Dexerials (4980) – Wins in Major Devices and Autos Point to a Sustainable Recovery
Earnings dropped sharply in FY16 due to weak technology markets and yen strength. Management outlined recovery plans, but confidence did not begin to fully recover until guidance was revised up at FY17 Q1.
The initial response to Dexerials’ H1 announcement was disappointment as the full year guidance was left unchanged. Management believes there is potential upside risk to its full-year guidance, but very little downside risk.
Especially impressive is that the recovery is being driven by wins for key products from leading mobile device manufacturers. Not only do technology trends point toward further demand expansion, but Dexerials is proving adept at developing products to meet customers’ specific needs. Dexerials’ aggressive expansion in anti-reflective films is supported both by a bright outlook for notebook market share, and the company’s qualification for displays in a rapidly growing number of auto models. Management anticipates qualification in 30 models by 14 automakers by March 2018.
Key Points
• We estimate double-digit growth in sales and OP through FY21. The largest risk to this scenario lies in technology market cyclicality, but any dips should be temporary and Dexerials is moving to steadily increase auto-related sales.
• Dexerials lowered dividend guidance to ¥40 per share for FY17 from ¥55 in FY16, but still guides for a return to shareholders of well over 40%. We think that the dividend will recover to ¥55 by FY20.
• We estimate a FY18 PER of 15.2x, PBR of 1.6x and a relatively reasonable EV/OP of 10.9x. ROE should reach double-digit levels from FY18.
Dexerials Corp is a Japan-based company mainly engaged in the manufacture and sale of optical materials, electronic materials and bonding materials. The Company operates in two business segments. The Optical Material Products segment is divided into three categories: optical films, optical resin materials and optical solutions. Main products are ultraviolet curable resins for optical discs, optical elastic resins and antireflection films. The Electronic Material Products segment is divided into four categories: bonding materials, anisotropic conductive films, surface mount fuses and microdevices.
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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