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

SMC (6273 JP): Deceleration Continues in 1Q

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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

<p>SMC has dropped 18% from a record high of ¥55,830 on January 18 to ¥45,850 at the February 9 close. Meanwhile, results for the three months to December show sales and operating profit up sharply year-on-year but leveling off sequentially. Management is guiding for large declines in both of these measures in 4Q. This is probably conservative and points to an upward revision before FY Mar-18 results are announced - most likely an upward revision confirming that sales and operating profit have leveled off. </p><p>At the company's meeting for analysts last November, management talked about strong underlying demand from the semiconductor, auto and machine tool industries, but also noted "panic orders" from customers afraid they might not get key components in time. This suggests demand pulled in, if not over-booking. </p><p>The shares are now selling at 22x our EPS estimate for FY Mar-18 EPS, 23x our estimate for FY Mar-19 and 21x our estimate for FY Mar-20. Excluding the past month, these and other valuations are near the top of their recent historical ranges. They do not appear excessive in comparison with those of leading factory automation related shares such as Yaskawa (6506 JP) and Nidec (6594 JP), but SMC's product line is not as sophisticated and there are unproven but perennial concerns about its accounting. For reference, using 20x our EPS estimate for FY Mar-19 yields a price target of ¥40,000 (13% downside), while 25x our estimate for FY Mar-20 yields a target of ¥54,000 (18% upside).  </p><div class="content-highlight"><p>A leading supplier of pneumatic and other automated control equipment for the electronics, auto, machine tool and other industries, SMC is highly geared to investment in semiconductor production capacity and factory automation. </p></div>

SMC has dropped 18% from a record high of ¥55,830 on January 18 to ¥45,850 at the February 9 close. Meanwhile, results for the three months to December show sales and operating profit up sharply year-on-year but leveling off sequentially. Management is guiding for large declines in both of these measures in 4Q. This is probably conservative and points to an upward revision before FY Mar-18 results are announced - most likely an upward revision confirming that sales and operating profit have leveled off. At the company's meeting for analysts last November, management talked about strong underlying demand from the semiconductor, auto and machine tool industries, but also noted "panic orders" from customers afraid they might not get key components in time. This suggests demand pulled in, if not over-booking. The shares are now selling at 22x our EPS estimate for FY Mar-18 EPS, 23x our estimate for FY Mar-19 and 21x our estimate for FY Mar-20. Excluding the past month, these and other valuations are near the top of their recent historical ranges. They do not appear excessive in comparison with those of leading factory automation related shares such as Yaskawa (6506 JP) and Nidec (6594 JP), but SMC's product line is not as sophisticated and there are unproven but perennial concerns about its accounting. For reference, using 20x our EPS estimate for FY Mar-19 yields a price target of ¥40,000 (13% downside), while 25x our estimate for FY Mar-20 yields a target of ¥54,000 (18% upside).  A leading supplier of pneumatic and other automated control equipment for the electronics, auto, machine tool and other industries, SMC is highly geared to investment in semiconductor production capacity and factory automation. 

SMC(6273 JP): 주가 18% 하락, 이익은 정체

SMC Corp

SMC(6273 JP): 주가 18% 하락, 이익은 정체