NOK (7240): Q3 – Apple Cometh
Key Points
- July guidance upgrade for FY17 H1 and the full year only considers the strength of the Seals division in H1. Further upside in H2 for Seals looks inevitable.
- Seals demand strong from the mainstay domestic and China auto industries as well as the high margin excavator industry.
- FPC earnings, however, are where we see the greatest upside for FY17: We expect very strong Q3 OP for FPCs, nearly double company guidance, thanks to a full-contribution from Apple (AAPL US), with Q4 – seasonally a low quarter – also well above plan on our assumption that Apple’s OLED iPhone X will prove popular.
- NOK valuations virtually ignore the FPC business, which under the upward revised FY17 guidance accounts for 16% of total OP. At present the market is assuming H2 Seals guidance is too low but that FPC OP guidance is more or less correct.
- Currently trading on a forward PER of 13.6x and EV/OP of 10.5x using guidance earnings, this is arguably fair value. However, on our figures, FY17 PER and EV/OP are respectively 11.3x and 8.5x, each 20-25% below our view of fair value for this global leading player in vehicle / excavator seals and top supplier of FPCs to Apple.
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.
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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