Growth accelerated in the three months to June, sales rising 9.5% year-on-year vs. a 5.9% increase in 2Q. This was primarily due to strong demand for Photon Multiplier Tubes, sales of which were up16.6%. Growth rates by application were neutrino/dark matter academic research +80%, radiation and other measuring instruments +36%, material, water and environmental analytical instruments +19%, medical instruments +7.4% and industrial equipment (semiconductor, factory automation, etc.) +6.5%. Operating profit was up 15.0% vs. 12.9% in 2Q and 0.5% in 1Q. With no forex losses, net profit was up 30.3%.
In view of these numbers, economic and industry trends, and the company's capacity expansion plans, we are raising our sales and profit forecasts through FY Sep-19. Continuing to target 30x FY Sep-19 estimated EPS, we are raising our share price target from ¥3,550 to ¥3,900. This implies 14% upside from last Friday's ¥3,420 close. Management's guidance for this fiscal year now looks somewhat conservative.
Hamamatsu Photonics is one of Japan's most successful makers of optical and electronic devices, with more than 90% of the global market for Photon Multiplier tubes (PMTs - highly sensitive light sensors) and a leading position in opto-semiconductors. It is more profitable than the average Japanese technology company, with an operating margin of 16.9% last fiscal year, and it is financially sound, with a current ratio of 3.8x and net cash equal to 41% of equity at the end of Jun-17. Net cash flow is positive despite significant investments in new production capacity. ROE, which was 8.5% last fiscal year, should approach 10% in FY Sep-19.
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