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

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>Japan's top defense and aerospace contractor is being rerated to account for the limits on relying on the U.S. for defense in an alarming national security environment.</li>
<li>A reasonably optimistic scenario brings MHI's P/E ratio down to 22X in FY Mar-28, by which time Japan's defense spending is scheduled reach 2% of GDP.</li>
<li>The Trump administration wants Japan to spend more, but getting the budget through the national Diet is difficult enough as it is. </li>
</ul>


Japan's top defense and aerospace contractor is being rerated to account for the limits on relying on the U.S. for defense in an alarming national security environment.
A reasonably optimistic scenario brings MHI's P/E ratio down to 22X in FY Mar-28, by which time Japan's defense spending is scheduled reach 2% of GDP.
The Trump administration wants Japan to spend more, but getting the budget through the national Diet is difficult enough as it is. 


MHI (7011 JP): U.S. Presses Japan to Spend More on Defense

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>After dropping by half, Tokyo Electron's share price has bounced. But it is still vulnerable to cutbacks in AI-related investments and tariff-induced recession.</li>
<li>A positive scenario has net profit rising by 8% in FY Mar-26. In a negative scenario, it drops by 25%. We take the positive view.</li>
<li>Innovations in manufacturing point toward a big step up in profit margins by the end of the decade. But watch out for a cyclical downturn between now and then.</li>
</ul>


After dropping by half, Tokyo Electron's share price has bounced. But it is still vulnerable to cutbacks in AI-related investments and tariff-induced recession.
A positive scenario has net profit rising by 8% in FY Mar-26. In a negative scenario, it drops by 25%. We take the positive view.
Innovations in manufacturing point toward a big step up in profit margins by the end of the decade. But watch out for a cyclical downturn between now and then.


Tokyo Electron (8035 JP): Buy if You're Not Afraid of Recession

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>FY Mar-25 guidance has been raised again after strong 3Q results. Growth should continue next fiscal year with rising demand from TSMC. </li>
<li>Sales to Chinese customers bounced back strongly last quarter, defying predictions. Capacity adds and process upgrades should continue to drive demand from China.</li>
<li>FPD, PCB and printing equipment are now profitable and should remain so. More efficient production and slower growth in depreciation should also support the operating margin.</li>
</ul>


FY Mar-25 guidance has been raised again after strong 3Q results. Growth should continue next fiscal year with rising demand from TSMC. 
Sales to Chinese customers bounced back strongly last quarter, defying predictions. Capacity adds and process upgrades should continue to drive demand from China.
FPD, PCB and printing equipment are now profitable and should remain so. More efficient production and slower growth in depreciation should also support the operating margin.


Screen Holdings (7735 JP): 25%+ Upside Potential

Semiconductor Manufacturing International Corp (SMIC) / Equity Bottom-Up

Semiconductor Manufacturing International Corporation operates a semiconductor foundry. The Company provides integrated circuit foundry and technology services including the testing, development, design, manufacturing, packaging, and sale of integrated circuits. Semiconductor Manufacturing International offers its products and services around the world.

Semiconductor Manufacturing International Corp (SMIC) (981 HK)

Semiconductor Manufacturing International Corp (SMIC)

<ul>
<li>Media reports of a sharp decline in profit linked to trade tensions are not correct. Gross, operating and total net profit all increased from 1Q to 4Q of 2024.</li>
<li>Management's guidance for 1Q of 2025 has sales growth accelerating to 6% to 8% and the gross margin remaining relatively high at 19% to 21%. This looks reasonable.</li>
<li>But the shares are near their all-time high and too expensive to chase given the potential negative impact of President Trump's trade policy. Take profits.</li>
</ul>


Media reports of a sharp decline in profit linked to trade tensions are not correct. Gross, operating and total net profit all increased from 1Q to 4Q of 2024.
Management's guidance for 1Q of 2025 has sales growth accelerating to 6% to 8% and the gross margin remaining relatively high at 19% to 21%. This looks reasonable.
But the shares are near their all-time high and too expensive to chase given the potential negative impact of President Trump's trade policy. Take profits.


SMIC (SEHK: 00981, SSE STAR MARKET: 688981): Risky to Chase Strength

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>Outlook improving with rising demand for energy storage systems and near-line HDDs and water cooling modules for AI servers.</li>
<li>3Q results point to FY sales above and profits in line with management's guidance. Proceeding toward acquisition of Makino Milling next fiscal year.</li>
<li>At 17.5x projected earnings and 10x cash flow, the shares are at the bottom of their 10-year valuation range. Buy for the medium- to long term.</li>
</ul>


Outlook improving with rising demand for energy storage systems and near-line HDDs and water cooling modules for AI servers.
3Q results point to FY sales above and profits in line with management's guidance. Proceeding toward acquisition of Makino Milling next fiscal year.
At 17.5x projected earnings and 10x cash flow, the shares are at the bottom of their 10-year valuation range. Buy for the medium- to long term.


Nidec (6594 JP): Growth Prospects Improving

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

MHI (7011 JP): U.S. Presses Japan to Spend More on Defense

Up 40% in the past month, but still reasonably valued on a 3-year view if Japan's defense spending rises and margins expand as expected. 22X...

Scott Foster

Tokyo Electron (8035 JP): Buy if You're Not Afraid of Recession

After dropping by half, the share price has bounced. Sharply lower growth has been priced in, but recession perhaps not. Manufacturing innovation...

Scott Foster

Screen Holdings (7735 JP): 25%+ Upside Potential

FY Mar-25 guidance been raised and growth to continue in FY Mar-26 with capex up at TSMC and strong sales in China. Die shrinks driving demand for...

Scott Foster

SMIC (SEHK: 00981, SSE STAR MARKET: 688981): Risky to Chase Strength

SMIC is doing much better than negative press reports suggest, but the shares are too expensive given the uncertainty posed by Donald Trump's trade...

Scott Foster

Nidec (6594 JP): Growth Prospects Improving

Good 3Q results and rising demand for server cooling units and energy storage point to continued growth. Valuations at the lowest level in a...

Scott Foster