Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Tokyo Electron Limited manufactures and sells industrial electronics products, such as semiconductor manufacturing machines, computer system, and electronic components.  The Company products are sold in US, Taiwan, and others as well as in Japan.

<ul>
<li>Tokyo Electron's share price dropped 18% on Friday following the announcement of weak Q1 results and a huge downward revision to H2 FY Mar-26 guidance. </li>
<li>Push-Outs and/or cancellations of orders due to the uncertainty caused by President Trump apparently caught managment by surprise. Costs also rising as management ramps up capex and R&amp;D.</li>
<li>Impact of Trump's yet-to-be-announced tariffs on semiconductors is still unknown, but 15% base rate on Japan already a negative. </li>
</ul>


Tokyo Electron's share price dropped 18% on Friday following the announcement of weak Q1 results and a huge downward revision to H2 FY Mar-26 guidance. 
Push-Outs and/or cancellations of orders due to the uncertainty caused by President Trump apparently caught managment by surprise. Costs also rising as management ramps up capex and R&amp;D.
Impact of Trump's yet-to-be-announced tariffs on semiconductors is still unknown, but 15% base rate on Japan already a negative. 


Tokyo Electron (8035 JP): Why the Big Downward Revision?

NIDEC CORPORATION is the world's leading manufacturer of small precision motors mainly used in HDD and optical disk drives. The company has extended its focus to the home appliance and automotive markets. NIDEC is active in M&A and its subsidiaries include the world's leading manufacturers of LCD panel handling robots and camera shutters.

<ul>
<li>Nidec has opened a new motor factory in China to meet an anticipated increase in demand for home appliances. </li>
<li>Sensing an opportunity for growth, management is already considering the construction of a second factory. </li>
<li>This fits with the Chinese government's efforts to promote domestic demand and with Nidec's need for a new growth driver in China.</li>
</ul>


Nidec has opened a new motor factory in China to meet an anticipated increase in demand for home appliances. 
Sensing an opportunity for growth, management is already considering the construction of a second factory. 
This fits with the Chinese government's efforts to promote domestic demand and with Nidec's need for a new growth driver in China.


Kawasaki Heavy Industries / Equity Bottom-Up

Kawasaki Heavy Industries, Ltd. designs, develops, and manufactures transport equipment and industrial heavy machinery for military and commercial use.  The Company produces ships, railroad cars, aircraft engines and parts, hydraulic and gas turbines, submarine engines, boilers, and industrial robots.  Kawasaki Heavy Industries offers engineering and construction services to industrial plants.

<ul>
<li>KHI has retreated 12% from its June 30 high, but is still 69% above its April low, despite guiding for a decline in orders and weak profits in FY Mar-26.</li>
<li>Orders from Japan's Ministry of Defense are forecast to drop from ¥772.3 billion to ¥400 billion this fiscal year, while the overall profit of the Aerospace division drops 14%.</li>
<li>The potential impact of U.S. tariffs on Power Sports &amp; Engines is not factored into guidance, offsetting  what otherwise seem to be conservative assumptions.</li>
</ul>


KHI has retreated 12% from its June 30 high, but is still 69% above its April low, despite guiding for a decline in orders and weak profits in FY Mar-26.
Orders from Japan's Ministry of Defense are forecast to drop from ¥772.3 billion to ¥400 billion this fiscal year, while the overall profit of the Aerospace division drops 14%.
The potential impact of U.S. tariffs on Power Sports &amp; Engines is not factored into guidance, offsetting  what otherwise seem to be conservative assumptions.


Kawasaki Heavy Industries (7012 JP): Sell into Strength

TOWA CORPORATION produces semiconductor manufacturing equipment including mold packaging, IC inspection units, precision molds and dies, and plastic molds. The Company also provides technical consultation.

<ul>
<li>After nearly two years of decline, TOWA's new orders appear to have hit bottom this quarter and should start to recover in the three months to September.</li>
<li>Sales and profits should follow a similar trajectory with management expecting nearly 60% of FY Mar-26 sales and more than 80% of operating profit to be recorded in 2H.</li>
<li>Rising demand for AI-related high-bandwidth memory (HBM) and GPU packaging should drive growth for the next 2-3 years, bringing the projected P/E ratio for FY Mar-28 down to 12X.</li>
</ul>


After nearly two years of decline, TOWA's new orders appear to have hit bottom this quarter and should start to recover in the three months to September.
Sales and profits should follow a similar trajectory with management expecting nearly 60% of FY Mar-26 sales and more than 80% of operating profit to be recorded in 2H.
Rising demand for AI-related high-bandwidth memory (HBM) and GPU packaging should drive growth for the next 2-3 years, bringing the projected P/E ratio for FY Mar-28 down to 12X.


Mitsubishi Heavy Industries / Equity Bottom-Up

Mitsubishi Heavy Industries, Ltd. is a comprehensive heavy machinery maker. The Company manufactures machinery, ships, turbines and engines, prime movers, aircrafts, and machine parts for military and commercial use.  Mitsubishi Heavy Industries also researches and develops nuclear power plants.

<ul>
<li>MHI is up nearly 60% year-to-date to 46x management's EPS guidance for FY Mar-26 and 27x our EPS estimate for FY Mar-30.</li>
<li>By then, we expect Air, Defense &amp; Space revenues to double and the division's operating margin to rise from 10% to 15%, which is the likely cap on profitability. </li>
<li>Given Japan's uncertain finances and the long time horizon that should already be discounted, we recommend profit taking. </li>
</ul>


MHI is up nearly 60% year-to-date to 46x management's EPS guidance for FY Mar-26 and 27x our EPS estimate for FY Mar-30.
By then, we expect Air, Defense &amp; Space revenues to double and the division's operating margin to rise from 10% to 15%, which is the likely cap on profitability. 
Given Japan's uncertain finances and the long time horizon that should already be discounted, we recommend profit taking. 


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.

Scott Foster
Senior Technology Analyst, Japanese Equities
• LightStream Research

Tokyo Electron (8035 JP): Why the Big Downward Revision?

Weak 1Q and big downward revision to sales and profit guidance reveals poor visibility into customer uncertainty, plus impact of tariffs, problems...

Scott Foster

Nidec (6594 JP): New Factory in China

New factory should lift sales after two flat years in China. Management optimistic enough to already consider a second factory. No visible exposure...

Scott Foster

Kawasaki Heavy Industries (7012 JP): Sell into Strength

Share price slipping after 86% run-up since early April, but defense orders could drop by nearly half this year while profits are hit by poor...

Scott Foster

Towa (6315): Buy for Orders Rebound

Sales and profits should rebound in 2H of FY Mar-26. Rising demand for high-bandwidth memory and GPU packaging equipment should bring the projected...

Scott Foster

MHI (7011 JP): Take Profits

Take profits, but don't short the stock without an obvious catalyst (high valuation doesn't count). Rising Japanese defense outlays should drive...

Scott Foster