BRIDGE REPORT
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
Business Description
Holding company centered around OPTEX that manufactures and sells outdoor sensors, automatic door sensors and environment-related products. The company expands FA related business and Machine vision lightning business, too.
Year-end
December
URL
Stock Information
Share Price Shares Outstanding
(Excluding Treasury Shares)
Market Cap. ROE (actual) Trading Unit
¥2,904 34,693,167 shares ¥100,748million 12.6% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 1.0% ¥99.79 29.1x ¥1,680.79 3.5x
* Stock price as of the close on May 14, 2018. Number of shares at the end of March 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 taken into account. Share exchange will be implemented on July 1, 2018. For EPS, the stock split and issuance of new shares upon share exchange are taken into account.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating
             Profit
Ordinary
          Profit
 Net Profit   EPS (¥)   DPS (¥)
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 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 99.79 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 taken into account. Share exchange will be implemented on July 1, 2018. For EPS, the stock split and issuance of new shares upon share exchange are taken into account. Both EPS and DPS are not revised retroactively.
 
This Bridge Report presents OPTEX GROUP's earnings results for the first 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; 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. 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 January 1, 2017, the company shifted to the holding company system, with the aim of advancing to next-generation management and pursuing group synergy. In order to further strengthen the group's capabilities, it is planning to convert CCS Inc. into a wholly owned subsidiary in July 2018.
 
 
ROE in the FY 12/17 achieved "10% or more" as targeted, for net income margin improved significantly owing to favorable performance.
 
 
First Quarter of Fiscal Year Ended December 2018 Earnings Results
 
 
Increase in sales and profit.
Sales were 9,844 million yen, up 7.6% yoy. All major businesses performed well, particularly the FA and MVL businesses. Domestic sales were 4,207 million yen, up 4.4% yoy, while overseas sales were 5,637 million yen, up 10.2% yoy. Operating profit was 1,461 million yen, up 9.7% yoy. In addition to increased production costs due to rising prices of raw materials, etc., SG&A expenses also augmented, but profit grew due to the effects of increased sales and the foreign exchange rate.
 
 
 
 
 
◎ SS Business (Security-related) Japan: Sales of outdoor security sensors targeted at security companies were sluggish, and sales declined. AMERICAs: Sales grew steadily for outdoor security sensors targeted at key facilities in North America, and sales increased. EMEA: Sales increased due to the steady performance of manufacturing subsidiaries in the UK. Asia: Sales of security sensors targeted at Australia and Southeast Asia were sluggish, and sales declined. (Automatic door-related) Japan: Sales of sensors for automatic doors targeted at major domestic clients were sluggish, and sales declined. AMERICAs: Although sales dropped until the third quarter, they turned to an increase as the sales of sensors for automatic doors targeted at major clients in North America increased steadily. 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, secondary batteries, and flat panel displays, sales of displacement sensors for the electronic parts industry were strong, and sales increased. EMEA: Due to the effect of sales promotion toward OEMs, the sales of displacement sensors were steady. Consequently, sales grew significantly. Asia: As the investment in labor-saving equipment was active in China, the sales of displacement sensors, especially those for the smartphone industry, were steady. Consequently, sales increased significantly ◎ MVL lighting business Japan: Solutions and sales area were expanded, new products were introduced successfully, and sales increased. AMERICAs: Performance was healthy, as there were large-scale orders for smartphones and continuous transactions in North America. EMEA: The semiconductor market in Europe was healthy, and sales toward major clients continuously expanded. Asia: Although sales in Southeast Asia were steady, sales declined due to the termination of the joint venture in China.
 
 
Current assets remained almost unchanged. Fixed assets increased 152 million yen from the end of the previous term, due to the increase in investments and other assets, and total assets rose 127 million yen to 41,696 million yen. Total liabilities rose 199 million yen to 9,761 million yen, due to an increase in short-term debts, accounts payable, etc. Net assets decreased 72 million yen to 31,934 million yen, due to a decrease in foreign currency translation adjustments. As a result, the equity ratio fell 0.4% from 70.1% at the end of the previous term to 69.7%. (4) Topics ◎ OPTEX FA establishes US subsidiary OPTEX FA CO., LTD. established OPTEX FA INC. (100% ownership), a factory automation-related sales subsidiary in North America, and began operations on April 2, 2018. OPTEX FA INC. is OPTEX FA's first US subsidiary. With the establishment of this local subsidiary, following Europe and China, the company will fully enter the US factory automation market, which is expected to grow in the future. It will then increase sales by expanding its sales network, developing local proposal-based sales, and cultivating new markets (acquiring new clients), including the automobile industry.
 
 
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. The company estimates that both sales and profit will continue to grow due to the favorable external environment in the FY 12/18. 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%.
 
 
(3) Growth strategies (taken from the previous report) ① Market environment of each business and growth strategies ◎ Security-related: Incorporation of surveillance cameras and sensors (Market environment) Detecting abnormality just by a sensor has various issues in terms of accuracy. To address the issues, in the UK, for example, the police rushes to the site only after the sensor detects abnormality and a camera image is confirmed. In the USA, some states impose a fine on false alarms. Furthermore, not only for residential use, the need for high-end visual verification is increasing in emerging countries where infrastructure development for key facilities is accelerating amid frequent terrorist attacks in the world. In response to the expansion of the needs for visual verification, it is expected that the global outdoor surveillance sensor market will grow from about 30 billion yen at the current level to 50 billion yen. (Strategies to strengthen the business) As a specific action to take in such demands, the company had a tie-up with a leading security manufacturer in the global residential market in July 2017 and released a new product that is equipped with a "sensor'' to detect, a "camera" to shoot images and a "wireless" function to send that signal. It is also planning to launch a new product of its own in 2018. As the company is the only one that possesses an outdoor integrated model as a product, starting from this new product, it will promote sales of new solutions for "outdoor advance security," which they occupy the top share in the global market under the concept of "Internet of Sensing Solution (IoS)," which is promoted by the company, in the high-end market and the residential market. ◎ FA Business (Market environment) As a result of labor shortage and soaring labor costs, the labor saving and automation demands of the factories will increase and the "robot-related market" will further expand. In addition, in the US market, the demand for capital investment is expanding as the manufacturing industry returns to the country along with IT-related demands. (Strategies to strengthen the business) The company will further strengthen sales of cameras for robot vision, displacement sensors, LED lighting for image inspection, etc. both in Japan and abroad. In March 2018, in the US, it will establish a sales subsidiary "OPTEX FA Inc." Following Europe and China, it will try to increase sales by fully entering the FA market in the US where further growth is expected in the future to expand sales network, developing new markets including automobile industry (acquire new customers), and developing field-oriented sales. The company also plans to switch from its conventional agency sales to direct selling to scoop up detailed needs of customers and to further strengthen the trusting relationship with them. ◎ MVL Business (Market environment) Automation of inspection process is accelerating due to a sudden rise in labor cost. The demand from the "semiconductor, electricity, electronic components industry" continues to be strong, and the demand for high-quality and advanced LED lightning for inspection is also increasing. (Strategies to strengthen the business) Customers are not asking for devices such as lighting and power supply, but they want the state that the inspection object is "well visible." Therefore, the company will expand solutions including cameras, lenses and image processing. It will also increase the number of testing rooms as the facilities to expand solutions and make effective use of the OPTEX Group's overseas network, which has bases in 15 countries around the world. ② Management benchmarks and performance goals The management benchmarks are "a sales growth rate of over 15%," "an operating profit margin of over 15%" and "an ROE of over 10%." To speed up the sales expansion, the company will work for the overall growth of the group by spinning off companies and setting up new companies. In addition, it will continue to implement the M&A strategy for security-related and factory automation-related businesses under a medium-term policy of "aiming for a corporate group full of venture spirits." To raise operating profit margin, it will continuously work on reducing costs and minimize the influence of exchange rates by increasing domestic sales ratio and expanding the overseas manufacturing system. The goals for 2019 are sales of 50 billion yen and an operating profit of 7.5 billion yen. It is planning to implement M&A worth about 5 to 6 billion yen for 4 to 5 companies for boosting sales.
 
 
Conclusion
 
Although they did not reach double digits, both sales and profit increased, and the growth rate for both the first half and full year is likely to be good. In particular, there has been high growth in the FA and MVL businesses, which have performed well since the previous term. In the Company's plan, both sales and profits are higher in the term's second half. We would like to pay attention to how much sales and profits would increase while maintaining the strong performance. We also look forward to the development of M&As, which are indispensable for achieving "sales of 50 billion yen and an operating profit of 7.5 billion yen in 2019."
 
 
<Reference: 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." <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
 
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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.
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