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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Showa Denko Pays BIG MONEY for Hitachi Chem (4217)

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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

<ul>
<li>Hitachi High-Tech's share price has risen by 2.4x over the past year, reaching a new high at least partially in anticipation of Hitachi Ltd. (6501 JP) buying the 48.4% of shares outstanding that it doesn't already own.</li>
<li>This would likely be in preparation for a division and partial sale of the company along the lines of Hitachi Kokusai (formerly 6756 JP). Hitachi Kokusai's semiconductor equipment division was sold to KKR in 2017. Hitachi High-Tech is an important supplier of semiconductor inspection and etch equipment.</li>
<li>This is speculation, but reasonable speculation. Hitachi High-Tech's sales and profits have been broken out as a separate segment in Hitachi Ltd.'s consolidated financial statements, suggesting that it is in line - perhaps next in line - for restructuring as part of the parent company's ongoing rationalization program.</li>
<li>Hitachi High-Tech has also changed its segment classifications, which would make it easier to divide into three parts: bio-medical and analytical systems, which would presumably kept by Hitachi Ltd.; semiconductor process and metrology equipment, which would presumably be sold; and industrial equipment, parts and materials sales, which might also be sold.  </li>
<li>At ¥7,920 (January 10 closing price), Hitachi High-Tech is selling at 25x management's EPS guidance for FY Mar-20, 11x projected EV/EBITDA and 2.5x book value at the end of September. These multiples are high for Hitachi High-Tech, but not in comparison with those of Hitachi Chemical (4217 JP), which is being sold to Showa Denko (see <a href="https://www.smartkarma.com/insights/showa-denko-pays-big-money-for-hitachi-chem-4217" target="_blank" data-smartkarma-citation="insights:35354" rel="noopener">Showa Denko Pays BIG MONEY for Hitachi Chem (4217)</a> by Travis Lundy). </li>
</ul>


Hitachi High-Tech's share price has risen by 2.4x over the past year, reaching a new high at least partially in anticipation of Hitachi Ltd. (6501 JP) buying the 48.4% of shares outstanding that it doesn't already own.
This would likely be in preparation for a division and partial sale of the company along the lines of Hitachi Kokusai (formerly 6756 JP). Hitachi Kokusai's semiconductor equipment division was sold to KKR in 2017. Hitachi High-Tech is an important supplier of semiconductor inspection and etch equipment.
This is speculation, but reasonable speculation. Hitachi High-Tech's sales and profits have been broken out as a separate segment in Hitachi Ltd.'s consolidated financial statements, suggesting that it is in line - perhaps next in line - for restructuring as part of the parent company's ongoing rationalization program.
Hitachi High-Tech has also changed its segment classifications, which would make it easier to divide into three parts: bio-medical and analytical systems, which would presumably kept by Hitachi Ltd.; semiconductor process and metrology equipment, which would presumably be sold; and industrial equipment, parts and materials sales, which might also be sold.  
At ¥7,920 (January 10 closing price), Hitachi High-Tech is selling at 25x management's EPS guidance for FY Mar-20, 11x projected EV/EBITDA and 2.5x book value at the end of September. These multiples are high for Hitachi High-Tech, but not in comparison with those of Hitachi Chemical (4217 JP), which is being sold to Showa Denko (see Showa Denko Pays BIG MONEY for Hitachi Chem (4217) by Travis Lundy). 


히타치 하이테크(8036 JP): 다음은 해체 및 매각 대상일까?