PSA Canon (7751) – Another Quarter Towards Rehabilitation
Canon (7751) – Another Quarter Towards Rehabilitation
Canon delivered a solid FY17 3Q with operating profit doubling to ¥80.5bil on revenues of ¥994.5bil, up from ¥778.8bil a year ago. The company revised up its full year OP target to ¥350bil from ¥330bil. This still looks low, as it implies a 4Q on a par with the 2Q, whereas usually the 4Q is the strongest of the year.
Key Points – It’s All About the ‘Others’
- The extent to which the current upturn in fortunes is cyclical versus structural is less of an issue for now because of the speed with which new businesses have come to the fore.
- Management policy has been directed towards boosting “Others”; with several interesting acquisitions connected to the network camera business, OLED deposition, CMOS and medical equipment.
- Canon has a global share of 25% in medical imaging. That rises to 40% in Asia – where the market is growing at 10%.
- Canon remains a star player in flat panel lithography and the importance of its emerging OLED deposition business is becoming clear.
- Currently, Canon Tokki is the only maker approved for 6G OLED deposition. We have raised our FY19 OLED deposition sales target from ¥200bil to ¥280bil.
- The network camera market, which is expanding at a rate of 20% per year on the back of growing demand for remote and automated surveillance, looks like it could be a third pillar of Canon’s growth.
Overall, we have Canon delivering ¥353bil in OP in FY17 on revenues of ¥4.04tril. For FY18, we now have OP at ¥408bil on revenues of ¥4.27tril and for FY19 we have OP at ¥445bil on revenues of ¥4.48tril. With enterprise value at ¥5.81tril, that puts Canon on a two-year forward EV/OP of 13.1x, which is undemanding.
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.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
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