltd. have risen by 5%. Hitachi Ltd. currently owns 51.6% of Hitachi High-Technologies, which makes semiconductor production equipment, medical equipment, electron microscopes and other analytical instruments, and distributes industrial &amp; IT systems and industrial materials &amp; components.Both companies issued press releases denying that they they had disclosed this information but, as noted by David Rubenstein in Hitachi's Hidden Gem Out Of The Bag, "the Nikkei usually bases its speculation on factual sources." A spin-off of Hitachi High-Technologies' semiconductor equipment business would be consistent with the sale of Hitachi Kokusai's semiconductor equipment business to KKR in 2017, while medical equipment, microscopes and other analytical instruments would probably fit with Hitachi Ltd.'s health care and other businesses. The distribution businesses could also be folded into the parent company's existing operations.As we noted in Hitachi Ltd. (6501 JP): New Mid-Term Plan, Hitachi High-Technologies and three other listed subsidiaries - Hitachi Construction Machinery (6305 JP - 50.2% owned), Hitachi Metals (5486 JP - 52.7% owned) and Hitachi Chemical (4217 JP - 51.2% owned) - are now classified as independent segments in the parent company's consolidated accounts, suggesting that they are candidates for restructuring. In late April, the Japanese press reported that Hitachi Ltd. is planning to sell Hitachi Chemical.At ¥4,000 (Wednesday, June 12, close), Hitachi Ltd. shares are now selling at 9x management's EPS guidance for FY Mar-20, which compares with a 6-year P/E range of 6x - 24x. Assuming no major write-downs and a normal tax rate, the achievement of management's mid-term targets could bring the P/E down to 7x. In our view, Hitachi's restructuring efforts are not sufficiently appreciated and, from a long-term perspective, its shares are under-valued.

日立製作所（6501 JP）：リストラ報道で株価上昇