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Helios Techno Holding Co., Ltd. (JP-6927) Tokyo Stock Exchange First Section ( II )

2018-09-05  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Medium- to long-term growth strategy and its progress made

Three basic policies in the medium-term strategy – promotion of M&A and strategic alliances, new product development and sales expansion, and broadening services income in existing areas

1. Overall growth strategy

The Company’s medium-term growth strategy is unchanged. It plans to focus on the three themes of M&A and formation of strategic alliances with other companies, development and growth in sales of new products, and growth in income from services in existing businesses.

As we mentioned in the Business overview section of this report, the Company has three core operating compa­nies: Nakan Techno, PHOENIX Electric, and Nippon Gijutsu Center. Each of these subsidiaries follows the three above-mentioned growth strategy themes as appropriate. While Nakan Techno is pursuing all three aspects of the growth strategy, PHOENIX Electric and Nippon Gijutsu Center are taking a more targeted approach in light of market environment and business characteristics and corporate wherewithal.

Healthy progress in new product development, including expansion of RP variations, 3D printing technology, and large alignment film production equipment

2. Progress achieved by Nakan Techno

Nakan Techno and its subsidiary Leadtech are pursuing three growth strategies.

(1) M&A and formation of strategic alliances

In the area of M&A and strategic alliances, Nakan Techno aims to enter new business domains such as semiconductors. The Company has teamed up with a Chinese manufacturer and an investment fund to pursue a strategy of increasing sales, mainly in East Asia, based on Japanese manufacturers’ equipment development and production technologies. If an appropriate target can be identified, we believe the company will enter the semiconductor production equipment (SPE) business. The Company will utilize external consultant services to identify and select a target company.

Looking at results thus far, the Company has been approached with multiple M&A opportunities. While it reviewed each of the opportunities, specific actions have not transpired yet. Nevertheless, the Company believes that the expression of interest in entering the semiconductor field and M&A deals has raised its profile.

Progress was made on expansion of existing businesses via M&A in October 2016 when Leadtech was converted into a subsidiary of Nakan Techno. Leadtech played an important role in production and delivery for the large HRP business and contributed significantly to meeting the deadline. It is also generating results in line with expectations in the used plant transfer business too.

(2) Development and growth in sales of new products

Expectations for HRPs are rising regarding the strategy of achieving growth with new products. The Company has developed and commercialized HRP technology for inkjet, gravure, offset, and other printing methods. A major high resolution inkjet printer deal provided an income boost in FY3/18, as explained earlier.

The major order’s application appears to be OLED production with smartphones as the final user. High resolution inkjet printer applications, however, are not limited to OLED, LCD, and other FPD production. “High resolution” is specifically realized as alignment precision, line fineness, coated surface uniformity, and film thinness. Utilization of these features might wind up applying to areas not envisioned by the company itself. This area could develop into a long-lived product business over the longer term.

The Company’s completion of 3D printing technology was a technological advance in FY3/18. This is not a 3D printer and instead uses high resolution printing technology to print and coat a three-dimensional item with uniform film thickness. The most typical example is technology for printing on a curved surface. We think this technology is highly original and might become a major product as development of the application advances.

Display devices with a curved surface are a specific market opportunity for 3D printing technology. The main application is the area around the driver’s seat in vehicles. Automobiles are adopting mirrorless designs and automated driving technology. These systems install cameras and hence are likely to increase use of display devices as monitors. It is expected that such displays would enlist curved designs to ensure visibility. While various production technologies have been reviewed for curved displays, printing is attracting strong expectations from a cost standpoint and the Company is putting its efforts in this area.

(3) Growth in income from services in existing businesses

Regarding the growth strategy theme of increasing income from services, the Company is working toward the goal of creating profitable businesses from mediating and relocating used plant equipment (SPE and FPD production equipment) to China, the repair and maintenance of already installed equipment, and sales of consumables. Used plant sales weakened in FY3/18 amid focus on a major HRP deal as explained above, but are headed for a steep increase in FY3/19 on upcoming delivery for a deal booked in the past.

The Company posts solid results in used plant business due to procurement capabilities for acquiring used facilities, transport and installation skills, and Nakan Techno’s human network in China. China continues to exhibit robust demand for production equipment, and we expect used plant business for FPD production equipment (mainly LCDs) to steadily grow.

Repair and maintenance services and consumable sales have moved into a full-fledged expansion phase as explained in the section on business segment trends. These businesses rely on a recurring income model that expands with build-up in various delivered production equipment. The Company intends to proceed with “pro­active sales activity” that goes beyond just repair and maintenance and proposes improvement projects that lift functionality and lengthen equipment life to customers.

Developing an ultraviolet LED for use as a MLS light source

3. Progress achieved by PHOENIX Electric

PHOENIX Electric is focused on a strategy of achieving growth through new products. Its core products in this strategy are ultraviolet LED lamps used in photolithography equipment light source units (MLS). The Company has finished developing test products and is currently working to increase light intensity. As mentioned above, the Company currently makes exclusive deliveries to the top domestic equipment manufacturer. While we expect investment in LCD panels to peak soon, light source lamps have a limited life span, resulting in replacement demand. We expect the Company to benefit greatly from replacement demand, partly because its competitors have withdrawn from the market.

PHOENIX Electric is also in the infrared LED business, but applications for these products are limited and the business has gotten off to a slow start. The Company continued basic R&D efforts during FY3/18.

Partly owing to strong MLS demand, we expect the Company to focus on the development of ultraviolet LEDs for the time being.

In the Human resource service business the Company is focused on achieving growth through M&A. Possibility of full-fledged power device tester demand gains in automotive and IoT areas

4. Progress achieved by Nippon Gijutsu Center

Nippon Gijutsu Center operates the Human resource services business, which includes dispatch of manufacturing engineers and other engineers, and the testing equipment business, which includes the development, manufacturing, and sale of testing equipment (this business is classified under the Manufacturing equipment business segment).

In the Human resource services business, the industry as a whole is facing difficulty in securing qualified engineers and plant workers and the Company is no exception. The Company feels that M&A allowing it to secure human resource, customers, and commercial spheres is an effective measure to counter this problem and it is focusing on a growth strategy of expanding the business through this type of M&A. However, because its strategy is based on a locality-centric business model, it only considers M&A candidates that can achieve locality-based synergies and is therefore proceeding cautiously.

The Company completed development of power device (power IC) testers and made trial deliveries to multiple customers in equipment production and sales. While the business is small and there is not much income contribution at this point, demand for the Company’s testers is likely to increase as power device output rises with ramp up of automotive and IoT-related demand.

◆Business outlook

Sales likely to increase, but expects steep profit decline on less favorable product mix

1. FY3/19 earnings forecast

For FY3/19, Helios Techno projects higher sales but sharp fall in profits, projecting ¥24,600mn in net sales (+4.8% YoY), ¥1,900mn in operating profit (-37.5%), ¥1,900mn in recurring profit (-36.3%), and ¥1,400mn in profit attrib­utable to owners of parent (-35.3%).

The Lamp Business sales target is ¥4,100mn (+12.8% YoY). Business conditions should be similar to FY3/18 with weaker or stalled sales of lamps for general-purpose lighting and projector lamps versus rising sales of MLS light source lamps on replacement demand. This outlook factors in steady build-up of lithographic equipment shipments from past years and higher operating rates on production lines.

Manufacturing Equipment Business sales are slated to increase 2.3% YoY to ¥15,750mn. While the Company has not disclosed the breakdown, we think it is counting on gains in used plants, alignment film flexographic printers, MLS, and repair and maintenance service to more than offset decline in high resolution inkjet printers and support an overall increase. Used plants and repair and maintenance service are likely to deliver stronger growth in FY3/19 as explained earlier. HRP sales volume is headed for a large dip from 60 units in FY3/18 to about 10 units in FY3/19. Nevertheless, it is necessary to closely monitor HRP trends because of the possibility of unexpected orders due to application development on the customer side.

The Company forecasts a 4.9% YoY increase in Human Resource Service Business sales to ¥4,750mn on the prospect of ongoing tight demand for engineer and worker dispatches, just as in FY3/18. While sales posted a double-digit gain in the previous year thanks to ramp-up in hiring, we think the FY3/19 outlook assumes less aggressive hiring than in the previous year. This stance appears to reflect the upswing in personnel recruitment costs.

The Company projects a steep 37.5% YoY decline in operating profit, mainly on change in sales composition for the Manufacturing Equipment Business. This stance factors in likely decline in companywide profit margin due to less favorable product mix from a decline in sales of manufacturing equipment (HRPs in FY3/19) that generally offer higher gross margin and increase in sales from used plant business with low gross margin.

Another anticipated setback is profit decline on change in the operating rate. The Company manufactured and delivered 60 HRP systems in FY3/18. In manufacturing, high-volume output of the same product generally provides economies of scale and improves margin. Removal of this portion is likely to amplify backlash decline in FY3/19.

Expect a switch to rising profits led by Manufacturing Equipment Business in FY3/20

2. Outlook from FY3/20

We see FY3/19 profit decline as a temporary outcome and expect a switch to rising profit again in FY3/20. This view factors in income expansion trends in all areas of the Manufacturing Equipment Business that drives overall results, including HRPs, alignment film flexographic printers, used plants, MLS, and repair and maintenance service.

Anticipated profit decline in FY3/19 reflects extreme changes in product mix, as explained above. These conditions are unlikely to repeat in FY3/20. If mix changes, we think it would move in an improvement direction (for example, return of a major HRP order). The Company should achieve stable, albeit not high, growth in Lamps Business and Human Resource Services Business. This means expansion of Manufacturing Equipment Business income is likely to fuel restoration of higher companywide sales and profits.

Possible drivers other than organic growth include M&A progress in the semiconductor field that the Company is emphasizing and M&A in Human Resource Services Business. However, this potential should not be reflected in the outlook at this point because these opportunities involve counterparts.

We think HRP trends deserve attention. Key points, besides inkjet printers that are already commercialized, are whether the Company obtains orders for equipment based on other printing method, such as gravure printing that it has already developed, and 3D printers for curved-surface printing. Other areas to watch include the orders situation for G10.5-type alignment film flexographic printers and expansion of repair and maintenance income.

◆Shareholder returns

Kept the FY3/19 dividend at ¥30 Demonstrates confidence in quick profit recovery

The Company’s basic method of returning profits to shareholders is through dividends. The Company has not announced an official level for dividends. However, looking at past dividends, it is clear that the Company has basically paid a stable dividend, increasing it in line with growth in results.

The Company paid a ¥30 dividend in FY3/18 (+¥10 YoY). While it began the year with a ¥25 target (+¥5), FY3/18 earnings substantially exceeded the period-start view, just as in the previous fiscal year, supporting the decision to pay a ¥30 dividend. This level put the dividend payout ratio at 25.1%.

The FY3/19 period-start outlook targets a ¥30 dividend (unchanged YoY) for a 38.8% payout ratio using the ¥77.39 EPS estimate. The Company retained a ¥30 dividend, despite the prospect of lower profits on increased sales in FY3/19 as explained above. The anticipated FY3/19 profit decline stems from one-time backlash to a large HRP deal in the previous fiscal year. We think the dividend stance demonstrates confidence in quick recovery to a growth trajectory.

◆Information security

High level of awareness of information security

Helios Techno is involved in the cutting-edge field of flat-panel displays and semiconductors and therefore manages important information such as technical data and customer data with a high level of awareness regarding information security. The Company has established information security systems necessary for listed companies including passwords that limit access to information. In addition, the Company is involved in B-to-B businesses and, unlike companies involved in B-to-C businesses, does not handle large volumes of customer data or credit card data. We therefore think the Company faces relatively little risk from cyberterrorism targeting such information or the leaking of such information from inside the Company.

 

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