NOK (7240): FY16 Guidance Revised Up – Stronger Apple-Related Sales a Surprise
Key Points:
- FY16 OP and RP guidance was raised by 31% and 42% respectively on April 19th, on the back of strong iPhone sales for NOK’s FPC division for Q4, and the weak yen. Full year results will be released on May 5th.
- Management had anticipated Apple-related (AAPL US) FY16 Q4 sales would fall 50% QoQ, to make up less than 50% of total smartphone-bound FPC sales (comprising 73% of the total). However, it appears that Q4 Apple-related sales only fell ~10-15% QoQ, and so they generated more than 50% of total smartphone-bound FPC sales.
- Oil seals OP was also ~10% above the company’s revised guidance of ¥31.0bil (as of November), thanks to firm China demand and improved domestic auto production. This is a record level of OP for this division.
- The revised estimates bode well for FY17 earnings as the next generation iPhone sales are widely expected to be even higher. Bloomberg consensus for FY17 (OP ¥42.26bn) now appears too low; the FPC division is unlikely to be in the red for Q1 (FY16 Q1 loss of ¥8.1bn occurred on delayed work, over-staffing, and new difficult work requested).
- Our mid-January forecasts had modelled for OP and RP of 8% and 18%, respectively, above the old company guidance. In March, NOK mentioned to us that Apple sales were above plan, but we felt this was not significant enough for us to revise our FY16 figures again. Our greater concern was learning that NOK would not be handling the force touch FPC for the upcoming iPhone - this being the company’s most profitable FPC product of the 9 or 10 NOK handles for Apple. However, due to this improvement in product line-up, and in light of the strength of Q4 Apple sales, we are now raising our FY17 sales forecast, while slightly lowering our OP figure.
NOK is engaged in the manufacture and sale of seal products, industrial mechanical parts, rubber products, and others. Along with its subsidiaries and associated companies, Co. operates in four business segments: seal, electronic device product, roll, and others. Co.'s principal products include oil seals, O-rings, vibration controls, resin products, gaskets, chemical products, mechanical seals, flexible printed circuits, flexboards for digital cameras and cellular phones, flexible printed circuit-based panel keyboards, optoelectronics products, rubber rolls for office machines and equipment, special lubricants, and others.
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.
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