BRIDGE REPORT
OPTEX CO., LTD. (6914)
Toru Kobayashi Chairman, President and CEO
Toru Kobayashi
Chairman, President and CEO
Corporate Profile
Company
OPTEX CO., LTD.
Code No.
6914
Exchange
TSE 1st Section
Industry
Electric equipment (manufacturer)
President
Toru Kobayashi
HQ Address
5-8-12, Ogoto Otsu, Shiga
Business Description
Development and sales of products and systems using sensing technology
Year-end
December
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥2,572 16,549,626shares ¥42.565billion 8.7% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥45.00 1.7% ¥105.75 24.3x ¥1,455.28 1.8x
* Stock price as of the close on November 7, 2016. Number of shares at the end of the most recent quarter excluding treasury shares.
ROE and BPS from the last year-end.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating
Profit
Ordinary
Profit
 Net Profit   EPS (¥)  Dividend (¥)
December 2010 17,395 1,705 1,761 981 59.30 30.00
December 2011 18,502 1,677 1,830 1,033 62.45 30.00
December 2012 20,699 1,398 1,680 825 49.88 30.00
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 Est. 32,000 3,300 2,900 1,750 105.75 45.00
* 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 parent.
 
This Bridge Report presents OPTEX's earnings results for the third quarter of fiscal year ending December 2016.
 
Key Points
 
 
 
Company Overview
 
OPTEX is a leading manufacturer of infrared ray sensors for security equipment and automatic doors. The company manufactures and sells security-related products such as outdoor sensors, for which it maintains top share of 40% in the global markets, automatic door sensors, for which it maintains a 30% share of the global markets and a 60% share of the domestic market, and environment-related products. OPTEX deals with sensors for industrial equipment through its subsidiary OPTEX FA CO., LTD. Other group companies include 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.
In collaboration with FIBER SENSYS and RAYTEC, the company offers solutions for large critical facilities (intrusion detection systems). Moreover, under its group structure in which OPTEX CO., LTD. has a competitive advantage in Japan and in EU, and same applies to FIBER SENSYS in North America centering US, Canada and Middle and Near East, while RAYTECs'sales are mainly derived from UK and EU, these three companies complement each other in terms of business areas. In addition, the group is achieving business results with activities including the deployment of RAYTEC's and FYBER SENSYS's products in Japan, Asia, Africa and the South America by OPTEX.
 
Business Description
The company is comprised of business segments such as Sensing (security-related, automatic door-related, others), FA (sensors used for industrial equipment), EMS (in Chinese factories) and Others, as follows,
 
 
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 global market.
 
 
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 inception (currently, about 60% share in the domestic market). The company expanded operations and listed on the over-the-counter market (equal to listing on JASDAQ) in 1991. Then it 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. In May 2016, the company reorganized CCS Inc. (6669, JASDAQ), which has the largest share in the global industrial LED lighting field, into a subsidiary. On Jan. 1, 2017, the company will shift to the holding company system, with the aim of advancing to next-generation management and pursuing group synergy.
 
 
 
OPTEX's ROE in FY12/15 was 8.7%, which was almost as same as the previous term. OPTEX sets a goal of ROE of 10% or more as an important management index. For further improvement of ROE, the company needs to capitalize on abundant cash in hand, including an increase in return to shareholders, and to fortify its profitability mainly by reducing fixed cost.
Major Group Companies
OPTEX CO., LTD. Development and sales of products and systems using sensing technologies
In Japan
OPTEX FA CO., LTD. Development, manufacturing and sales of photoelectric sensors, image inspection systems, measuring instruments
CCS Inc. Development, manufacturing, and sale of LED lighting devices and systems for image processing
SICK OPTEX CO., LTD. Development of general-purpose photoelectric sensors. A joint venture of SICK AG (Germany) and OPTEX FA CO., LTD.
GIKEN TRASTEM CO., LTD.  Development, manufacturing and sales of people counting systems, customer traffic counting/management systems
ZENIC INC. Contracted development of IC and LSI for image processing, and design and sales of FA systems
O'PAL OPTEX CO., LTD. Membership-based outdoor sports club and welfare facility for OPTEX employees
Overseas
FIBER SENSYS INC.(US) Development, manufacturing and sales of fiber-optic intrusion detection systems
FARSIGHT SECURITY
SERVICES LTD.(UK)
Security company providing remote video surveillance services
RAYTEC LIMITED.(UK) Development, manufacturing and sales of supplemental lighting for surveillance cameras
GARDASOFT VISION
LIMITED(UK)
Development, manufacturing, and sale of LED lighting controllers for machine vision
 
3Q of Fiscal Year December 2016 Earnings Results
 
 
Sales increase due to the effect of M&A, while profit decreases due to exchange rates and SG&A
Sales increased 2.3% yoy to 21,136 million yen. Sales for existing business (crime prevention and automatic doors) declined due to the influence of exchange rates (minus 1,285 million yen), however contributions from the reorganization of CCS Inc. and Gardasoft Vision Limited into subsidiaries led to sales growth (plus 2,094 million yen, for the two companies).
Operating profit decreased 4.0% yoy to 2,250 million yen. Despite the effect of increased sales and the improvement in cost rate, profit decreased due to the increase in SG&A caused by the addition of new consolidated subsidiaries. On a quarterly scale, sales and profit increased from the previous quarter and term.
 
 
 
 
 
◎Sensing Business
(Security-related)
Japan: Sales of outdoor security sensors for residential use targeted at security companies were sluggish, leading to a decline in sales.
AMERICAs: Sales of outside perimeter security sensors targeted at important facilities were robust, but due to the impact of the exchange rate and sluggish sales of residential sensors in North America, sales declined.
EMEA: Sales of outdoor security sensors primarily in Southern Europe were robust, but due to the impact of the exchange rate, sales declined.
Asia: Sales of security sensors in Asia and Oceania were weak.

(Automatic door-related)
Japan: Due to the impact of weakened demand in stores, sales of automatic door sensors remained at the same level.
AMERICAs: OEM sales for major automatic door manufacturers were robust in terms of the local currency, but due to the impact of the exchange rate, sales declined.
EMEA: Like in AMERICAs, OEM sales for major automatic door manufacturers were robust in terms of the local currency, but due to the impact of the exchange rate, sales declined.
 
◎FA Business
Japan: The sales of LED lights for quality testing, image sensors and displacement sensors targeted toward the organic EL, solar panel, semiconductor, rechargeable battery, and electronic component industries were favorable.
EMEA: Sales of general sensors were weak, however sales of displacement sensors were robust.
Asia: Sales of displacement sensors for smartphones in China and the solar panel industry were favorable.
 
◎Machine vision lighting Business
Japan: Opportunities to receive orders increased due to the expansion of testing rooms and efforts to propose solutions.
AMERICAs: Due to business activities in North America, new transactions increased, but there was a delay in equipment investment in manufacture, leading to weak sales.
EMEA: An upswing in the semiconductor market in Europe led to sales to major clients increasing.
Asia: Sales were robust in Singapore, Malaysia and Thailand, but sales in China became sluggish due to economic slowdown.
 
◎EMS Business
Sales and profit declined due to decrease in entrusted projects.
 
 
Due to the reorganization of CCS Inc. into a subsidiary, cash and deposits, accounts receivable, and inventory assets increased, leading to current assets increasing by 3.2 billion yen. Fixed assets also increased due to the reorganization, up 4 billion yen yoy, and total assets rose by 7.3 billion yen yoy to 38,163 million yen.
For the same reason, debts augmented, and total liabilities increased by 5.7 billion yen yoy to 11,051 million yen.
Due to the strong yen, foreign currency translation adjustment became negative, and non-controlling shareholders' equity increased. Consequently, net assets rose by 1.5 billion yoy to 27,112 million yen.
As a result, equity ratio dropped by 17.6% from 78.0% at the end of the preceding term to 60.4%.
 
 
Fiscal Year December 2016 Earnings Estimates
 
 
No changes to the earnings forecast.
As of July 22, there are no changes to the amended forecast for the full business year. Sales are estimated to increase 3.2% yoy to 32 billion yen. Sales of about 5.1 billion yen for CCS Inc. and Gardasoft Vision Limited(second half of the fiscal year), which have become subsidiaries, will contribute. Operating profit is forecasted to increase 4.4% yoy to 3.3 billion yen. Ordinary profit is projected to decrease 10.0% yoy to 2.9 billion yen.
Revitalizing sluggish existing business and reinforcing the machine vision lighting business is to be carried out.
The dividend amount is estimated to increase by 5 yen/share to 45 yen/share. Payout ratio is projected to be 42.6%.
 
 
Conclusion
 
Although sales increased, if the contributions of 2,094 million yen from CCS Inc. and Gardasoft Vision Limited are excluded, they would have decreased 10.2% yoy. Even including the impact of the exchange rate of 1,285 million yen, it would remain at almost the same level; existing business lacking strength is of pressing concern.
Stock price increased about 20% from the year-to-date low at the end of August, but its sustainable recovery requires the actual growth of existing business.
The next report will be produced in February after the transition into a holding company. We would like to pay attention to quarterly performance in the short term and managerial strategies in the new framework for growth in the medium or long term.
 
 
<Reference1:Future Business Strategies (from the previous Bridge Report) >
 
The Company has adopted the management policy of "creating something new", and is applying themselves to "creating a new business" as well as continuing with expanding their core business in order to realize a consolidated sales of ¥50 billion by FY 2019.
 
◎Change to Business Model - Ongoing Flow of Income
Including the traditional business model of selling out individual sensor products, the company will expand the business into system solutions, sale of consumable goods etc. and improve the ongoing flow of income.
 
 
◎Creation of New Business: "IoS" Service
The center of this ongoing flow of income business model is the "IoS (Internet of Sensing Solution) service."
By connecting the sensors into a network and utilizing the company's strengths in "area detection organization", "sensing algorithm", "low power consumption", "environment resistance capabilities" etc., the company will be able to provide a new added value and solution to the clientele in the form of "anti-crime/security/disaster prevention", "environmental monitoring", "operation management" and "facility/asset management".

In particular, the company's sensing algorithm, used in all sensors such as security sensors, driving behavior sensors, automatic door sensors, has high detection capabilities meaning it will react precisely to necessary pieces of information.
By utilizing this strength, the clientele will consist of system operators, and the company will be able to develop applications and sensors to handle different tasks.

In comparison to the general "IoT" service, which is intended for processing large amounts of big data, the "IoS (Internet of Sensing Solution)" service is unique in that it extracts smart data, which are definite sources of information that have been sorted out via an application sensor.
 
◎Three Categories of IoS
At the company, services are provided under the following three categories:
① Complete Solution Package- "sensors, operation servers, supply of operation and services" are all managed by the company
② Alliance Solution Package - "connection to an operation/service provider"
③ Terminal Unit Sale Package - sensors etc. are sold
 
 
① Complete Solution Package
The company will use "Remote Monitoring Service (Cloud Visual Verification)" as a representative example.
This uses the company's sensors with the world's largest camera manufacturer, Axis' IP camera to conduct 24-hour surveillance on all types of facilities such as car dealers and construction sites through an online connection to a monitoring center. All sensors, cameras, services and operation will be managed by the company group.
UK subsidiary, Farsight Security Services Ltd., which has experience in long-distance surveillance released the world's first bundled service in the UK in June 2015.
The company is anticipating results this term or in the next, and is expecting to open it up to regions outside of the UK in the latter half of the next term.

②Alliance Solution Package
As a representative example, introduced in the last report was the "careful driving cashback service", the first ever new type of automobile insurance which Sony Assurance Inc. had started selling in February 2015 in Japan.

The user (insurance policyholder) installs the "Drive Counter", a device that utilizes the OPTEX driving behavior sensing technology to measure the driver's characteristics, in their vehicle, and drives for a fixed duration of time. The Drive Counter uses OPTEX's unique driving behavior measurement technology which has accelerometers embedded to record instances of dangerous driving.
At the end, the user sends the Drive Counter to Sony Assurance Inc. If they score 60 or over, then they receive a cashback in accordance with their grade.

Sony Assurance Inc. has thought that in order for this type of insurance to be made mainstream, "the installation of the measuring device and usage need to be simple", "operation costs including the cost of the device need to be low" and "the device must be highly reliable", but the OPTEX Drive Counter uses high precision sensing technology, does not use the telematics system, which has communications functions, and does not have any running costs, meaning that it had met all of their criteria which is why Sony Assurance Inc. evaluated it highly and after 4 years of conclusive data, they went into industrialization.

In addition, the company is progressing with the development of a simple water quality measurement solution via the Alliance package.
Water quality measurement data gathered on-site, user data, usage data etc. will be managed by the operation/service company via the IoS platform. Furthermore, including the system, the company has developed a reagent to conduct simple and prompt measurements of water quality and started selling it in April 2015. The company is aiming for an ongoing flow of income via reagent and system sales. The company believes as a company that has been working on water quality measurement sensors from before as an environment-related business, the company has taken a major step forward in expanding the enterprise.

③IoS Terminal Unit Sale Package
The company provides near-infrared ray sensors, far-infrared ray sensors, ultrasonic sensors, distance image sensors, fiber sensors, accelerometers, laser sensors etc. through correspondence with an open system which has all the sensor essentials.
Outside of the terminal unit, the partners control the system. However, the company understands all of the specifications of the service and operation of the sensors and thus, will provide the clientele with the optimal specifications.
The company will have a different clientele to that of the past, and therefore, is anticipating an expansion to the business in the future.
 
 
<Reference2:Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
The company submitted a latest corporate governance report on Jul. 15, 2016.
 
 
 
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and come from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or 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) 2016 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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