Independent Insight Provider, Japanese equities, LightStream Research

Scott Foster

Independent Insight Provider, 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

NEC Corporation manufactures and markets computers, telecommunication equipment, electronic devices, semiconductors, and software.  The Company's products include printers, modems, cellular phones, plasma display panels (PDP), network systems, memory, integrated circuits (IC), thin film transistor-liquid crystal display (TFT-LCD), and printed circuit boards (PCB). NEC operates worldwide.

<ul>
<li>NEC' is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.</li>
<li>Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. </li>
<li>Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.</li>
</ul>


NEC' is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.
Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. 
Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.


Shimadzu Corporation is a precision tools and equipment maker.  The Company develops, manufactures, and sells analytical and measuring instruments, medical systems, and  aircraft and industrial equipment.  Shimadzu researches, develops, and markets the products through its related companies in Japan, the US, the UK, and China.

<ul>
<li>Starting in 2024, Shimadzu plans to produce high-end analytical instruments and medical systems in China. It must do this in order to maintain market access. </li>
<li>China is the company's largest and fastest growing market outside Japan. Concerns about IP protection notwithstanding, we regard this as a positive development.</li>
<li>The shares are down 10% from its 52-week high and selling at 23x this fiscal year's EPS guidance, which looks conservative. Buy for the long term.</li>
</ul>


Starting in 2024, Shimadzu plans to produce high-end analytical instruments and medical systems in China. It must do this in order to maintain market access. 
China is the company's largest and fastest growing market outside Japan. Concerns about IP protection notwithstanding, we regard this as a positive development.
The shares are down 10% from its 52-week high and selling at 23x this fiscal year's EPS guidance, which looks conservative. Buy for the long term.


Shimadzu (7701): Planing to Make High-End Products in China

ADVANTEST CORPORATION produces semiconductor testing devices and electronic measuring instruments.  The Company's products include large-scale integration (LSI) test systems, memory test systems, dynamic test handlers, network analyzers, electronic meters, optical testing devices, and signal sources.

<ul>
<li>Advantest is highly geared to changes in sales, with average contribution margins of 36% and 51% at the gross and operating profit levels, respectively.</li>
<li>This works on the downside as well as the upside, something that has perhaps not received sufficient attention as optimists imagine a repeat of the recent extraordinary up-cycle.</li>
<li>The share price is down 19% from its July 18 high, but at the top of its 5-year P/E range even vs historical peak EPS.</li>
</ul>


Advantest is highly geared to changes in sales, with average contribution margins of 36% and 51% at the gross and operating profit levels, respectively.
This works on the downside as well as the upside, something that has perhaps not received sufficient attention as optimists imagine a repeat of the recent extraordinary up-cycle.
The share price is down 19% from its July 18 high, but at the top of its 5-year P/E range even vs historical peak EPS.


Advantest (6857 JP): High Gearing on the Downside

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>EV motors are out of the red, profits on appliance, commercial and industrial products are up, and the yen is much weaker than management's forecast assumes.</li>
<li>Despite economic uncertainty, achieving FY Mar-24 profit guidance should not be difficult. </li>
<li>Operating margin trends are generally positive and valuations not too high for longer-term investors. Buy into current pull-back.</li>
</ul>


EV motors are out of the red, profits on appliance, commercial and industrial products are up, and the yen is much weaker than management's forecast assumes.
Despite economic uncertainty, achieving FY Mar-24 profit guidance should not be difficult. 
Operating margin trends are generally positive and valuations not too high for longer-term investors. Buy into current pull-back.


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>Thanks to strong demand from China, 1Q results at Tokyo Electron (TEL) were just bad, not horrible. Operating profit was down 30% YoY on a 17% decline in sales.</li>
<li>1H guidance implies that 2Q will also be weak. Full-year FY Mar-24 guidance implies an unlikely 50% sequential increase in net profit, putting the shares on 32x projected EPS.</li>
<li>A return to peak EPS next fiscal year would drop the P/E ratio to 21x, which used to be the top of TEL's P/E range. Sell. </li>
</ul>


Thanks to strong demand from China, 1Q results at Tokyo Electron (TEL) were just bad, not horrible. Operating profit was down 30% YoY on a 17% decline in sales.
1H guidance implies that 2Q will also be weak. Full-year FY Mar-24 guidance implies an unlikely 50% sequential increase in net profit, putting the shares on 32x projected EPS.
A return to peak EPS next fiscal year would drop the P/E ratio to 21x, which used to be the top of TEL's P/E range. Sell. 


Tokyo Electron (8035 JP): Saved from Disaster by China

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
Independent Insight Provider, Japanese equities
• LightStream Research

NEC (6701 JP): Enough for Now

NEC's share price is up almost 90% since January, but sales and profit growth has declined. Valuations look reasonable. Take profit and wait to see...

Scott Foster

Shimadzu (7701): Planing to Make High-End Products in China

The decision to produce high-end products in China is both unavoidable and positive. Aircraft equipment is finally on the rebound. Valuations...

Scott Foster

Advantest (6857 JP): High Gearing on the Downside

1Q results show high gearing on the downside: IC test operating profit down 55%, other segment profits zero. NP down 75%. Further weakness ahead...

Scott Foster

Nidec (6594 JP): Favorable Margin Trends

EV motors now profitable and OP margin on Appliance, Commercial & Industrial above 10%. Forex assumptions very conservative, making upward revision...

Scott Foster

Tokyo Electron (8035 JP): Saved from Disaster by China

Operating profit was down 30% YoY in 1Q as strong growth in China failed to offset weakness elsewhere. Over-optimistic full-year guidance leaves...

Scott Foster