Nikon Corporation (NINOY): Outlook Good Despite Precision Equipment Pressures

Funding Thesis: Nikon Company may see additional upside from right here on the idea of a pretty P/E ratio and continued income progress.

Nikon Company (OTCPK:NINOY) is a number one company specialising within the optics and imaging merchandise market.

Whereas NINOY inventory has been on a typically upward development for the reason that starting of 2021, we will see that the inventory remains to be considerably under highs seen throughout 2017:

The aim of this text is to evaluate whether or not Nikon Company may have the scope to regain additional long-term upside from right here.

Efficiency

When monetary performance for the third quarter ending March 2023, we will see that whereas income is up by double-digits and working revenue has additionally seen vital progress – that of revenue earlier than tax and free money move is down:

When income breakdown by phase – we will see that whereas the Imaging Merchandise Enterprise (the second-largest by income) noticed sturdy progress of 35.6% as in comparison with the earlier interval – that of Precision Tools (the biggest phase by income) noticed a decline of 18.1% over the identical interval.

Inside this phase, gross sales of FPD Lithography Programs (which allow greater definition imagery throughout flat-panel shows) had been down considerably – from 37 billion yen in FY2022/3 Q1-Q3 to 19 billion yen for FY2023/3 Q1-Q3.

From a balance sheet standpoint, we will see that whereas Nikon’s fast ratio has decreased since March, the ratio nonetheless stays considerably above 1 – indicating that Nikon has enough liquid belongings to fulfill its present liabilities. Word that the fast ratio was calculated as complete present belongings much less inventories throughout complete present liabilities.

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Supply: Figures sourced from Nikon Company: Consolidated Monetary Outcomes of the Third Quarter Ended December 31, 2022 (IFRS). Figures supplied in hundreds of thousands of yen, besides the fast ratio. Fast ratio calculated by creator.

When dividend efficiency, we will see that dividends per share decreased via to 2021 earlier than rising again to 40 yen per share in 2022.

I deem it seemingly that traders can pay specific consideration as as to whether Nikon can proceed to develop its dividend fee this yr – significantly in gentle of the numerous fall in free money move that we’ve got seen.

Trying Ahead

Going ahead, I take the view that additional progress in Nikon Company’s inventory hinges on the diploma to which the corporate can begin to develop its free money move as soon as once more, in addition to the extent to which Nikon can see a restoration within the Precision Tools enterprise.

From a macroeconomic standpoint, the 4K TV market is predicted to see sturdy progress via to 2029 – with a forecasted CAGR of 13.92%. On this regard, there may be vital scope for gross sales of FPD Lithography Programs to see a rebound over the longer-term.

Within the brief to medium-term, Nikon is anticipating a contraction in gross sales demand as prospects cut back funding on this space attributable to falling panel costs. A major motive for this has been attributable to extra inventory constructed up through the pandemic when TV demand was greater – subsequently resulting in an oversupply and a fall in costs accordingly. I anticipate that as provide and demand begin to re-calibrate – we should always begin to see value progress as soon as once more and a subsequent revival in demand for FPD Lithography Programs.

Moreover, when trying on the firm’s P/E ratio – we will see that the ratio is buying and selling close to a five-year low, whereas earnings per share is rebounding again in direction of the highs we noticed in 2019.

When evaluating third quarter 2021 earnings results to that of the third quarter of 2022, we will see that EPS for the previous got here in at a lack of 93.96 yen per share – nicely under expectations of 78.98 yen per share.

Nonetheless, third quarter 2022 outcomes confirmed EPS rebounding strongly to 116.23 yen per share – barely above that of the initially forecasted 115.63 yen per share.

Total, I take the view that the inventory is buying and selling at good worth – and a restoration within the Precision Tools enterprise may propel the inventory greater from right here. To place a caveat on this view – latest efficiency additionally implies that traders shall be anticipating additional proof of earnings progress going ahead. Ought to we see a slowdown in such progress – then this might additionally place additional stress on inventory value progress accordingly.

Regardless of sturdy efficiency throughout the Imaging Merchandise enterprise – Nikon continues to face rising competitors from the smartphone business as cellphone digital camera high quality continues to enhance and is turning into an more and more viable different to conventional digital cameras. With that being mentioned, it was reported final yr that Nikon will cease manufacturing of SLRs (single-lens reflex) cameras in favour of specializing in mirror-less digital camera fashions which are higher fitted to skilled pictures functions.

On this regard, I take the view that Nikon has vital scope to additional bolster its income throughout its Imaging Merchandise enterprise this yr by specializing in this specialised phase of the market. With that being mentioned, the corporate does face vital competitors from Canon (OTCPK:CAJPY), FUJIFILM (OTCPK:FUJIY) and Sony (SONY), with TechRadar just lately rating sure mirrorless digital camera fashions corresponding to Sony’s A7 IV or Canon’s EOS R6 Mark II forward of Nikon’s Z 6II.

From this standpoint, whereas Nikon goes in the fitting route by refocusing its efforts on the mirrorless digital camera market – this yr shall be a big telling level as as to whether the corporate can compete successfully in opposition to its rivals. Ought to this show to be the case, then the inventory may see additional upside from right here. Nonetheless, there may be additionally the chance that efficiency may disappoint on this regard if competitor manufacturers show to be extra standard.

Conclusion

To conclude, Nikon Company is displaying continued income progress general, with a fast ratio above 1 additionally indicating a robust money place.

Whereas a decline in revenues throughout the Precision Tools enterprise has positioned short-term stress on income progress – I take the view that this phase has the potential to rebound over the longer-term.

Editor’s Word: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.