PSA Technology: Nissha (7915) – Sensing an Opportunity
Main Points• Confidence in Nissha’s earnings recovery should become more established in FY18 if it can execute on its plans. We estimate OP will exceed ¥15bil for the first time in a decade.
• Devices are poised to be the primary driver. Shipments of film touch sensors for smartphones could expand by three times, supported not only by new OLED model introductions, but also their likely inclusion in LCD panels. Margins should expand too as the latest generation product moves farther along the learning curve. Game consoles should provide an additional boost.
• Management is working to enhance earnings stability by increasing sales to non-IT customers. M&A to achieve this goal is focused largely on healthcare. We judge acquisitions to date to have been in sensible niche market areas, which avoids the downside of excessive premiums.
• IT exposure is still high, which is why Nissha guides for an H1 operating loss of ¥1.3bil. We expect the largest losses to be in the March quarter, when negative sentiment could present a good opportunity to accumulate shares.
• While current high exposure to the IT sector does increase volatility, one may question whether the resulting risk discounts are not excessive. We estimate the shares are trading on a FY18e PER of 11.9x and EV/OP of 8.0x. A sustained earnings recovery could facilitate a dividend of ¥75 in FY20, compared to guidance for ¥30 in FY18.
Nissha is engaged in the production of general printed matter in the fields of art and commercial printing as well as surface decoration of products technology. Co. manufactures IMD and IML, metallized paper, and heat transfer foils used for simultaneous molding and printing of plastic products and decorations for mobile phones, notebook PCs, automotive interiors and home appliances; and manufactures functional devices such as film based Touch Sensors "Fine Touch" used in tablet devices, smartphones, game consoles, industrial equipment and automotive. Co. also manufactures and sells its own brand products to medical institutions and provides marketing and sales promotion materials.
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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