BRIDGE REPORT
(6914)

東証1部

OPTEX GROUP (6914)
Toru Kobayashi Chairman and CEO
Toru Kobayashi
Chairman and CEO
Isamu Oguni President and COO
Isamu Oguni
President and COO
 
Corporate Profile
Company
OPTEX GROUP Co., Ltd.
Code No.
6914
Exchange
TSE 1st Section
Industry
Electric equipment (manufacturer)
Chairman
Toru Kobayashi
President
Isamu Oguni
Address
5-8-12, Ogoto, Otsu, Shiga Prefecture
Year-end
December
URL
Stock Information
Share Price Shares Outstanding
(Excluding Treasury Shares)
Market Cap. ROE (actual) Trading Unit
¥2,045 37,466,932 shares ¥76,619 million 12.6% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 1.5% ¥99.74 20.5x ¥1,680.79 2.4x
* Stock price as of the close on November 12, 2018. Number of shares at the end of June 2018 excluding treasury shares. ROE and BPS are the results from the last year-end. On April 1, 2018, a 2-for-1 stock split was implemented. For PBR, the stock split is considered. Share exchange will be implemented on July 1, 2018. For EPS, the stock split and issuance of new shares upon share exchange are considered.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating
Profit
Ordinary
Profit
Net
Profit
EPS (¥) DPS (¥)
December 2013 23,582 2,108 2,628 1,620 97.90 30.00
December 2014 25,678 2,558 3,043 1,897 114.68 35.00
December 2015 27,793 3,161 3,222 2,051 123.96 40.00
December 2016 31,027 3,015 3,086 1,809 109.33 45.00
December 2017 37,504 4,885 5,036 3,386 195.25 55.00
December 2018 (Est.) 40,500 5,300 5,400 3,600 99.74 30.00
* Estimates are those of the company. From the current fiscal year, the definition for net profit has been changed to net profit attributable to owners of the parent company. The same shall apply hereinafter. On April 1, 2018, a 2-for-1 stock split was implemented. For DPS, the stock split is considered. Share exchange was implemented on July 1, 2018. For EPS, the stock split and issuance of new shares upon share exchange are considered. Both EPS and DPS are not revised retroactively.
 
This Bridge Report presents OPTEX GROUP's earnings results for the third quarter of fiscal year ended December 2018.
 
Key Points
 
 
 
Company Overview
OPTEX GROUP Co., Ltd. is a holding company centered around OPTEX Co., Ltd. that manufactures and sells outdoor sensors (top share of 40% in the global market), automatic door sensors (30% share of the global market and 60% share of the domestic market) and environment-related products. OPTEX GROUP holds subsidiaries including OPTEX FA CO., LTD., which deals with FA related sensing business; CCS Inc., which holds the global top share in the LED lighting business for image processing; Three Ace Co., Ltd., which specializes in the development of various systems, applications, and digital content; Optex MFG Co., Ltd., which is responsible for manufacturing Group products, RAYTEC LIMITED (UK), which has attained the largest global share (about 50 %) for supplemental lights for CCTV; and FIBER SENSYS INC. (US), which deals with optical fiber intrusion detection systems. 【1-1. Business Description】 The Company's business is composed of its main Sensing Solution (SS) business (security-related business and automatic door-related business), Factory Automation (FA) business (sensors for industrial machinery), Machine vision lightning (MVL) business (LED lighting device and system for image processing), "EMS business," which was included in the SS business up until the previous term and provides contract manufacturing services for electronic equipment in China, and Other business (operation of sport clubs). 【1-2. Advantages: Diversified Technologies/Expertise on Sensing and Unique Sensing Algorithm】 To produce stable and reliable sensors, it is essential to build on a number of elemental technologies and expertise, as well as "algorithms" to control physical changes. The company takes advantage of its technologies/expertise suitable for intended applications and its unique sensing algorithm to secure the largest share in the global market. 【1-3. History】 OPTEX was established in 1979 and developed the world's first automatic door sensors using infrared rays in the following year. Back then, most of the automatic doors were using pressure sensitive rubber mats, which contained sensors, and sensors using infrared rays were very innovative. The company also showed unrivaled abilities in product maintenance and implementation, and captured the top share in the automatic door sensors market in only three years since its foundation (currently, about 60% share in the domestic market). The company expanded operations and got listed on the over-the-counter market (equal to listing on JASDAQ) in 1991. Then it got listed on the second section of Tokyo Stock Exchange in 2001 and moved to its first section in 2003. Recently, it has been working on enhancement of solutions based on image processing technologies and high-end security systems. In 2008, it acquired ZENIC INC., which specialized in contracted development of IC/LSI for image processing systems. Furthermore, it acquired FIBER SENSYS INC. (US) in 2010 and RAYTEC LIMITED (UK) in 2012, respectively. Also, CCS Inc. (6669, JASDAQ), which holds the largest market share in the world for LED lighting for image processing, was reorganized into a subsidiary in May 2016 (and became a wholly owned subsidiary in July 2018). On January 1, 2017, the company shifted to the holding company system, with the aim of advancing to next-generation management and pursuing group synergy. 【1-4. ROE analysis】 ROE in the FY 12/17 achieved "10% or more" as targeted, for net profit margin improved significantly owing to favorable performance.
 
 
Third Quarter of Fiscal Year Ended December 2018 Earnings Results
Sales increased, but operating profit declined due to investment for future growth. Sales grew 6.2% yoy to 29,314 million yen, driven by the FA business. The SS and MVL businesses were also strong. Domestic sales were 12,224 million yen, and overseas sales were 17,090 million yen, up 5.2% and 6.9% respectively, yoy. Operating profit fell 2.0% to 3,737 million yen. OPTEX increased investment for future growth, by reducing gross margin with changes in the sales mix, expanding testing rooms for the MVL business, investing in the development of new products, and increasing manufacturing personnel. The FA business segment recorded increased profits. Quarterly net profit increased 7.1% yoy to 2,794 million yen. 388 million yen was posted as extraordinary profit, including gains from the partial sale of investment securities. ◎ SS Business (Security-related) Japan: The sales of outdoor security sensors for security companies and large-scale facilities such as mega solar power plants were sluggish, and declined. AMERICAs: Sales increased due to the steady sale of outdoor security sensors by sales subsidiaries in North America. EMEA: Sales increased due to the steady sale of outdoor security sensors by sales subsidiaries in the UK. Asia: Sales targeted at South Korea and Australia were sluggish, and declined. (Automatic door-related) Japan: Sales increased due to the strong sale of automatic door sensors targeted at major domestic clients. AMERICAs: Sales increased due to the steady sale of automatic door sensors targeted at major clients in North America. EMEA: Sales of sensors for automatic doors targeted at major clients in Europe were sluggish, but sales increased due to the effect of the foreign exchange rate. ◎ FA business Japan: In addition to displacement sensors for semiconductors, rechargeable batteries, and flat panel displays, sales of displacement sensors for the electronic parts industry were strong, and sales increased. EMEA: As a result of sales promotion to the OEM company SICK, the sale of displacement sensors was strong, and sales increased. Asia: Sales increased substantially as investments into labor-saving equipment in China were very active, resulting in the steady sale of displacement sensors. ◎ MVL lighting business Japan: Sales increased thanks to a larger sales area, which was made possible by expanding solutions and establishing a testing room. AMERICAs: Although there were large orders from existing customers, the number of consistent orders decreased, and sales remained roughly the same as the previous term. EMEA: The economy in Europe is on an upward trend, and sales in the region were favorable, resulting in a significant increase in sales. Asia: Despite the strong performance of the wholly owned subsidiary that was established in China in the previous term, sales decreased slightly. Total assets grew 1,858 million yen from the end of the previous term to 43,427 million yen, due to an increase in inventory assets, etc. Total liabilities rose 577 million yen from the end of the previous term to 10,139 million yen, due to an increase in short-term debts, etc. Net assets were 33,288 million yen, up 1,282 million yen from the end of the previous term due to an increase in retained earnings, etc. As a result, equity ratio increased 6.3 points from the end of the previous term to 76.4%. (4) Topics ◎ French LED lighting company, that develops, manufactures and sells LED lighting for machine vision, reorganized into a subsidiary In Oct. 2018, EFFILUX SAS became a wholly owned subsidiary of CCS. Effilux is a French company that develops, manufactures and sells LED lighting for machine vision in France and Germany. Effilux's broad product lineup meets local needs in Europe, and one of its strengths is its ability to swiftly meet clients' individual needs as well. The types of LED lighting for machine vision demanded overseas are different than those in Japan, so CCS will be able to capture new demand by utilizing Effilux products. Moving forward, Effilux will be the base for product development, production, and sales of LED lighting for machine vision in the European market. The company plans to further expand sales in Europe by combining CCS's solution proposals and Effilux's technology and sales channels. ◎ Announced the acquisition of treasury stocks In Nov. 2018, the company will implement a flexible capital policy in response to changes in the business environment, and acquire treasury stocks in order to improve shareholder returns. An upper limit of 750,000 shares will be acquired (2.00% of the total number of outstanding shares, excluding treasury stocks), at a value of 1.5 billion yen. The acquisition period is from Nov. 7, 2018 to Dec. 28, 2018. As of the end of Oct. 2018, the company holds roughly 240,000 treasury shares.
 
 
Fiscal Year Ending December 2018 Earnings Estimates
There is no change in the earnings forecast. Sales and profits are expected to increase. There is no change in the earnings forecast. Sales are projected to increase in all segments and to be 40.5 billion yen, up 8.0% yoy. Operating profit is estimated to rise by 8.5% to 5.3 billion yen. The dividend is to be 30 yen/share. The estimated payout ratio is 30.1%.
 
 
Conclusion
As mentioned in the previous report, OPTEX expects both sales and profits to recover in the second half. With regard to the forecast for the second half, progress rates in the third quarter (July- Sept.) are 46% for sales, and 42% for operating profit. In the MVL business, the full-year progress rate for sales was over 50% at the end of the first half, but slowed down slightly in the third quarter, finishing at 71%. The FA business continues to perform well. In the fourth quarter, we would like to pay attention to how much sales are led by the FA business, and how much the MVL business and domestic SS business (security-related) will recover as the company works toward its goal of achieving sales of 50 billion yen and an operating profit of 7.5 billion yen in 2019.
 
 
<Reference1: Future Growth Strategies(from the last report)>
(1) Expansion of FA-related business Because growth is anticipated in fields such as automobiles (electric cars, advanced driving support systems), IoT (increased demand for data centers), AI (labor saving, working style reforms), and robotics (labor saving, measures to handle a decreasing working age population), capital investment for semiconductors and electronic components is expected to steadily increase in the future, and demand will increase for items like FA sensors, LED lights for image processing, and cameras. Taking the above into consideration, the company established OPTEX FA's first local subsidiary in the U.S. The subsidiary, OPTEX FA Inc., is a wholly owned sales subsidiary that deals in factory automation. It began operations on April 2, 2018. They will fully enter the factory automation market in the U.S., where further growth is expected. They will also switch from agency sales to a consulting method, developing on-the-spot sales. By making strategic use of the highly competitive "displacement sensors," the company will increase new customers and enter new markets such as the automobile industry and IT industry (data centers, etc.). They aim to reach sales of about 400 million yen in 3 years. The company also aims to further expand business by pursuing synergies with CSS Co., Ltd., which deals in LED lighting for image processing and became a wholly owned subsidiary of the company in July 2018. OPTEX FA specializes in general-purpose lighting but has few connections to overseas markets. On the other hand, CCS specializes in custom lighting and has had respectable results overseas. The company plans to combine the strengths of these two companies and use CCS's sales channels to increase sales. They intend to raise the two companies' combined market share to 70% in Japan and 50% overseas (currently 50% in Japan and 20% overseas) in the next five years. (2) Promotion of the IoT strategy With the reorganization of Three Ace into a subsidiary, the company will take this opportunity to strongly promote the "IoT strategy." It will become possible to develop communication software for monitoring services using IoT-compatible displacement sensors in the FA business, and remote monitoring services using sensors with built-in cameras in the SS business. (3) Strengthen manufacturing capabilities OPTEX MFG Co., Ltd., which began operating in July 2018, will establish a highly competitive production system by cooperating with companies from each business, utilizing their production capabilities. They will refine their manufacturing technology, and begin working on developing new products as a mother factory. (4) Performance targets The company's goals for 2019 include sales of 50 billion yen and an operating profit of 7.5 billion yen. In addition to 45 billion yen in regular sales, the company plans to gain another 5-6 billion yen through M&As with four to five other companies. However, rather than going by the numbers, synergy will be their primary concern as they move forward. The company also plans to raise the operating profit ratio on sales from the current estimate of 13.1% to 15%, and they intend to do so through advances in business rather than by cutting costs. The key to accomplishing this is to introduce new products that meet the security field's growing need for visual verification.
 
 
<Reference2: Regarding Corporate Governance>
◎ Corporate Governance Report The latest revision date: March 26, 2018 <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> It is stated that "Our company enforces all the principles of corporate governance code."
 
Disclaimer
This report is intended solely for information purposes and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright (C) 2018 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
PAGE TOP