Morningstar | Contraction of Camera Market Will Be Compensated by Other Businesses; Cut Canon’s FVE to JPY 3,600
We trim no-moat Canon’s fair value estimate to JPY 3,600 per share from JPY 3,700, and to $33 per U.S. ADR from $34, owing to the weakness on its interchangeable lens camera, or ILC, business. Canon’s March quarter results were below our expectations because of the inventory adjustment and worse-than-expected product mix for ILC. While Canon has been the top player of ILC for decades, two major threats for the business have emerged recently: 1) a contraction of the ILC market, caused by the evolution of the smartphone camera; and 2) a shift from a single-lens reflex camera to a mirrorless camera is changing the competitive landscape. We therefore cut our revenue forecast for the Imaging System Segment. Meanwhile, we believe that revenue from copiers will be relatively stable as the continuing shift to color copiers from monochrome copiers will help improve Canon’s product mix, and moreover, new businesses such as network cameras and medical systems will continue to grow steadily, compensating the revenue decline of digital cameras. Although March quarter results were disappointing, we view that the downside for the share price is limited as the dividend yield of approximately 5% should be attractive for investors.Canon has cut its full-year operating income guidance from JPY 325 billion to JPY 274 billion because of 1) JPY 16.5 billion cut on ILC, 2) JPY 11.2 billion cut on lithography equipment owing to the weaker recovery on memory demand, and 3) JPY 20 billion of additional restructuring expense. Accordingly, we revise our operating income forecast from JPY 335 billion to JPY 285 billion for 2019. Canon’s operating margin of 4.7% in the March quarter was the lowest since first-quarter 2009, but since we view that lithography equipment demand will recover in 2020, we consider that weakness of this year does not change our long-term forecasts; our operating income forecast for fiscal 2023 is slightly changed from JPY 340 billion to JPY 330 billion.
Canon and its subsidiaries are engaged in the manufacture and sale of office multifunction devices, plain paper copying machines, laser printers, inkjet printers, cameras and lithography equipment. Co. sells its products principally under the Canon brand name and through sales subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail dealers in an assigned territory. As of Dec. 31, 2017, Co.'s manufacturing is conducted primarily at 30 plants in Japan and 18 plants overseas. Co. operates its business in four segments: Office Business Unit, Imaging System Business Unit, Medical System Business Unit, and Industry and Others Business Unit.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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