Nisshinbo Holdings / 3105
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Nisshinbo Holdings / 3105 COVERAGE INITIATED ON: 2015.08.06 LAST UPDATE: 2019.09.19 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. Research Coverage Report by Shared Research Inc. Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 7 Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 7 Full-year company forecasts --------------------------------------------------------------------------------------------------------------------------------- 14 Long-term outlook ---------------------------------------------------------------------------------------------------------------------------------------------- 20 Strategy ------------------------------------------------------------------------------------------------------------------------------------------------------------- 24 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 27 Segments ---------------------------------------------------------------------------------------------------------------------------------------------------------- 27 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 45 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 46 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 58 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 60 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 64 Other information ---------------------------------------------------------------------------------------------------------------------------------- 65 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 65 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 67 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 69 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 69 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 70 Corporate philosophy ----------------------------------------------------------------------------------------------------------------------------------------- 70 Company name -------------------------------------------------------------------------------------------------------------------------------------------------- 71 Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 71 02/72 Nisshinbo Holdings / 3105 RCoverage LAST UPDATE: 2019.09.19 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Executive summary Main segments: Electronics and Automobile Brakes; pursuing acquisition Nisshinbo has six segments: Electronics (which the company plans to split into the Wireless and Communications segment and the Micro Devices segment during FY12/19), Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). In mainstay Electronics and Automobile Brakes segments, the company expects both sales and earnings to grow as markets expand. It positions Precision Instruments, Chemicals, and Textiles as earnings-improvement segments, where it plans to improve asset turnover and profit margins. The Real Estate segment generates stable revenues. Roots in cotton, later diversified Nisshinbo was established in 1907 as a manufacturer of cotton thread, but is now a conglomerate with a diverse portfolio of businesses. Takeshi Sakurada, Nisshinbo’s fourth president, maintained that a company’s core was its people, not its businesses. Guided by this philosophy, Nisshinbo has been diversifying since the 1940s, when cotton spinning was still a growth industry. As a result, it has stayed in business for over 100 years—despite the decline of the cotton spinning industry in Japan. Plus, the company benefits from sound management, in line with the separation of ownership and management, and the distribution of profits. Nisshinbo has never reported a group operating loss, even in the 1990s after the Japanese economic bubble burst. Until FY03/10, the equity ratio was over 50%, and it has significant unrealized gains on real estate and investment securities. Pushing up margins; buying growth Until the 2000s, Nisshinbo’s strategy prioritized management security and equity ratio over asset turnover and ROIC. In the 2000s, however, President Yoshikazu Sashida began stressing asset turnover, shifting management’s focus from subscription-type streams of revenue to recurring sales of products and services. When earnings faltered in the Textiles segment, the company decided to use its real estate more efficiently, closing factories and offering employees early retirement. From the late 2000s, the company began using acquisitions to build revenues. In 2006, Takashi Iwashita was appointed president. In April that year, he announced a three-year management plan through 2008. Under his leadership, the company consolidated factories in the Textiles segment and exited unprofitable businesses in the Chemicals segment—under a strategy of “selection and concentration”, complemented by friendly acquisitions. Earnings slumped in FY03/09, following the global financial crisis. The situation was exacerbated by an extraordinary loss on benefits for early retirement, resulting in a net loss. In April 2009, Shizuka Uzawa was appointed president. Under his leadership Nisshinbo moved to a holding company structure, and a three-year plan, Challenge 2012, was announced in March 2010. Targets included a return to profitability in Textiles, Electronics, and Precision Instruments and profit growth in Automobile Brakes. During Challenge 2012, Nisshinbo acquired Japan Radio Company Co., Ltd. (JRC) in 2010 and TMD Friction Group S.A. in 2011. Aiming to increase profits, mainly through growth in mainstay segments In June 2013, Masaya Kawata was appointed president. The company worked to reform JRC in the Electronics segment, and respond to restrictions on the use of copper in brakes and implement initiatives to enhance TMD’s competitiveness in the Automobile Brakes segment. Nisshinbo pursued M&A aimed at complementing its businesses, such as the acquisition of Tokyo Shirts Group and Nanbu Plastics Co., Ltd. in 2015, and RICOH Electronic Devices Co., Ltd. in 2018. Nisshinbo also tightened its grip on core subsidiaries, making JRC a wholly owned subsidiary in 2017 and making similar plans for New Japan Radio Co., Ltd. (New JRC) in 2018. At the same time, the company sold off non-core businesses, completing its exit from the papers business in 2017 and from the drum brake business in 2018. Nisshinbo is aiming for ROE of over 12% by FY12/25 as stated in its long-term vision. The company aims to boost earnings through the expansion of existing businesses, creation of new businesses, and acquisitions. 03/72 Nisshinbo Holdings / 3105