Koito Manufacturing (7276) – Shining Bright
Key Points
- Guidance is still conservative for Japan, China and N. America, even after the Q1 guidance upgrade for total H1 OP (raised by 11.9%) and full-year FY17 OP (raised by 5.5%). Japan and China segments are key and offer the most upside to beat FY17 OP guidance.
- Of the ¥5bn guidance upgrade to FY17 OP, 60% was for the mainstay Japan segment, 35% for China and 5% for N. America.
- Q1 Japan OP posted a record 15.6% OPM thanks to (1) particularly profitable new models introduced last summer, (2) buoyant domestic volumes (Q1 Japan sales +20.8% YoY) which produced scale merits, and (3) higher LED adoption which improved the model mix. Japan segment OPM may dip under 15% from Q4 as the impact of high-margin new models fades, but FY17 segment OP could still be 3-4% above plan, and structural sales growth should continue until FY20.
- Japan segment OP comprises over 50% of total OP (up from 40% in FY15) and has shown the best improvement (OPM rose from 11.0% in FY15 to 13.6% in FY16 and 15.1% for FY17, PSA forecast).
- Koito is at a 20-25% PER valuation premium to Denso (6902) or Aisin Seiki (7259) at FY17 PER (18.3x guidance vs PSAe 17.5x); more than double on PBR (3.1x); and at similar levels for EV/OP, at 9.7x. All PSA numbers.
- That said, even with China and US auto sales possibly falling in CY18, Koito can achieve growth on the continuing shift to LED headlamps in Japan and N. America, with the latter to see a doubling in the rate of new vehicle adoption, to 55-60%, by end-FY20.
Koito Manufacturing and its affiliates are mainly engaged in the manufacture and sale of automotive lighting equipment, aircraft components, electric equipment and other products. Co.'s automotive lighting and accessories include light-emitting diode (LED) headlights, discharge headlights, halogen headlights, fog lights, turn signal lights and other lighting products. Co.'s aircraft lighting and other equipment include interior and exterior lights, electrical equipment and hydraulic equipment. Co.'s other principal products include electrical components for railroad cars, LED marine lamps, traffic control systems, road and tunnel lighting equipment and seats for aircraft and railroad cars.
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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