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

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>Visibility is poor. Following excellent 1Q results, management raised FY Mar-25 sales guidance by 14%, operating profit guidance by 53% and net profit guidance by 57%. </li>
<li>Strong demand for AI processors and memory should support more than 35% growth in IC tester revenues and a doubling of operating profit in the two years to Mar-26.</li>
<li>The shares have dropped to the bottom of their recent trading range, but are still selling at more than 30x our EPS estimate for next fiscal year.</li>
</ul>


Visibility is poor. Following excellent 1Q results, management raised FY Mar-25 sales guidance by 14%, operating profit guidance by 53% and net profit guidance by 57%. 
Strong demand for AI processors and memory should support more than 35% growth in IC tester revenues and a doubling of operating profit in the two years to Mar-26.
The shares have dropped to the bottom of their recent trading range, but are still selling at more than 30x our EPS estimate for next fiscal year.


Advantest (6857 JP): High Valuation, Low Visibility

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>The next leader of Japan's ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation's defense policy.</li>
<li>Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.</li>
<li>MHI's valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.</li>
</ul>


The next leader of Japan's ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation's defense policy.
Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.
MHI's valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.


MHI (7011 JP): Election Unlikely to Affect Defense Budget

SCREEN Holdings Co Ltd.  manufactures and sell semiconductors, FPD devices, commercial printing and printed circuit boards(PCB). The company also provides additional services for its products.

<ul>
<li>Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. </li>
<li>However, management is guiding for slightly lower operating profit in 2H, and Intel's capex cuts also support a cautious outlook. </li>
<li>Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. </li>
</ul>


Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. 
However, management is guiding for slightly lower operating profit in 2H, and Intel's capex cuts also support a cautious outlook. 
Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. 


Screen Holdings (7735 JP): Still a Buy for the Bounce

IHI Corporation manufactures heavy machinery. The Company produces aircraft jet engines, rocket propulsion systems, and ships for military and commercial use. Ishikawajima-Harima also constructs petroleum refineries and nuclear power plants.

<ul>
<li>1Q results supported management's full-year sales and profit guidance, which remains unchanged. Operating profit was up 2.7x YoY on a 17% increase in sales.</li>
<li>Total new orders received increased by only 4.2% YoY and fell short of sales, but Aerospace &amp; Defense orders were up 35.5% and slightly exceeded sales.</li>
<li>Our own forecast - above management's guidance this year with further growth next year - and our share price target are unchanged. 21% potential upside.</li>
</ul>


1Q results supported management's full-year sales and profit guidance, which remains unchanged. Operating profit was up 2.7x YoY on a 17% increase in sales.
Total new orders received increased by only 4.2% YoY and fell short of sales, but Aerospace &amp; Defense orders were up 35.5% and slightly exceeded sales.
Our own forecast - above management's guidance this year with further growth next year - and our share price target are unchanged. 21% potential upside.


IHI (7013 JP): Buy Back in for Post-Crash Recovery

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>If further restructuring can be avoided, profitability should return to an acceptable level while sales growth continues. </li>
<li>The decline of EV prices has probably run its course and global demand for factory automation continues to rise despite weakness in China.</li>
<li>Projected valuations are at a 10-year low. Investor attention can now shift to economic and operating risks.</li>
</ul>


If further restructuring can be avoided, profitability should return to an acceptable level while sales growth continues. 
The decline of EV prices has probably run its course and global demand for factory automation continues to rise despite weakness in China.
Projected valuations are at a 10-year low. Investor attention can now shift to economic and operating risks.


Nidec (6594 JP): Buy into Current Decline

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

Advantest (6857 JP): High Valuation, Low Visibility

Advantest's sales and profits are rebounding, but visibility is low and valuations relatively high. Now at the bottom of its trading range, it is...

Scott Foster

MHI (7011 JP): Election Unlikely to Affect Defense Budget

At 28x earnings, MHI is not speculative, but neither is it cheap. We expect it to test recent highs in the run-up to the LDP party presidential...

Scott Foster

Screen Holdings (7735 JP): Still a Buy for the Bounce

A strong 2Q, yen weakness and reasonable valuation point to short-term upside of 15%-plus. But as sales and profits level off in 2H, Intel's capex...

Scott Foster

IHI (7013 JP): Buy Back in for Post-Crash Recovery

IHI hit our ¥6,000 price target in July and should hit it again now that the volatile response to the BOJ rate hike is behind us. 1Q results...

Scott Foster

Nidec (6594 JP): Buy into Current Decline

Selling at the bottom of its 10-year valuation range. Management has raised guidance after lackluster 1Q results. If further restructuring can be...

Scott Foster