China / Hong Kong Company Focus Johnson Electric
Bloomberg: 179 HK | Reuters: 179.HK
DBS Group Research . Equity 22 October 2012
BUY HK$5.10 HSI : 21,698 Quiet evolution prompts re-rating (Initiate Coverage) • BUY Johnson on its evolution from low-end motor Price Target : 12-Month HK$ 6.50 maker into a high value-added auto and industrial Reason for Report : Initiation component supplier Potential Catalyst: Fast growth in Hybrid/ EV car sales Energy saving cooling fan modules for hybrid cars a key DBSV vs Consensus: Expect higher sales growth from CFM products • but net profit slightly below consensus as we are more conservative growth driver on near term margin improvement. High end valuation justified by market gains in higher • Analyst valued products, consistent free cashflow yield and Galant Ng +852 2971 1707 potentially higher dividend payout [email protected] Morphing into a high value-added component supplier 50- Dennis LAM +852 2971 1922 year veteran, Johnson Electric has been long overlooked by a [email protected] market which has historically branded it as a low-end motor manufacturer. We foresee an imminent re-rating once the market recognizes the concerted make-over the company has undertaken Price Relative in recent years, transforming it into a high value-added auto parts HK$ Relative Index supplier, and one of the largest industrial component suppliers in 243 the world. 5.9 223 203 4.9 183 Environmentally-friendly cooling fan modules (CFM) to drive 3.9 163 We think Johnson’s increasingly significant 143 automotive segment. 2.9 123 cooling fan modules (CFM) business (part of the company’s Auto 103 1.9 Products Group (“APG”)) (20% of the total revenue) could 83 0.9 63 comfortably outperform the global auto market growth rate. Hybrid Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 vehicle sales are estimated to grow at a CAGR of 19% in 2011- Johnson Electric (LHS) Relative HSI INDEX (RHS) 2015 (according to Pike Research). This will drive demand for Johnson’s higher end CFM products as Johnson are one of the few Forecasts and Valuation quality suppliers able to supply these to hybrid vehicles. We FY Mar (US$ m) 2012A 2013F 2014F 2015F Turnover 2,141 2,248 2,387 2,555 estimate CFM to constitute over 70% of Johnson’s growth in EBITDA 314 329 340 352 FY13E. Pre-tax Profit 221 239 256 274 Net Profit 187 202 217 232 Higher valuation justified. Johnson has traded between P/E 8x- Net Pft (Pre Ex.) 187 202 217 232 15x over the past 3 years. Although the share has already bounced EPS (US$) 0.05 0.06 0.06 0.06 from its recent lows, we think the stock could yet test the upper EPS (HK$) 0.40 0.44 0.47 0.50 end of this range, as more credence is given to the company’s EPS Gth (%) 4.6 8.3 7.3 6.9 Diluted EPS (HK$) 0.40 0.44 0.47 0.50 steadily improving market position, strength in higher-end auto DPS (HK$) 0.10 0.11 0.12 0.13 components, consistently high FCF yield (c.9%) and higher dividend BV Per Share (HK$) 3.16 3.48 3.84 4.22 payout potential. Johnson’s share has lagged other HKEx listed PE (X) 12.6 11.7 10.9 10.2 industrial stocks despite the company demonstrating similar market P/Cash Flow (X) 7.9 8.8 8.0 7.8 dominance, strong corporate governance and as consistent an P/Free CF (X) 10.2 13.2 11.6 11.0 EV/EBITDA (X) 7.0 6.3 5.6 5.0 operating performance as its peers. We believe this longtime Net Div Yield (%) 2.0 2.1 2.3 2.5 laggard can thus catch up with its peers and we initiate coverage P/Book Value (X) 1.6 1.5 1.3 1.2 with a BUY rating and a TP of HK$6.5 based on a high end 14.5x Net Debt/Equity (X) CASH CASH CASH CASH FY13E P/E. ROAE (%) 13.2 13.2 12.8 12.4
At A Glance Earnings Rev (%): New New New Issued Capital (m shrs) 3,604 Consensus EPS (US$): 0.06 0.06 0.06 Mkt Cap (HK$m/US$m) 18,381 / 2,372 Other Broker Recs: B: 3 S: 1 H: 4 Major Shareholders (%) ICB Industry: Industrials Wang Koo Yik Chun 60.84 ICB Sector: Electronic & Electrical Equipment Free Float (%) 39.16 Providers of motors and motion subsystems Principal Business: Avg Daily V olume (m shrs) 1.9 Source of all data: Company, DBSV, Bloomberg, HKEX
In Singapore, this research report or research analyses may only be distributed to Institutional “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, (“DBSVR”), are to contact DBSVR at +65 6535 9688 in respect of any matters arising from Chapter 289 of Singapore. or in connection with this report.” www.dbsvickers.com Refer to important disclosures at the end of this report ed-OY / sa- AH
Company Focus
Johnson Electric
Table of Contents
Investment Summary 3 SWOT Analysis 7 Company profile 8 Competitive Strengths 11 Business analysis - Automotive Product Group (APG) 14 Business analysis – Industrial Product Group (IPG) & other businesses 21 Financial – Income Statement 26 Financial –Balance Sheet 29 Financial –Cash Flow 29 Future Opportunities 30 Key Risks 30 Valuation 31 Appendix 38 Mabuchi Motors (6592.JT) 41 Nidec (6594.JT) 42 Bosch (private company) 43 Brose (private company) 44
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Company Focus Johnson Electric
Investment Summary Evolving into a high value-added component supplier. CFM outperforms global auto sales growth Although long regarded as a low-end motor manufacturer, Johnson has undergone something of a ‘quiet revolution’, 40% evolving almost unnoticed by the market in recent years into a high value-added auto parts supplier, and one of the largest 35% component suppliers of industrial products. Testament to the 30% increasing technological content in Johnson’s products and 25% their ability to continuously upgrade product quality, the 20% massive surge in raw material prices over the past 6 years has 15% wreaked very little damage on the company’s consistently 10% healthy gross margins. 5% 0% We believe Johnson has historically been partially a victim of perception, long seen by the market merely as just another FY11 FY12 low-end industrial play. As such, we believe the share price has FY13F FY14F FY15F FY16F FY17F not yet reflected the quiet transformation in the company’s CFM sales growth Hybrid growth products and its rapidly improving fortunes. Global auto sales Source: OICA, Pike Research, DBS Vickers, Company
GP margin remains resilient despite rise in copper price We estimate Johnson’s market share at 4.6% and 5.2% for 28 300% the cooling fan market (including non hybrid) in FY11 and FY12. Using history as a guide to the potential impact CFM 27 250% could have on Johnson’s fortunes over the next few years, a 26 200% key driver of Johnson’s revenue over the past two decades was 25 150% the development of Electronic Power Steering (EPS). EPS in turn created huge demand in brush DC motors from the 1990s 24 100% onwards benefitting Johnson and which the market duly 23 50% rewarded at the time. If history is anything to go by, we think the Hybrid/ EV CFM product line could therefore be Johnson’s 22 0% new EPS story over the coming decade. 21 -50%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 Johnson's GP margin since FY06 Johnson outperforms the Global auto market Copper price movement since 2005
Source: Bloomberg, Company, DBS Vickers 80%
Hybrid vehicles a key driver for growth. 60% A key source of future growth for Johnson is the auto 40% industry’s increasing appetite for higher quality cooling fan modules (“CFM”) used in hybrid vehicles. Johnson is fully 20% exploiting this demand as one of the few suppliers of these motors used in hybrid and electric vehicles. The CFM sub- 0% segment has significantly outperformed the broader market, growing 34% and 17% y-o-y in FY11 and FY12 respectively, -20% against global auto production growth of only 3% y-o-y in 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013E 2011. We expect the CFM business will grow at 18% and 13% 2012E to US$495m and US$557m in FY13E and FY14E respectively, Global Auto Production Growth and will represent more than 70% of Johnson’s growth in Johnson Rev Growth Source: Company, OICA, DBS Vickers FY13E.
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Company Focus
Johnson Electric
The growing case for a higher dividend payout. Dividend Payout Before the financial crisis, the company used to operate a higher dividend payout ratio of above 50% between FY04- % FY08. Johnson prudently opted to reduce the dividend payout 70 to 25%-30% during FY10-FY12 due to global economic 60 uncertainties. Looking forward, as the market recovers; we believe the company may increase its dividend payout ratio if 50 no major acquisition takes place, supported by a strong net 40 cash position of US$192m in FY12. For a company with such 30 strong and consistent free cashflow yield, we believe this could potentially trigger a re-rating. 20 Premium valuation justified, Initiate with a BUY. 10 Johnson has traded on a P/E of between 8x-15x over the past 3 0 years. Although Johnson’s share price has rebounded from its FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 recent lows, we believe a further re-rating to the high end of FY13F FY14F FY15F the above range would be more than justified. This is due to Source: Company, DBS Vickers Johnson’s continually improving market position in the higher end auto component space (CFM), its consistently high FCF yield of 9% and potentially higher dividend payout.
Finally, we believe a continued re-rating is warranted due to YTD share price performance lagged industrial peers the fact that, despite investors traditionally favouring companies with strong market positions, great corporate governance and consistent operating performances, despite 90% 80% Johnson boasting a similar track record in all of these areas, its 70% share price performance still lags compared to other HKEx 60% listed industrial stocks such as Techtronic (669 HK) and VTech 50% (303 HK). 40% 30% We initiate coverage with a BUY rating and a TP of HK$6.5 20% based on a 14.5x FY13E P/E, close to the high end of its 10% historical trading range. The closest peer to Johnson would be 0% Mabuchi (6592. JP), which currently trades at a FY12 P/E of -10% 22.6x. Jul-12 Jan-12 Jun-12 Oct-12 Feb-12 Apr-12 Sep-12 Mar-12 May-12 Aug-12 Johnson Electric Techtronic Vtech
Source: Bloomberg
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Company Focus Johnson Electric
Background
Leading position in the motion systems market with quality customers. Johnson Electric has over 50 years of experience in producing motors and switches in global automotive and industrial products. It is now one of the major auto components suppliers for global automotive makers like BMW, Volkswagen, Mercedes Benz, GM and Ford etc. Through a series of acquisitions, the company is increasing its competitiveness and expanding its footprint into other new business areas such as Nanomotion for high-precision piezo ceramic motors and Nihon Mini Motor for camera and optical disc driver products etc.
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Company Focus
Johnson Electric
efficiency and 3) technology advancement can improve Financial Summary Johnson’s GP margins. The higher skew in product mix to IPG- “Industrial Products Group” (35% of group’s revenue) - higher margin Cooling Fan Module products can also improve Steady 2% and 4% growth. Although we estimate smart overall GP margins. Overall we estimate GP margins to improve meters and medical device products to deliver 11% growth in 0.1ppt each year from 27.3% in FY12 to 27.4% and 27.5% in FY13E, the weak global economy drags down demand for FY13E and FY14E respectively. other sub-segments such as traditional home appliances and Net margins - Expect 8% and 6% growth in net profits for consumer electronics. Offsetting the decline in both sub- FY13E and FY14E. Taking into account improving operating segments, we estimate a 2% and 4% overall growth to maintenance and tighter cost controls, Opex/sales ratio is US$772m and US$800m for the entire IPG business in FY13E expected to reduce from 18% in FY12 to 17% in FY13E. As a and FY14E result we expect net profit margins to improve from 8.7% in APG -“Auto Products Group” (60% of group’s revenue) – FY12 to 9% in FY13E. Overall we expect a 8% and 6% growth Sales growth of 8% driven by strong Cooling Fan Module. We in net profits to US$202m and US$215m for FY13E and FY14E estimate that the APG segment will record 8% and 7% growth respectively. to US$1,373m and US$1,471m in FY13E and FY14, Financial position – Solid financial position and return profile. respectively. We estimate that the proportion of sales from Johnson has a net cash position of US$195m in FY12. Despite Cooling Fan Module will further increase from 20% in FY12 to the slowdown in the global economy, the company has 22% and 23% in FY13E and FY14E, respectively. This maintained an average free operating cashflow of US$290m represents a contribution of over 36% and 38% to total APG representing a FCF yield of 9.7% in FY12. Moreover it has also sales in FY13E and FY14E, respectively. registered a ROE of 15% in FY12 and we expect an average Gross margin - Improvement from efficiency gain and lower ROE of 13% for FY12-FY14E. material prices. We believe 1) lower material costs 2) operating
Financials summary
Revenue growth (%) FY10 FY11 FY12 FY13E FY14E FY15E Automotive Products Group ("APG") 3% 23% 11% 8% 7% 7% Industry Products Group ("IPG") -12% 38% -5% 2% 4% 6% Other businesses -15% -65% 17% 10% 12% 12% Total -5% 21% 2% 5% 6% 7% Net profit growth (%) 2871% 136% 3% 8% 7% 7%
Margins Gross Profit margin 27.7% 27.5% 27.3% 27.4% 27.5% 27.5% EBIT margin 6.3% 11.2% 10.3% 10.6% 10.6% 10.5% Net margin 4.4% 8.6% 8.7% 9.0% 9.1% 9.1%
Dividend yield 1.0% 1.8% 2.0% 2.1% 2.3% 2.5% FCF Yield 10.3% 9.2% 9.8% 7.6% 8.6% 9.1% ROAE (%) 7.4% 14.6% 13.2% 13.2% 12.8% 12.4% Source: Company, DBS Vickers
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Company Focus Johnson Electric
SWOT Analysis
Strengths Weakness
• Leader in the motion systems industry for automotive and • Export-oriented business affected by the health of the industrial products. global economy
• Portfolio of well-known customers • Strongly related to the global auto market as APG applications account for 60% of sales • Worldwide innovation centres focus in different sectors to create differentiation in products. • Higher copper and steel prices means higher raw material costs • Global manufacturing bases helps sourcing for multinational customers
Opportunities Threats
• Gain market share in the emerging auto markets (e.g. China • Slowdown in global auto production and India) • Economic slowdown lowers industrial product demand • Fast growing environmental-friendly vehicle increases • Global operations increases FX risks demand in high quality Cooling Fan Modules.
• Increase demand in smart devices help IPG growth • Global restructuring reduces costs
Source: DBS Vickers
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Company Focus
Johnson Electric
After its listing, the company continued to expand its business Company profile including establishing its Japanese branch office in 1988 and opening its engineering centre in Germany in 1992. Company Background In the 2000s, Johnson began to expand its footprint through a Corporate History. Found by the late Wang Seng Liang and series of M&A activities. In 1999, the company acquired Wang Koo Yik Chun in 1959, Johnson Electric began to Electric Motor System from Lear Corporation including Gate produce micro motors in Hong Kong. In 1972, Patrick Wang SpA in Italy, the motors business of Kautex Textron division, (son of the late Wang) established its AC Motor business and and the seat motor business of ArvinMeritor’s Light Vehicle began production of micro-motors for the automotive industry systems division in 2001. It also acquired a 51% stake in in the USA in 1976. The company had established its first Nanomotion for high precision piezo ceramic motors and production plant in Shajing, Shenzhen in1982 and got listed Nihon Mini Motor for camera and optical disc driver products on the HKEX in 1984. in 2004. Its latest acquisitions are Saia-Burgess AG and Parlex in 2005.
Johnson’s timeline
Founded by the - Established Listed on Opened Opened - Opened automotive late Mr. Wang Johnson Electric in Hong Kong Engineering brushless DC motor production Seng Liang and USA. Stock center in motor technical plants in Chennai, Mrs. Wang Koo - Began production Exchange. Germany. and production India. Yik Chun to of micro-motors for center in Italy. - Opened motor produce micro the automotive production plant in motors. industry. Beihai, Guangxi, China.
1959 1972 1976 1982 1984 1988 1992 20012003 2007 2010
Dr. Patrick Wang Established plant Established Automotive and Established the established AC in Shajing, Johnson Electric Industry Johnson Motor Business. Shenzhen, branch office in divisions Medtech division China. Japan. established. in Hong Kong.
Source: Company
Organisation Structure. Johnson Electric is one of the world’s include Johnson Medtech (JMT), Components Services (C&S) and largest providers of motors, solenoids, micro-switches, flexible Saia-Burgess Controls, a provider of programmable control printed circuits and control systems. Its business is classified into systems and the sales of control units which accounted for 5% of two major segments: 1) Automotive products group (APG) 2) total sales. The company has an annual production capacity of Industry products group (IPG). The two segments account for over one billion units. 60% and 35% of the group’s total revenue. Other businesses
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Company Focus Johnson Electric
Corporate structure
Johnson Electric Group
Automotive Products Group Johnson Medtech Other Business
Industry Products Group Components & Services
Source: Company
technical product manager of Saia-Burgess Controls AG. He Directors and Management Composition. Johnson’s senior has previously worked as a consulting engineer in the management team and board of directors consist of a group computer industry. Wang graduated from Massachusetts of experienced and professional members. Institute of Technology with an M.Eng and B.S degrees in Honorary Chairman and Non-executive Director: Madam Yik- Computer Science and Electrical Engineering. Chun Koo Wang, age 95, is the honorary chairman of the Senior Vice President, Strategic Manufacturing: Tung Shing company and is the co-founder of Johnson Electric. She was Choi joined Johnson Electric in 1968 and has over 40 years of the vice-chairman of the group in 1984 and was actively experience in motor component manufacturing, motor involved in the development of the group in the early stages. assembly processes and the utilisation of machines and Chairman and Chief Executive- Patrick Wang is the son of the fixtures. He is responsible for the global manufacturing late Wang Seng Liang. He joined the group in 1972, was management of the group. appointed managing director in 1984 and was elected as Senior Vice President, Strategic Marketing & Sales: James Chairman and CEO in 1996. He is a member of the Randolph Dick has over 35 years of experience in high nomination and corporate governance committee. Wang technology management. He joined Johnson in 1999, and was obtained his BSc and MSc degrees in Electrical Engineering responsible for marketing and selling, prior to joining the and has an Honorary Doctorate of Engineering from Purdue group he held executive positions with Xerox in USA, IBM in University in Indiana, USA. Europe and Astec Plc in Hong Kong. Vice-Chairman: Winnie Wang is the sister of Patrick Wang. Senior Vice President, Supply Chain Services: Robert Allen She joined the group in 1969 and was appointed executive Gillette joined the Group in 2007 and is responsible for director in 1984 and was elected as vice-chairman in 1996. providing leadership strategic direction in supply chain She is a member of the remuneration committee. management for all business units. Prior to joining the group, Executive Director: Austin Jesse Wang is the son of Patrick he worked for Emerson Electric where he held various Wang. He joined the group in 2006 and became a director in operations, marketing and supply chain positions in North 2009. He is the general manager of Saia-Burgess Controls America and Asia. Greater China and prior to that was senior manager of operations at Saia-Burgess China Industry Products Group and
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Company Focus
Johnson Electric
Senior Vice President, Human Resources: Peter Henry Langdon Senior Vice President, IPG- Europe and the Americas: Joseph joined the Group in 2007 and is responsible for Human Alan Guisinger joined in 2004 and is responsible for the Resources, Global Environmental, Health and Safety, and strategic, commercial and operational direction of the Industry Training and Development. Prior to joining Johnson, he was Products Group (IPG) in Europe and Americas. Prior to joining responsible for Human Resources and was the assistant the group, he held senior positions in Emerson Electric. corporate secretary for a major international energy service Executive Vice President: Christopher John Hasson joined the company. group in 2002 and is responsible for corporate business Senior Vice President, Corporate Engineering: Yue Li is development, mergers and acquisitions, corporate strategic responsible for overall corporate technology engineering planning and supervision of the legal and company secretarial operations and Value Innovation Programs. Prior to joining the functions. Prior to joining the group, he was a partner at the group in 2004, he worked for Emerson Electric in St. Louis as Boston Consulting Group. director of new products, and for Carrier Corporation in Senior Vice President, APG Asia: Kam Chin Ko joined the Syracuse as director of power electronics and motor group in 1988 and is responsible for the strategic, commercial technologies and for Emergency One Inc in Florida as vice and operational direction of the Automotive Products Group president of product management. (APG) in Asia. Senior Vice President and Chief Financial Officer: Jeffrey L. Senior Vice President, IPG- Asia: Yiu Cheung Kwong joined the Obermayer joined the group in 2010 and had 28 years Group in 1999 and is responsible for the strategic, commercial experience with BorgWarner Inc in USA and Germany, where and operational direction of the Industry Products Group (IPG) he held senior executive positions in finance, business in Asia. Prior to joining the group, he had 10 years experience development, treasury and risk management and accounting. with TDK, NHK and Philips where he held positions in product engineering, product procurement and sales and marketing.
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Company Focus Johnson Electric
Competitive Strengths metre devices etc. The Auto Product Group’s (APG) business includes power train cooling, lighting, steering, HVAC, A leading provider of motion systems to supply global window lift, suspension and transmission etc. automakers. Johnson Electric has over 50 years of experience in producing motors and switches in global automotive A strong R&D engineering team. Johnson has innovation products and industrial products. It is now of the major auto centres throughout the world situated in key industrial components suppliers to global automotive makers including, locations, which facilitates close collaboration with key BMW, Volkswagen, Mercedes Benz, GM and Ford etc. customers. Each design team focuses on specialised areas to ensure efficient and on-time completion of customer design A comprehensive application of automotive and industrial projects. Moreover, all machinery and a majority of the tools products. Johnson offers a wide combination of product are designed and built in-house to fit Johnson’s unique knowledge, technology and designs in various applications. Its production engineering process. Industry Product Group (IPS) application ranges from power tools, camera, home appliances, medical devices to smart
Johnson's innovation centres
Country Location(s)
USA Methuen Vandalia Springfield Plymouth Competencies Flexible PCB Solenoid , Actuators Motor technology , Motor technology, Actuators Cooling fan module Germany Halver Dresden Oldenburg Competencies Switches Motor technology, Switches Actuators, Gear Switzerland Murten Competencies Actuators, Controls Italy Asti Competencies Motor technology, Cooling Fan Module UK Isle of Wight Competencies Flexible PCB Israel Yokneam Competencies Piezo motors China Hong Kong Shenzhen Shanghai Competencies Motor technology, Motor technology, Cooling fan module, Medical device Electronics, Gear, Flexible PCB subsystems Medical device subsystems Japan Tokyo Competencies Micro Motors Source: Company
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Company Focus
Johnson Electric
All tools are designed in-house to meet its high standard. In Johnson’s production facilities order to meet high standard. Johnson Electric Production System (JEPS) is designed to maximise the efficiency and quality of the manufacturing of each customer's product. Components & Services Division designs and manufactures a wide range of precision components that provide the foundation technologies within the products. The company develops custom magnets, bearings, shafts, metal and plastic housings, laminations, commutators, and die cast parts. These capabilities allow a precise alignment between top level product design requirements (QFD) and component performance specifications.
Proven ability to grow via M&A strategy. Since 1999, Johnson Electric entered into a series of acquisitions to increase its competitiveness and to expand its footprint into other new business areas. The company acquired Electric Motor System from Lear Corporation, including Gate SpA in Italy, the motors business of Kautex Textron division, and the seat motor business of ArvinMeritor’s Light Vehicle systems division in 2001. It also acquired a 51% stake in Nanomotion for high precision piezo ceramic motors and Nihon Mini Motor for camera and optical disc driver products in 2004. Its latest acquisitions were Saia-Burgess AG and Parlex in 2005.
The series of M&A activities allows the company to emerge from a low-end micro motors manufacturer to a global high value-added professional automotive and industrial Source: Company components provider.
M&A timeline
1999 2001 2004 2005 Acquisition of Electric Acquired motors business of Acquired 51% stake in Acquired Saia-Burgess AG, a Motor Systems from Kautex Textron division. Nanomotion Ltd. for high Swiss manufacturer of stepper Lear Corporation Acquired seat motor precision piezo ceramic motors, switches, actuators, and including Gate SpA in business of ArvinMeritor's motors. control systems. Italy. Light Vehicle Systems Acquired Nihon Mini Motor Acquired Parlex, a USA division. for camera and optical disc manufacturer of flexible printed drive products. circuits and connector solutions.
Source: Company
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Company Focus Johnson Electric
Johnson’s Brands
Brand Area of focus Motion (Motors and Solenoids) Johnson motor Industrial and automotive markets focuses in DC micromotors and small AC motors Saia-Burgess Automotive markets for custom engineered actuators and switches Saia Motor Precision stepper and synchronous motors used within custom designed valves and motion control systems NanoMotion Piezo motors and provide precision motion within microscopy, defense, semiconductor and medical systems Ledex Solenoid DC solenoids Dormeyer Solenoid AC solenoids used in high volume, home technology products. Johnson Medtech Integrated provider of custom engineering and manufacturing of Medication Delivery Subsystems, Surgical Motion-Subsystems, Medical Grade Pumps and Custom Medical Actuators. GATE Cooling Fan Modules for automotive engine cooling.
Switches and Relays Saia Switches Precision microswitches Burgess Microswitches Baer Home technologies switches TH-Contact Custom control panel builders
Flex Circuits and Microelectronics Parlex Custom engineered flexible interconnects and sensors. Source: Company, DBSV
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Company Focus
Johnson Electric
The APG product line comprises the following brands: Saia- Business analysis - Automotive Product Group (APG) Burgess for custom actuators and switches; GATE for engine cooling fan modules; and Johnson Motor for DC motors Accounted for 60% of the group’s total revenue • (Standard DC, Compact DC and brushless DC product lines) Cooling Fan Module (CFM) to grow at 18% and 13% • APG Applications in FY13E and FY14E, respectively, driven by eco- friendly vehicle sales. Model vehicles nowadays require a large number of motion devices for different applications. According to the company, a Comprehensive products in different applications and • standard European/US compact car requires 40 motors, a mid- serving well-known quality customers size car: 60 motors and a luxury sedan demand up to 80 or more motors per vehicle. • Promising outlook of the Cooling Fan Module business leverages on the strong potential in the environmental- Johnson’s APG application serves 13 different parts of an friendly vehicles market automotive, from engine management, power cooling, power steering to door locks etc. Johnson Electric is a global leader in the automotive components industry. The APG business unit provides custom motors, actuators, switches and motion sub-system solutions for all critical automotive motion-related functions.
APG APPLICATIONS
Source: Company
The uses of the APG motion/motor devices are primarily Safety: Johnson Electric’s ABS motor product line provides required in three major ways 1) Safety 2) Energy efficiency and leading power density technology for automotive and 3) Comfort. We believe safety and fuel energy are the key motorcycle applications. It is the industry leader in electric concerns in modern vehicles and has accordingly become parking brake motors and custom engineered motor especially important in high-end luxury cars. actuators.
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Company Focus Johnson Electric
Apart from braking systems, Johnson’s products also help enhance passenger safety in seating applications including seat APG – Cooling Fan Module belt tensioner, child locks and safety windows sensors etc.
Energy efficiency: In terms of fuel efficiency, Johnson develops the leading technology platform to enhance fuel efficiency, drivability and safety. Engine management products include fuel pumps, electronic throttle controls (ETC) and exhaust gas recirculation (EGR) etc.
Moreover, the company also produces transmission applications including Automated Manual Transmission (AMT) Source: Company and Dual Clutch Transmission (DCT) to help improve fuel efficiency. Market outlook- Cooling Fan Module Comfort: Johnson develops custom HVAC (Heating, Outperform global auto market. The CFM unit is one the Ventilation and Air Conditioning) actuators to create the fastest growing businesses in the group. This sub-segment has industry standard for compact and low noise designs for recorded 34% and 17% y-o-y growth in FY11 and FY12, global automakers. accounting for 17% and 20% of the group’s total revenues. Other areas such as power steering, door locks, mirrors, The global auto production recorded only 3% y-o-y growth in window lift and seating also require a large number of motion 2011. As a result, Johnson’s cooling fan business has devices to help improve drivers’ comfort, safety and engine significantly outperformed the global automotive market by efficiency. gaining market share.
Johnson’s APG division covers 13 different auto components Continuous market share gain. Assuming an ASP of US$100 with a product portfolio of over 40 different categories. Our for each cooling fan module, we estimated an annual sale of analysis categorises the APG business into two sub-segments. 4.2m units of CFM in FY12. According to OICA data, global 1) Cooling fan module (CFM) auto production was 77.7m and 81m units in 2010 and 2011. 2) General auto components. Therefore we estimate Johnson’s market share to be 4.6% and 5.2% for the cooling fan market in FY11 and FY12. Sub-segment: Cooling Fan Module. Johnson Electric is one of the global leaders in CFM, with its Gate brand. Johnson works with advanced engineering departments at OEMs to create custom designs. The Gate brand includes a broad power range Johnson’s CFM Market share estimates of DC and BLDC motors, as well as actuators for cooling valves and grill shutters for fuel efficiency enhancement. The CFM business accounted for c.20% of the group’s total revenue in 8% FY12.
What is an Engine Cooling Fan module? An Engine Cooling 6% Fan is also known as a radiator used for cooling internal combustion engines. It is used in automotives, motorcycles aircraft, railway locomotives etc. 4%
Johnson’s CFM primarily addresses the passenger car segments. Its advanced technology is designed to minimise 2% weight, space and noise. Its latest EC (brushless) motor improves fuel efficiency and CO2 emissions by engine temperature management. 0% FY10 FY11 FY12 FY13F FY14F FY15F Source: DBS Vickers
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Company Focus
Johnson Electric
Assumption table
FY Mar (US$m) FY10 FY11 FY12 FY13F FY14F FY15F sub-segment breakdown Cooling fan 266.8 357.68 420.0 495.1 557.8 624.7 Estimated ASP US$ 100 100 100.0 100.0 100.0 100.0 Estimated unit sold (m) 2.668 3.577 4.200 4.951 5.578 6.247 Total auto production (m) 61.8 77.7 80.1 82.5 85.8 89.2 growth (%) -12.4% 25.8% 3.1% 3.0% 4.0% 4.0% market share 4.3% 4.6% 5.2% 6.0% 6.5% 7.0% sub-segment growth % (assumption) -22% 34% 17% 17.86% 12.67% 12.00% Group's total revenue 1,741.0 2,104.0 2,140.8 2248.0 2386.8 2555.2 % of sales 15% 17% 20% 22% 23% 24% Source: Company, DBS Vickers
Global fuel consumption target
Source: International Council on Clean Transportation
Large growth potential from eco-friendly vehicles. In a world of soaring oil prices and an increase in environmental Global regulations concerns, there is a clear trend of automakers developing eco- Country/ Program details, reduction in CO2-per- Regulated metric friendly vehicles such as hybrid and electric vehicles to replace Region distance emissions European CO2 emissions traditional gasoline cars, to reduce CO2 emission. Over the 40% reduction, MY 2008-2020 EU NEDC past few years, global sales of hybrids and electric cars have Union (CO2/km) grown rapidly from 480k units in 2008 to 995k units in 2011, United Fuel economy 20% reduction, MY 2011-2016 U.S. FTP States (mi/gal) GHG emissions (CO2e/mi) according to Pike Research. It is also expected that global sales Fuel economy Japan 19% reduction, MY 2010-2015 Japan JC08 of eco-friendly vehicles will grow at a CAGR of 18% to 2.87m (km/L) Fuel consumption 12 % reduction, MY2008-2015 EU NEDC in 2011-2017. China (L/100km) cycle GHG emissions Canada 20% reduction, MY 2011-2016 U.S. FTP (CO2e/mi) Fuel consumption Australia 10% reduction, MY 2004-2010 EU NEDC (L/100km) South Fuel economy 13% reduction, MY 2012-2015 U.S. FTP Korea (km/L) Source: ICCT
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Company Focus Johnson Electric
The “EPS” technology was first introduced in the 1950s. In the Global oil price early days, this technology was designed for heavy vehicles to provide leverage to steer their wheels. During the 1960s and 1970s, power steering was only an option for premium US$/barrel 160 vehicles such as the Cadillac and Lincoln etc. The power 140 steering technology did not become popular until the late 1980s and early 1990s. That changed when Honda introduced 120 the first “all electric” power-steering system on its Acura NSX 100 sports car in 1993. The new system, which requires a brush 80 DC motor dominated the market and brought a revolution to 60 the global auto industry. Since then, the EPS system has become a necessity in both passenger and commercial 40 vehicles. This new revolutionary technology created massive 20 business opportunities for auto components makers, especially 0 motor manufacturers.
Johnson electric is one of the beneficiaries from this
May-83 May-86 May-89 May-92 May-95 May-98 May-01 May-04 May-07 May-10 technological migration process. As a result, although Source: Bloomberg automotive production grew with only a CAGR of 1.28%, Johnson Electric’s revenue grew by 18% CAGR within 10 years from the introduction of EPS. Ignoring the revenue doubling between 1999 and 2000, Johnson Electric still Johnson’s capability in CFM EV. In hybrid vehicles, the electric obtained a 12% CAGR between 1990 and 1999, substantially powertrain emits very little waste heat. Consequently, the heat outperforming the auto market. With this, we believe the flows in the coolant will have to be better controlled by development of EPS was a major driver and opportunity for thermal management. As one of the few names in the world Johnson Electric’s revenues and we are trying to look for a which has the capability to produce CFM for hybrid and EV, new growth driver for Johnson Electric’s future. Johnson Electric introduced a new cooling fan product line exclusively for hybrids and EVs. The CFM EV is designed to Johnson’s sales growth vs global auto have an extremely long life to continuously manage the battery temperature during the operating and recharge cycles of plug-in hybrids and electric vehicles. The CFM EV was 80% launched under the GATE brand and is designed to maximise CAGR= 18.4% airflow with its compact size, low weight and quiet operation. 60%
Further increase its market share in CFM market; revenue 40% expected to grow at 18% and 13% in FY13E and FY14E. We believe that technology advancement in CFM EV will allow 20% Johnson to further increase its market position in the global CFM business. Although the global auto market is only 0% forecasted to grow at 3% in FY13E, we estimate an 18% growth in the CFM segment revenue. We estimate Johnson’s -20% 1985 1990 1995 2000 2005 2010 2015 CFM market share to grow from 5.2% in FY12 and to 6% in FY13E, primarily driven by the hybrid and electric vehicle Global Auto Production Growth market. As a result, we expect the CFM business to grow at Johnson Rev Growth 18% and 13% to US$495m and US$557m in FY13E and Source: Company, OICA FY14E respectively.
Case study: Power Steering Déjà vu: Will eco-friendly Hybrid/Electric vehicles be the future of the market? Looking back into the history you can see that Johnson’s revenue grew rapidly by 14 times over the past two decades. We have noticed that there is a growing trend of leading We believe one of the major reasons for this success was the automotive manufacturers starting to push out hybrid models. development of Electronic Power Steering (EPS) which has Although the first batch of modern hybrid cars were produced created a huge demand in brush DC motors since 1990s. in 1970’s after the first oil crisis, it did not become widely available until the release of the Toyota Prius in 1997. We have
Page 17
Company Focus
Johnson Electric seen global sales of hybrid and EV grow from around 520,000 in 2008 to around 930,000 in 2011. According to Pike Global auto production Research, global sales will triple that of 2011 by 2017 with a CAGR 18% between 2011-2015. Johnson should be able to mn capitalise on this as they are one of the few suppliers of 70 motors used in hybrid and electric vehicles. 60
50
40 Global hybrid sales 30
20 Sales Vol 3,500,000 10
3,000,000 0 2,500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2012E 2013E 2,000,000 Source: OICA, DBS Vickers 1,500,000
1,000,000 500,000 Johnson’s general auto components sales in line with the 0 global auto market growth at a CAGR of 3%. Due to its diversified nature and complicated product portfolio, we 2008 2009 2010 2011
2012F 2013F 2014F 2015F 2016F 2017F estimate that the sub-segment sales will grow in line with the Source: OICA global auto output at 3% and 4% in FY13E and FY14E, respectively. Sub-segment: General auto components. Johnson did not APG sales to grow at 8%, driven by the strong Cooling Fan have the revenue breakdown for different auto component Module. We estimate the overall APG segment to record an units. Other components applies to any motion devices in an 8% and 7% growth to US$1,373m and US$1,471m in FY13E automotive apart from the Cooling Fan Module, (e.g. Heating, and FY14, respectively. We estimate that revenue from the Ventilation & Air Conditioning or HVAC, braking, suspensions, Cooling Fan Module to further grow by 18% in FY13E and power steering and interior components etc) 13% in FY14E respectively. This represents a contribution of over 36% and 38% to total APG sales in FY13E and FY14E, The general auto components accounts for 67% of APG respectively. revenue and 40% of the group’s total revenue. The product portfolio of this sub-segment covers over 13 different parts of a vehicle, including at least 40 different types of product categories.
Global auto output expected to rise at only 3%. Apart from the CFM business unit, Johnson’s APG business is closely correlated to the global auto industry activity. Due to the Global Financial crisis, Global auto output had fallen dramatically to 47.8 units in 2009. However, since then, the market has regained its steady growth rate and returned back to the 59.9m units production level in 2011. According to OICA, The overall market is expecting 3% and 4% growth in 2012 and 2013, respectively.
Page 18
Company Focus Johnson Electric
Industry outlook APG sales The global automotive product suppliers market has been affected by the recent economic slowdown. In particular, US$m smaller companies struggled to survive during the crisis, 1,800 according to the Motor and Equipment Manufacturers 1,600 Association (MEMA). There were over 50 bankruptcies and 1,400 about 200 liquidations in 2009 in the automotive supplier 1,200 sector. However we have seen recovery in global auto 1,000 production. Based on OICA, global production was 80 million, 800 which is a continuation of the growth trend before 2008, after 600 seeing global production figures dropping in 2008 and 2009. 400 According to Polk Research, the auto market is expected to 200 grow at a CAGR of 5.5% for 2012-2015. 0 Competitive landscape FY10 FY11 FY12 FY13F FY14F FY15F Cooling fan Other auto motors Johnson supplies most of their automotive products to other companies, such as Delphi, Denso, etc, as a second tier Source: Company, DBS Vickers supplier for first tier automotive manufacturers such as BMW, Daimler, etc.
Johnson not only faces competition from other automotive
parts manufacturer like Bosch but also from their clients who try to produce those parts themselves. On the whole, with the global auto market recovering, we see that Johnson will outperform the industry leveraging due to their footprint in the Hybrid/EV market.
Page 19
Company Focus
Johnson Electric
Johnson’s clients/competitors
Company Market Stock Group EBIT Gross Specialised area Competition Major client origin cap code revenue margin Profit with US$ m (US$ m) - % margin others? - % Johnson Hong Kong 2,211.2 179 HK 2,140.8 10.3% 27.3% Motion and Motors, Cooling BMW, GM, Ford, Daimler, Electric Fan, Switches and Relay, Flex Volkswagen Circuits and Microelectronics
America US 729.9 AXL:US 2,585.0 8.6% 17.6% Axles and Driveshafts, Drivetrain Magna GM (73%). Chrysler/Fiat, Axle components, forged products Volkswagen, and other Audi/Scania, Nissan, Daimler Truck/Mercedes, Tata Motors/Jaguar Land Rover Behr Germany 0.0 not listed 5,160.3 4.7% na Automotive Air Conditioning Porsche, Daimler, Audi, and Engine Cooling Systems BMW, KAMAZ, Hyundai/Kia, PSA Peugeot Citroen Delphi US 7,070.4 DLPH:US 16,041.0 10.4% 16.6% Electrical/ Electronic Valeo, BMW, Caterpillar, Architecture, Electronics & Denso, Lear, Chrysler, Daimler, Fiat, Safety, Powertrain Systems, Magneti Ford, Geely, GM, Thermal Systems Marelli, TRW Hyundai/Kia, PSA Peugeot Citroen, Renault/Nissan, Shanghai GM, Toyota, Volvo Trucks, Volkswagen Group Denso Japan 26,967.4 6902:JT 39,981.0 5.1% 13.8% Auto Components (Aftermarket) Delphi, Toyota Group, OE Sales - spark plug, NaviBridge, Auto Valeo for others (Honda, GM, Componenets (OEM) - Air Suzuki), After-market, Conditioning System, Engine New business & Others Related Components, Body Equipment, Driving Control and Safety Products, Regulation & Legislation
Lear US 4,278.0 LEA:US 14,156.5 4.8% 8.4% Seating System, Electrical Power Magna GM, BMW, Ford, Management Systems VW/Audi, Fiat/Chrysler Magna Canada 7,803.3 MGA:US 28,748.0 4.3% 9.3% Exterior and Interior Systems, Lear GM, BMW, Fiat/Chrysler Body Systems and Chassis Group, Ford Motor Systems, Powertrain Systems, Company, Volkswagen, Complete Vehicle Assembly, Daimler AG Vision and Electronic Systems, Tooling, Enginerring and other, Closure Sytems Magneti Italy 0.0 GIL:IM €5.9 na na Electronic Systems, Automotive all main car Marelli (delisted) billion Lighting, Powertrain, Suspenion manufacturers in Europe Systems, Exhaust Systems, and America, Chery, Motorsport, Plastic Components Suzuki-Maruti, Tata, and Modules, After Market parts Piaggio, Ducati and amd Services Harley Davidson TRW US 4,034.3 TRW:US 16,244.0 7.9% 11.5% Chassis Systems, Occupant Delphi, Volswagen, Ford, GM Safety Systems, Electronics, Valeo Automotive Components Valeo France 2,986.1 FR:FP 15,132.7 6.5% 17.0% Powertrain Systems, Thermal Delphi, Three major global Systems, Comfort and Driving Denso, TRW automakers represent Assistance Systems, and Visibility 43.3% of the Valeo Systems Group's sales Valeo's largest customer accounted for 19% of the Group's accounts and notes receivable Source: Companies, DBS Vickers
Page 20
Company Focus Johnson Electric
The Industry Product Group (IPG) provides motion products Business analysis – and customised solutions for various commercial and industrial applications, including home appliances, power tools, business Industrial Product Group (IPG) & other businesses equipments, personal care products, building automation, security, audio-visual and other industrial products. • Accounted for 40% of the group’s total revenue (IPG: 34.6%, Others: 4.6%) Similar to the APG segment, Johnson’s product line comprises different brands: Johnson Motor for DC motors (Standard DC, • Steady growth of 3% and 5% ahead in FY13E and Compact DC, and brushless DC product lines), and AC motors; FY14E, respectively. Saia Motor for stepper motors and synchronous motors; Ledex and Dormeyer for solenoids; and Saia, Bär, Burgess, the- • One of the world’s leading motors suppliers for major contact for switches. industrial products
• Increase awareness of energy savings and efficiency creates huge demand for Smart meters
IPG applications
Source: Company
Page 21
Company Focus
Johnson Electric
Comprehensive product portfolio covers almost every industrial sector. IPG sales trend
Johnson’s IPG has a broad range of products covering a large US$m number of sectors. In order to simplify the product mix, we 1000 have classified Johnson’s IPG into four major sub-segments. 1) Industrial equipment 2) Home appliances 3) Consumer 800 electronics and 4) Advanced technologies. 600
400 IPG Breakdown
200 Advanced technologies Industrial 0 26% equipment FY10 FY11 FY12 FY13F FY14F FY15F 19% Industrial equipment Home Appliances Consumer electronics Advanced technologies Source: Company, DBS Vickers
Consumer Home electronics Appliances 28% 27%
Source: Company, DBS Vickers
Sub-segment breakdown
FY Mar (US$m) 2010 2011 2012 2013F 2014F 2015F Industrial equipment 111.0 152.6 140.4 147.4 156.3 167.2 growth assumption -9%38%-8%5%6%7% Home Appliances 160.0 220.0 204.6 198.5 198.5 204.4 growth assumption -11% 38% -7% -3% 0% 3% Consumer electronics 163.9 225.3 210.6 206.4 206.4 216.7 growth assumption -7% 38% -7% -2% 0% 5% Advanced technologies 144.1 198.2 198.1 219.9 239.7 263.7 growth assumption -18% 38% 0% 11% 9% 10% Total 579.0 796.2 753.7 772.2 800.8 852.0 Source: Company, DBS Vickers
Industrial equipment driven by global construction and housing We believe the industrial equipment sub-segment is mainly activities. This sub-segment includes products such as lift driven by the state of the global economy. According to the trucks, gardening tools, construction equipments and power “World Power Tools Industry” market report by tools etc. For power tool and construction products, Techtronic marketresearch.com, global demand for power tools is (669.HK) is one of Johnson’s major customers. We estimate forecasted to exceed US$28bn in 2013 at a CAGR of 4%. The that 18% of IPG’s revenue comes from this sub-segment. recovery in the US housing market and the ongoing investment
Page 22
Company Focus Johnson Electric
in infrastructure and construction in emerging markets are the China’s home appliances major drivers for the growth of the power tools market. We estimate a 5% and 6% growth in revenues for this sub- RMB bn segment in FY13E and FY14E, respectively. 600 536 35% 29% 500 32% 30% Johnson’s Industrial sub-segment growth vs Techtronic 405 25% sales growth 400 23% 315 20% 300 271 50% 237 16% 192 15% 200 14% 40% 10% 30% 100 5% 20% 0 0% 10% 2006 2007 2008 2009 2010 2011 0% Sales of home appliances (LHS) -10% Growth y-o-y (RHS)
-20% Source: DBSV
FY07 FY08 FY09 FY10 FY11 FY12F FY13F FY14F Johnson's industrial production growth* The Top 5 Major Home Appliance Brands in the World Techtronic's sales growth
Market * FY07: FY3/08 – FY14: FY3/15F Brand Company Headquarters share * Source: Companies, DBS Vickers Haier Haier Group Qingdao, China 5.10% Whirlpool Whirlpool Corp Michigan, USA 4.50% LG LG Group Seoul, South Korea 4.30% Panasonic Panasonic Corp. Osaka, Japan 3.10% G.E. General Electrics Co. Fairfield, Connecticut, USA 3.00% Slowdown in Home Appliances. The industries served under * 2009 market share data this sub-segment includes washing machines, refrigerators, dishwashers and floorcare products etc. We estimate the home Source: Euromonitor appliance sub-segment contributes 27% to total IPG sales.
According to Euromonitor, the Top 5 major home appliances Consumer electronics demand yet to recover. This sub- brands accounts for 20% of the global market. They are Haier, segment includes cameras, office automation, electronic toys, Whirlpool, LG, Panasonic and G.E. Due to the slowdown in the vending machines, ATM and gaming machines etc. We believe global economy and the increase in competition; the home that consumer electronics is the largest sub-segment, appliances industry has suffered a decline in recent years. We accounting for 28% of IPG’s revenue. expect emerging markets to be the growth drivers for this sub- segment. In particular, China’s rural appliance rebate program According to the CCID report, total global consumer electronic should provide support in the near term. However, we do not product output reached 2.1b pieces in 2010, a 12.6% y-o-y expect growth in lower-end products can offset the decline in growth from 2009. This growth was mainly driven by an the developed market. As a result, for Johnson’s home increase in demand for finance machines and vending appliances sub-segment we estimate a 3% decline in FY13E machines, as a result of increases in automation to cut labour and we expect sales to stay flat in FY14E. costs. In particular, global finance machine sales grew 9% to US$2.2b in 2010. However, global office automation equipment sales shrank at an average of 4.5% in 2009 and 2010 due to the slowdown in the economy. Due to higher exposure in the automation segment, the slowdown in such products will drag down overall growth. Hence, we estimate a mild 2% drop in FY13E.
Page 23
Company Focus
Johnson Electric
Consumer electronics Global market of medical test equipment
US$bn US$bn 700 60
600 50
500 40 400 30 300 20 200
100 10
0 0 2007 2008 2009 2010 2011 2008 2009 2010 2011 Source: CCID Source: CCID
Advanced technologies, major growth driver. This sub- segment includes defence products, medical devices and smart meters. We estimate that 26% of the total IPG revenue came We think that both medical devices and smart meters will be from this sub-segment. the major growth driver for this sub-segment. We estimate an 11% growth for FY13E. We believe this will overtake consumer With the general population’s increase in health awareness, electronics to become the largest contribution in the overall food safety and health related expenses; the medical IPG segment. equipment market has achieved continuous growth in recent years. According to the CCID report, global medical equipment IPG sub-segments growth sales reach US$91.7b in 2011, representing a y-o-y growth of 21.3%. 50% Moreover, smart electric meters have also become an 40% important device nowadays for improving power efficiency, to 30% reduce energy consumption and for cost savings. According to 20% Pike Research, the smart meter penetration was below 4% in 10% 2008. It is forecasted to reach 18% in 2012 and to exceed 0% 55% by 2020. -10% -20% -30% FY10 FY11 FY12 FY13F FY14F FY15F Industrial equipment Home Appliances Consumer electronics Advanced technologies Source: Company, DBS Vickers
Steady 2% and 4% growth for IPG business. Although we estimate smart meters and medical device product to deliver 11% growth in FY13E, the weak global economy drags down
Page 24
Company Focus Johnson Electric
demand for other sub-segments, particularly traditional home and 11% growth in the other businesses for FY13E and FY14E, appliances and consumer electronics. Offsetting the decline in respectively, contributing c.4.6% and 4.8% of the total both sub-segments, we therefore estimate a 2% and 4% revenue respectively. overall growth to US$772m and US$800m, respectively, for the entire IPG business in FY13E and FY14E. Other businesses revenue
Overall IPG revenue US$m 250 US$m 900 200 800 700 150 600 500 100 400 300 50 200 100 0 FY10 FY11 FY12 FY13F FY14F FY15F 0 FY10 FY11 FY12 FY13F FY14F FY15F Source: Company, DBS Vickers Source: Company, DBS Vickers
Other businesses such as Control Units provide stable 10% growth annually. Johnson’s other businesses also include Johnson Medtech and Saia-burgess Controls.
Johnson Medtech provides custom engineering and motion product solutions for the medical device industry. The focus of Johnson Medtech is primarily in subsystems for Medication Delivery and Surgical Devices as well as Medical Grade Pumps and Custom Medical Actuators.
Saia-Burgess Controls produces and markets control technology for OEMs, in production machines and equipment construction, and for system integrators carrying out projects in infrastructure automation (buildings, transportation, manufacturing, water, energy and gas industries). For these customers and application areas, Saia-Burgess Controls produces over 30,000 controller CPUs each year with more than 1.5 million inputs and outputs.
Revenue from other businesses was US$93m in FY12, accounting for 4% of the group’s total revenues. These businesses are high value-added services and niche, which means they are less affected by the global economy condition. Moreover the high barrier to entry nature of the business prevents vigorous competition. Looking ahead, we expect 10%
Page 25
Company Focus
Johnson Electric
However, in the longer term, the IPG segment should regain its Financial – Income Statement growth momentum driven by advanced technology products, such as medical devices and more importantly, smart meters. • Revenue growth driven by Cooling Fan Module (CFM) at a CAGR of 15% in FY13E and FY14E. Johnson’s overall sales trend • Margin recovery on track due to stabilised raw material prices US$m 3000 • Expecting more APG revenue from emerging markets. 2500 Cooling Fan Module (CFM) business to continue the success 2000 story. We believe the technology advancement in CFM EV will allow Johnson to further increase its market position in the 1500 global CFM business. Although the global auto market is only 1000 forecasted to grow at 3% in FY13E, we estimate an 18% growth in the CFM segment revenue. We estimate Johnson’s 500 CFM market share to grow from 5.2% in FY12 further to 6% 0 in FY13E primarily driven by the hybrid and electric vehicle FY10 FY11 FY12 FY13F FY14F FY15F market. As a result we expect the CFM business to grow at Other businesses 18% and 13% to US$495m and US$557m in FY13E and Industry Products Group ("IPG") FY14E respectively. Automotive Products Group ("APG")
We estimated that revenue contribution from the CFM Source: Company, DBS Vickers business to increase from 19.6% in FY12 to 23.3% in FY14E. Europe to remain the largest geographical segment but Asia- Due to its diversified nature and complicated product portfolio, Pacific to catch up. Due to Johnson’s product quality and we estimate that other APG sales (excluding CFM) will grow in brand recognition, the company has a strong APG customer line with the global auto output at 3% and 4% in FY13E and portfolio which includes Volkswagen, BMW, Daimler-Benz, GM FY14E. Overall we expect APG segment to grow 8% and 7% and Ford etc. Despite the slowdown in the European economy, to US$1,373m and US$1,471m in FY13E and FY14, quality automakers such as BMW and Benz are registering respectively. record high-sales benefitting from the strong growth in emerging markets. Looking ahead, we still expect the For the IPG segment, although we estimate smart meters and European automakers to outperform their US peers in the near medical device products to deliver an 11% growth in FY13E, term. In the longer term, we expect higher revenue the weak global economy drags down demand for other sub- contribution from the Asian region with increasing demand segments, particularly traditional home appliances and from domestic automakers and JV manufacturers in China and consumer electronics. Offsetting the decline in both sub- India. segment, we therefore estimate a 2% and 4% overall growth to US$772m and US$800m for the entire IPG business in FY13E and FY14E.
Moreover, revenue from other businesses was US$93m in FY12, accounting for 4% of the group’s total revenue. Looking ahead, we expect a stable 10% and 11% growth in the other businesses for FY13E and FY14E, contributing c. 4.6% and 4.8% of the total revenue respectively due to its high value- added nature.
Overall, we expect Johnson to register mid single-digit revenue growth in FY13E and FY14E. We believe the relatively slow- growing IPG segment will drag down the overall growth rate.
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Company Focus Johnson Electric
Commodity prices on a downward trend helps reduce cost Global auto production geography, 2011 pressures. Over the past decade, Johnson’s GP margin has declined gradually from 32.5% in FY03 to the lowest level of 23.3% in FY09 during the financial crisis. In recent years, the France China Spain company has managed to improve its GP margins to return to 24% 3% 3% USA the 27% level due to effective product mix change and 5% commodity hedging. Germany Brazil Gross margin 10% 4%
% 35 Japan 12%
30 Others South 27% India Korea 5% 7%
25 Source: OICA
Steel and copper account for the bulk of raw materials. The 20 company does not have a breakdown of its cost structure in its
annual report. However we estimated that raw material FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 accounts for approximately 60% of the COGS, while direct FY13F FY14F FY15F labour accounts for 8% and overhead accounts for 25%. Source: Company, DBS Vickers Among the raw materials, we estimate that 50% is steel, copper (35%), plastic (5%), transmission (5%) and other The price of steel increased sharply from US$300 per tonne in components (5%). 2009 to US$700 in 2011. However steel prices dropped rapidly in late 2011 through 1H12 due to the impact of the global economic environment. Steel prices currently trade at US$335 Cost breakdown per tonne.
Flat sheet steel price Labour 6% RMB/ton Raw 5,500 material Overhead 5,000 65% 25% 4,500
4,000
3,500
3,000 Others 4% 2,500 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Source: Company, DBS Vickers Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Custeel
Page 27
Company Focus
Johnson Electric
The price of copper has also demonstrated an upward trend The recent price correction in both copper and steel prices has since 2009 and it increased substantially in 2011. The average reduced cost pressure for Johnson. Moreover, the company has closing price of the LME three-month copper futures increased also hedged against the copper price to reduce the risk of a 17% y-o-y in 2011. In 1H12, we saw a gradual decrease in sharp increase in commodity prices. Looking forward, we copper prices. expect a mild 0.1ppt improvement from 27.3% in FY12 to LME copper price 27.4% in FY13E and 27.5% in FY14E.
Wage increase in China of minimal impact to Johnson. Rising US$/MT wages in China should not have a significant impact on 12000 Johnson’s overall production cost. Currently 60% of the 10000 products are manufactured in China. We estimate that direct labour accounts for only 8% of COGS. Assuming a 10-15% 8000 rise in wages, the net impact on total COGS is less than 1%. 6000 Rmb appreciation not a key issue. We estimate that direct 4000 labour and overheads accounts for 33% of the total COGS. However, since only 60% of the production is done in China, 2000 the actual impact is lower than expected. Our sensitivity 0 analysis suggests that every 2% in Rmb appreciation will drag GP margins by 0.3ppt. Recently, there have been signs of a slowdown in China’s economy. DBS economists have tuned Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 down the Rmb appreciation forecast from 3% to less than 2% by end 2012. Source: Bloomberg
Sensitivity analysis Net profit
Copper US$m % -30% -20% -10% 0% 10% 20% 30% 6% 31.7% 30.0% 28.4% 26.7% 25.1% 23.4% 21.8% 250 160 4% 32.0% 30.3% 28.7% 27.0% 25.4% 23.7% 22.1% 140 2% 32.2% 30.6% 28.9% 27.3% 25.6% 24.0% 22.3% 200 120 0% 32.5% 30.8% 29.2% 27.5% 25.9% 24.3% 22.6% -2% 32.8% 31.1% 29.5% 27.8% 26.2% 24.5% 22.9% 150 100 -4% 33.0% 31.4% 29.7% 28.1% 26.4% 24.8% 23.1% 80 RMB appreciation appreciation RMB -6% 33.3% 31.7% 30.0% 28.4% 26.7% 25.1% 23.4% 100 60 40 50 20 0 0 FY10 FY11 FY12 FY13F FY14F FY15F Net profit (LHS) YoY growth (RHS)
Source: DBS Vickers Source: Company, DBS Vickers
expect net profit margins to improve from 8.7% in FY12 to Expect 8% and 6% growth in net profits for FY13E and 9% in FY13E. Overall we expect an 8% and 6% growth in net FY14E. Taking into account improving operating maintenance profits to US$202m and US$215m for FY13E and FY14E and tighter cost controls, Opex/sales ratio is expected to respectively. reduce from 18% in FY12 to 17% in FY13E. As a result we
Page 28
Company Focus Johnson Electric
Financial –Balance Sheet
Healthy financials support expansion and provide business stability. The company maintains a stable current ratio of 1.6- 1.8x for FY11-FY12. We expect the ratio to stay at current healthy levels. Moreover, we believe efficient product management and improved manufacturing processes can further minimise work-in-progress inventory as the transportation of production time is reduced. As a result, we expect total inventory days to improve slightly from 62 days in FY12 to 57 days in FY13E.
Strong net cash position supports higher dividend payout. Johnson maintained a dividend payout of 25%-30% during FY10-FY12. Before the financial crisis, the company used to have an even higher dividend payout ratio of above 50% during the FY04-FY08 period. Looking forward, we believe it is likely that the company might increase its dividend payout ratio if no major acquisition takes place, supported by a strong financial position of US$192m in FY12.
Payout trend
% 70 60 50 40 30 20 10 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
FY13F FY14F FY15F Source: Company, DBS Vickers
Financial –Cash Flow
Capex remains at less than 5% of sales, as acquisition are unlikely to happen. The company has indicated that no M&A is likely to take place in the near future. We expect the capex level to remain at US$90m for machinery maintenance and new purchases, operating enhancements and basic working capital management.
Page 29
Company Focus
Johnson Electric
Future Opportunities
Further expanding the brand portfolio through M&A in the long term. The company is looking for M&A activities if the opportunities arise in the future. Through a series of M&A activities, Johnson can expand its product coverage and develop into a high value-added auto components supplier in the value chain. Moreover, the company can look for business opportunities to venture into the energy saving businesses such as electric vehicles and other smart devices.
Key Risks
Sales dependent on macroeconomic activities. Johnson is not a pure auto market player, however the global auto sales environment also affects Johnson’s sales. Global auto sales is closely related to the macroeconomic condition, as a result, Johnson’s performance depends on external macroeconomic factors, which it cannot control.
Steel and copper account the bulk of raw materials. Both steel and copper make over 85% of total raw materials. Movements in commodity prices also rely on macroeconomic conditions and industry demand. Recent quantitative easing measures proposed by the Fed creates inflationary pressures and will likely increase asset prices. Although Johnson has hedged against commodity prices, rapid changes in prices increases business risk. During the financial crisis, Johnson’s GP margin fell rapidly to 23.3% in FY09 as compared to 27.3% in FY12.
Page 30
Company Focus Johnson Electric
Among its global peers, Mabuchi Motor (6592.JP) and Nidec Valuation (7756.JP) manufacture motion components to both automotive and home & industrial sectors. Both companies Current valuation trading at discount to global peers. Johnson trade at an average of 14.5x FY13E P/E (Mar-end). We believe Electric is a leading manufacturer of motors and switches for the two Japanese companies are the closest comparable to global automotive and industrial products. It is also a major Johnson in the market. auto components supplier to the world’s leading car makers. Leveraging on the increase in demand in environmental- We derived a TP of HK$6.5 based on a 14.5x FY13E P/E. This is friendly products, Johnson is likely to benefit from it and comparable with global peers in diversified sector. Johnson has outperform the global industrial sector. evolved from a low-end motor manufacturer to a high value- added auto parts suppliers, as well as one of the largest Johnson is currently trading at 11.7x FY13E P/E and 10.9x component suppliers for industrial products. We believe FY14E P/E multiples. Johnson has traded between a P/E of 8x- Johnson deserves a premium to ordinary auto component 15x in the past 3 years. Although Johnson’s share price has suppliers. Our valuation is also supported by our DCF model rebounded from recent lows, we believe further re-rating to that assumes a 7% equity risk premium, 3% risk-free rate and the high end of the range is justified due to the Company’s 2.5% terminal growth. continually improving market position, strength in higher end auto component space, its consistently high FCF yield of 9% and potentially higher dividend payout.
Peers valuation
Mkt GP P/FCF PE PE Yield Yield P/Bk P/Bk ROE ROE Currency Price Cap^ Fiscal Margin 11A 12F 13F 12F 13F 12F 13F 12F 13F Company Name Code Local$ US$m Yr % x x x % % x x % % Johnson Electric Hdg.*# 179 HK HKD 5.1 2,371 Mar-12 27.3 10.2 11.7 10.9 2.1 2.3 1.5 1.3 13.2 12.8
Diversified players Mabuchi Motor 6592 JP JPY 3570 1,821 Dec-11 24.1 71.2 22.5 20.9 2.8 2.8 0.7 0.7 3.7 4.1 Minebea# 6479 JP JPY 271 1,384 Mar-12 21.0 11.1 9.5 8.1 2.6 2.8 0.9 0.8 9.7 9.7 Nidec Copal# 7756 JP JPY 638 514 Mar-12 19.4 69.4 9.9 8.8 3.1 3.9 0.8 0.7 8.6 n.a. Average 50.6 14.0 12.6 2.9 3.2 0.8 0.8 7.4 6.9
APG peers Interior components Magna Intl. MG CN CAD 44.04 10,462 Dec-11 10.0 10.6 8.6 8.1 2.5 2.7 1.2 1.0 14.4 15.2 Lear LEA US USD 41.39 4,056 Dec-11 8.4 9.0 7.9 7.8 1.3 1.4 1.4 1.2 18.1 16.5 Faurecia EO FP EUR 12.78 1,824 Dec-11 8.6 5.9 5.9 4.8 2.2 2.5 1.1 0.9 26.5 20.5 Auto Tyres Michelin ML FP EUR 61.68 14,453 Dec-11 28.5 23.2 7.3 7.0 3.8 4.0 1.2 1.1 16.2 15.6 Continental CON GR EUR 75.68 19,488 Dec-11 21.0 17.0 7.6 7.1 2.5 3.0 1.8 1.5 21.8 20.5 Average 29.8 10.4 9.5 2.6 2.9 1.1 1.0 14.1 13.6
Industrial Electronics components Von Roll 'B' ROL SW CHF 2.25 443 Dec-11 17.6 183.9 22.5 22.5 0.0 0.0 1.3 1.2 8.0 7.1 Ibiden# 4062 JP JPY 1065 2,055 Mar-12 22.6 n.a. 17.2 11.9 3.0 3.2 0.6 0.5 4.6 5.1 Acuity Brands AYI US USD 63.36 2,683 Aug-12 40.8 18.9 24.3 17.9 0.8 0.9 3.5 2.9 14.5 19.0 Environmental & building systems Havell'S India# HAVL IN INR 646.85 1,522 Mar-12 n.a. 39.9 18.0 15.1 1.1 1.2 6.2 4.7 34.3 32.6 Uponor (Fra) UNR1V FH EUR 8.12 765 Dec-11 36.3 14.6 18.9 15.6 4.8 5.4 2.8 2.6 17.5 20.6 Lindab International LIAB SS SEK 47.75 572 Dec-11 27.5 12.0 15.5 11.0 2.8 4.2 1.3 1.2 11.3 13.3 Average 53.9 19.4 15.7 2.1 2.5 2.6 2.2 15.1 16.3 ^ H-share market cap for H-share
# FY12: FY13; FY13: FY14
Source: Thomson Reuters, *DBS Vickers
Page 31
Company Focus
Johnson Electric
Key Assumptions Sensitivity Analysis FY Mar 2010A 2011A 2012A 2013F 2014F 2015F GP margin % 27.7 27.5 27.3 27.4 27.5 27.5 2011 Copper price +/- GP margin -/+ EBITDA Margin % 11.3 15.3 14.7 14.6 14.3 13.8 10% 1.6ppt Rmb appreciation Net Profit -/+ APG growth (%) (11.5) 37.5 (5.3) 2.4 3.7 6.4 +/- 2% 0.3ppt IPG growth (%) 3.2 23.1 10.7 7.9 7.1 7.0 Other business growth (15.1) (65.0) 16.5 10.0 12.0 12.0 (%)
Segmental Breakdown (US$ m) FY Mar 2010A 2011A 2012A 2013F 2014F 2015F Revenues (US$ m) Automotive Products 934 1,150 1,273 1,373 1,471 1,575 Industry Products Group 579 796 754 772 801 852 Other businesses 228 80 93 102 115 128 Divested business 0 78 21 0 0 0 Total 1,741 2,104 2,141 2,248 2,387 2,555
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Company Focus Johnson Electric
Income Statement (US$ m) Margins Trend FY Mar 2010A 2011A 2012A 2013F 2014F 2015F Revenue 1,741 2,104 2,141 2,248 2,387 2,555 12.0% Cost of Goods Sold (1,259) (1,524) (1,556) (1,633) (1,731) (1,853) 11.5% 11.0% Gross Profit 481 580 584 615 655 702 10.5% Other Opng (Exp)/Inc (371) (344) (363) (378) (402) (433) 10.0% Operating Profit 111 236 221 237 254 269 9.5% Other Non Opg (Exp)/Inc 0 0 0000 9.0% Associates & JV Inc 0 0 0000 8.5% Net Interest (Exp)/Inc (7) (9) (1) 1 2 5 8.0% Exceptional Gain/(Loss) 0 0 0000 2011A 2012A 2013F 2014F 2015F Pre-tax Profit 104 226 221 239 256 274 Operating Margin % Net Income Margin % Tax (16) (36) (32) (34) (37) (39) Minority Interest (10) (9) (2) (2) (3) (3) Preference Dividend 0 0 0000 Net Profit 77 182 187 202 217 232 Net Profit before Except. 77 182 187 202 217 232 EBITDA 197 322 314 329 340 352 Growth Revenue Gth (%) (4.8) 20.9 1.7 5.0 6.2 7.1 EBITDA Gth (%) 45.0 63.6 (2.5) 4.6 3.5 3.5 Opg Profit Gth (%) 135.9 113.1 (6.2) 7.3 6.9 6.0 Net Profit Gth (%) 2,870.8 136.1 2.7 8.3 7.3 6.9 Margins & Ratio Gross Margins (%) 27.7 27.5 27.3 27.4 27.5 27.5 Opg Profit Margin (%) 6.4 11.2 10.3 10.6 10.6 10.5 Net Profit Margin (%) 4.4 8.6 8.7 9.0 9.1 9.1 ROAE (%) 7.4 14.6 13.2 13.2 12.8 12.4 ROA (%) 3.8 8.1 8.1 8.5 8.5 8.5 ROCE (%) 5.5 11.1 10.2 10.5 10.4 10.2 Div Payout Ratio (%) 30.7 23.4 24.7 25.0 25.0 25.0 Net Interest Cover (x) 16.4 25.1 207.8 NM NM NM Source: Company, DBS Vickers
Page 33
Company Focus
Johnson Electric
Interim Income Statement (US$ m) Margins Trend
FY Mar 1H2010 2H2010 1H2011 2H2011 1H2012 2H2012 14%
12% Revenue 812 929 1,031 1,073 1,118 1,023 10% Cost of Goods Sold (596) (664) (735) (790) (814) (742) 8% Gross Profit 216 266 296 284 304 281 6% Other Oper. (Exp)/Inc (187) (184) (172) (172) (185) (178) Operating Profit 29 82 124 112 119 102 4% Other Non Opg (Exp)/Inc 0 0 2 (2) 3 (3) 2% Associates & JV Inc 0 0 0 0 0 0 0%
Net Interest (Exp)/Inc (3) 3 (6) (4) (4) 3 1H10 2H10 1H11 2H11 1H12 2H12 Operating Margin % Net Income Margin % Exceptional Gain/(Loss) 0 0 0 0 0 0 Pre-tax Profit 26 85 120 106 118 103 Tax (10) (6) (22) (14) (16) (15) Minority Interest (5) (6) (5) (3) 0 (2) Net Profit 10 73 93 89 102 85 Net profit bef Except. 11 73 93 89 102 85
Growth Revenue Gth (%) (28.2) 33.1 27.0 15.5 8.5 (4.7) Opg Profit Gth (%) (69.9) (267.3) 330.5 36.6 (4.3) (8.3) Net Profit Gth (%) (78.0) (263.0) 789.2 21.2 9.4 (4.2)
Margins Gross Margins (%) 26.6 28.6 28.7 26.4 27.2 27.5 Opg Profit Margins (%) 3.5 8.8 12.0 10.4 10.6 10.0 Net Profit Margins (%) 1.3 7.9 9.0 8.3 9.1 8.3
Source: Company, DBS Vickers
Page 34
Company Focus Johnson Electric
Balance Sheet (US$ m) Asset Breakdown FY Mar 2010A 2011A 2012A 2013F 2014F 2015F Net Fixed Assets - 25.2% Net Fixed Assets 395 413 379 401 426 455 Bank, Cash Debtors - Invts in Associates & JVs 2 2 2 2 3 3 and Liquid 26.3% Other LT Assets 800 869 871 848 826 805 Assets - 33.3% Cash & ST Invts 372 379 401 545 684 828 Inventory 196 253 240 241 257 276 Debtors 360 422 384 419 445 476 Assocs'/JVs - Other Current Assets 5 4 2 3 3 4 0.1% Total Assets 2,131 2,342 2,280 2,459 2,644 2,846
ST Debt 7 134 203 225 215 204 Other Current Liab 430 460 437 445 473 506 LT Debt 402 179 2 0 0 0 Inventory - 15.1% Other LT Liabilities 119 147 150 150 150 150 Shareholder’s Equity 1,122 1,362 1,462 1,611 1,776 1,952 Minority Interests 51 60 26 28 31 34 Total Cap. & Liab. 2,131 2,342 2,280 2,459 2,644 2,846
Non-Cash Wkg. Capital 131 219 190 218 232 250 Net Cash/(Debt) (36) 66 195 320 469 623 Debtors Turn (avg days) 75.5 73.2 65.5 68.0 68.0 68.0 Creditors Turn (avg days) 106.2 105.2 90.8 90.0 90.0 90.0 Inventory Turn (avg days) 61.1 64.2 59.9 57.0 57.0 57.0 Asset Turnover (x) 0.8 0.9 0.9 0.9 0.9 0.9 Current Ratio (x) 2.1 1.8 1.6 1.8 2.0 2.2 Quick Ratio (x) 1.7 1.3 1.2 1.4 1.6 1.8 Net Debt/Equity (X) 0.0 CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) 0.0 0.0 (0.1) 0.0 (0.3) (0.3) Capex to Debt (%) 12.4 23.8 32.7 40.0 41.9 44.0 Z-Score (X) 3.4 4.8 0.0 0.0 0.0 NA
Source: Company, DBS Vickers
Page 35
Company Focus
Johnson Electric
Cash Flow Statement (US$ m) Capital Expenditure FY Mar 2010A 2011A 2012A 2013F 2014F 2015F
100 Pre-Tax Profit 104 226 221 239 256 274 90 Dep. & Amort. 87 87 93 91 86 83 80 70 Tax Paid (19) (28) (28) (34) (37) (39) 60 Assoc. & JV Inc/(loss) 0 0 000050 40 (Pft)/ Loss on disposal of FAs 0 0 000030 Chg in Wkg.Cap. 85 (98) 23(28) (15) (18) 20 10 Other Operating CF 42 107 (10) 1 2 5 0 Net Operating CF 298 294 299 269 293 304 2011A 2012A 2013F 2014F 2015F Capital Exp.(net) (51) (75) (67) (90) (90) (90) Capital Expenditure (-) Other Invts.(net) 0 1 5000 Invts in Assoc. & JV 0 0 29000 Div from Assoc & JV 0 0 0000 Other Investing CF (4) 2 2000 Net Investing CF (54) (72) (31) (90) (90) (90) Div Paid 0 (40) (42) (53) (52) (56) Chg in Gross Debt (120) (95) (108) 19 (10) (10) Capital Issues 0 (11) (35) 0 0 0 Other Financing CF (15) (41) 10 (1) (2) (5) Net Financing CF (136) (187) (175) (34) (64) (71) Currency Adjustments 2 5 4000 Chg in Cash 111 41 96 144 139 143 Opg CFPS (US$) 0.06 0.11 0.08 0.08 0.09 0.09 Free CFPS (US$) 0.07 0.06 0.06 0.05 0.06 0.06
Source: Company, DBS Vickers
Page 36
Company Focus Johnson Electric
PE band chart PB band chart
Share Price (HK$) Share Price (HK$) 1.8x 7 15x 7 1.6x 13x 6 6 11x 1.3x 5 10x 5 1.0x 4 8x 4
3 3 0.8x
2 2
1 1 Jun-09 Oct-09 Jun-10 Oct-10 Jun-11 Oct-11 Jun-12 Oct-12 Jun-09 Oct-09 Jun-10 Oct-10 Jun-11 Oct-11 Jun-12 Oct-12 Feb-10 Feb-11 Feb-12 Feb-13 Feb-10 Feb-11 Feb-12 Feb-13 Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers
Page 37
Company Focus
Johnson Electric
Appendix
Key management team
Name Age Role Responsibilities Date of Joining Experience Relationship Executive Director Chairman and a director of the HK 1972 (joined the Group) Applied Science and Technology Research 1976 (appointed as a Institute Company Ltd Chairman and Member of Nomination and Director) Patrick Shui- Non-ED and member of the Audit 61 Chief Corporate Governance 1984 (appointed as Son Chung Wang Committee of HSBC Ltd Executive Committee Managing Director) Non-ED and member of the Nomination 1996 (elected Chairman Committee of VTech Holdings Ltd and Chief Executive) Non-ED of Tristate Holdings Ltd 1969 (joined the Group) 1971 (appointed as a Director) Winnie Wing- Member of Remuneration 65 Vice-Chairman 1984 (appointed as Non-ED of Tristate Holdings Ltd Daughter Yee Wang Committee Executive Director) 1996 (elected Vice- Chairman) GM of Saia-Burgess China Industry Products Group was Technical Product Manager of Saia- 2006 (joined the Group) Burgess Controls AG Austin Jesse Executive 31 2009 (appointed as a Committee member of Shenzhen Grandson Wang Director Director) Committee of the Chinese People's Political Consultative Conference worked as a consulting engineer in the computing industry Non-executive Director Vice-Chairman of Group in 1984 and was Yik-Chun Koo Honorary 95 Co-founder actively involved in development of the Mother Wang Chairman Group in its early stages Chairman and CEO of Tristate Holdings Ltd Chairman and MD of Hua Thai Manufacturing Public Company Ltd won the Young Industrialist Award of HK in 1998 received the Outstanding Industrial Engineer Award from School of Industrial Peter Kin- Engineering of Purdue University 58 Non-ED Member of Audit Committee 1982 Son Chung Wang member of Anhui Provincial Committee of Chinese People's Political Consultative Conference honorary chairman of the HK Garment Manufacturers Association general committee member of the Textile Council of HK Ltd director of the Federation of HK Garment Manufacturers Source: Company
Page 38
Company Focus Johnson Electric
Key management team (continued)
Name Age Role Responsibilities Date of Joining Experience is a Solicitor and was Senior Partner of Johnson, Stokes & Master until 30 Sept 1996 Chairman of the HK Branch of the International Fiscal Association Chairman of the Revenue Law Committee Peter Stuart Chairman of Nomination and of the HK Law Society Allenby 64 INED Corporate Governance 1995 (Appointed as INED) member of the Joint Liaison Committee Edwards Committee on Taxation member of the International Academy of Estate and Trust Law director of a number of investment and holding companies director of Martin Currie Pacific Trust plc. Chairman and Senior Partner of PricewaterhouseCoopers in HK from 1994- Chairman of Audit Committee 2001 Patrick Member of Nomination and 64 INED 2002 (appointed as INED) INED of The HK and Shanghai Hotels, Ltd. Blackwell Paul Corporate Governance INED of Pacific Basin Shipping Ltd. Committee Chairman of the Supervisory Board of the British Chamber of Commerce in HK was a professor at Harvard Business School Chairman of Remuneration currently a professor at the University of Michal John 53 INED Committee 2004 (appointed as INED) HK School of Business Enright Member of Audit Committee Director in Enright, Scott & Associates, a HK-based consulting firm was Chief Executive of HKMA from 1993- 2009 Executive Vice President of the China Society for Finance and Banking, a society managed by People's Bank of China Member of the Board of Directors, the Corporate Responsibility Committee and Joseph Chi- Member of Remuneration 64 INED 2010 (appointed as INED) the Risk Committee of UBS AG Kwong Yam Committee INED, Chairman of the Risk Management Committee and member of the Strategic Development Committee of China Construction Bank Corporation member of the advisory committees of a number of academic and private institution focusing in finance Source: Company
Page 39
Company Focus
Johnson Electric
Key management team (continued)
Name Age Role Responsibilities Date of Joining Experience Senior Management 40 years of experience in motor Senior VP, Tung-Sing Global Manufacturing component manufacturing, motor 62 Strategic 1968 Choi Management of the Croup assembly processes and the utilisation of Manufacturing machines and fixtures Senior VP, Developing responses to macro 35 years of experience in high technology James Strategic market issues management throughout the world Randolph 58 1999 Marketing & Leading the Company's held Executive positions with Xerox (US), Dick Sales productising and selling process IBM (Europe) and Astec (BSR) plc
Provide leadership and strategic Senior VP, worked for Emerson electric, holding Robert Allen direction in supply chain 46 Supply Chain 2007 various operations, marketing and supply Gillette management for all business Services chain positions in N. America and Asia units of Johnson Electric Senior VP, Industry Strategic, commercial and worked for Emerson electric Joseph Alan Products operational direction of the 45 2004 held senior positions in Supply Chain Guisinger Group - Industry Products Group in Management in Asia and North America Europe and Europe and the Americas the Americas Corporate business development, M&A, corporate strategic planning Christopher Supervision of the legal and was partner at The Boston Consulting 49 Executive VP 2002 John Hasson company secretarial functions Group Business units and investments under Johnson Electric Capital, including Saia-Burgess Controls Doctor of Engineering from HK Polytechnic University Previously led the Components and Senior VP, Strategic, commercial and Services Group and the Corporate Automotive operational direction of the Kam-Chin Ko 46 1988 Engineering functions Products Automotive Products Group in Member of The Institute of Engineering Group - Asia Asia and Technology Member of the Institute of Industrial Engineers have been a General Manager for Home Senior VP, Appliance Business Unit Strategic, commercial and Yiu-Cheung Industry 10 years experience with TDK, NHK and 46 operational direction of the 1999 Kwong Products Philips, where he held a verity of positions Industry Products Group in Asia Group - Asia in product engineering, product procurement , and sales & marketing was responsible for HR Senior VP, HR, Global Environmental, Peter Henry was the Assistant Corporate Secretary for a 63 Human Health and Safety, and Training 2007 Langdon major international energy service Resources and Development company PhD from University of Wisconsin-Madison worked for Emerson Electric in St. Louis as director of new products Senior VP, Overall corporate technology worked for Carrier Corporation in Syracuse Yue Li 52 Corporate engineering operations and 2004 as director of power electronics and motor Engineering Value Innovation Programs technologies worked for Emergency One Inc. in Florida as VP of product management Source: Company
Page 40
Company Focus Johnson Electric
Mabuchi Motors (6592.JT)
Company Profile Sales trend Profitability
Mabuchi Motor was established in 1954 in Japan. It is currently listed on Tokyo Stock JPY m Yoy, % JPY m % 6,000 10 Exchange in 1986. Mabuchi manufactures 100,000 20 5,000 and sells small DC motors to a range of 8 80,000 10 4,000 industries, from automotive products to 6 3,000 home & industrial equipment to optical & 60,000 0 4 2,000 precision instruments. Mabuchi 40,000 (10) 1,000 2 manufactures 100% of their products 20,000 (20) 0 0 overseas, mainly in China. Mabuchi relies on 0 (30) (1,000) (2) their presence in Asia with 75% of their total revenue coming from the Asian market. 2009 2010 2011 2009 2010 2011 1H11 1H12 1H11 1H12 Turnover (LHS) Net profit (LHS) Growth (RHS) Net margin (RHS)
Source: Bloomberg Source: Bloomberg
SWOT Analysis Geographic sales breakdown (FY11) Sales breakdown ( FY11)
Strength: 20% global market share in the The power windows market Japan Americas Diverse portfolio and long company history 12% Home 9% appliances Weakness: Fluctuation in market prices of Optical steel and other materials. 20% 16% Europe Fluctuation in exchange rates from yen and 16% other Asian currencies as Mabuchi relies on Audio & Visual the Asian market with all its operations Auto 12% located there. 100% of production is done 52% outside Japan and in Asia. Asia & Development: Expand business in China by Other developing an integrated development, 63% production, and sales system in China and by reinforcement of quality and technology support of the Chinese automakers.
Source: Bloomberg Source: DBS Vickers General Data Earnings Record
• Listed on Tokyo stock exchange – Ticker: 6592 JT FY Dec (JPY m) 2009 2010 2011 1H11 1H12 • Headquarters: Chiba (Japan) • Production bases: Hong Kong, China, Taiwan, Vietnam Turnover 70,369 82,752 78,886 38,897 42,080 Gross profit 18,564 22,689 19,047 9,809 10,653 • Employees: 33,918 (95% in production division) Operating profit 3,019 6,624 3,066 1,845 2,843 • Company website: http://www.mabuchi-motor.co.jp/ Net profit 5,450 5,260 (466) 2,252 2,999 EPS (JPY) 155.54 150.14 (13.31) 64.29 85.60
Balance Sheet FY Dec (JPY m) 2009 2010 2011 1H12
Total assets 192,362 185,408 181,351 184,258 Total liabilities 12,051 10,838 12,813 12,300 Shareholders' equity 180,311 174,570 168,538 171,958 Source: Bloomberg, Company, DBS Vickers
Page 41
Company Focus
Johnson Electric
Nidec (6594.JT) Company Profile Sales trend Profitability
Nidec was established in 1973 in Japan. In 1979, they became the first company worldwide to JPY m Yoy, % JPY m % put spindle motors into practical use, in an 8- 700,000 20 60,000 10 inch-diameter hard disk drives. Like Mabuchi, 50,000 8 650,000 10 they manufacture and sell motors for similar 40,000 6 target industries. In 1998, Nidec was listed on 30,000 600,000 0 4 the Tokyo Stock Exchange. It is currently also 20,000 listed on the Osaka Stock Exchange as well as 550,000 (10) 10,000 2 the New York Stock Exchange. 0 0 500,000 (20) Nidec has a strong presence in Asia, with 78% 2009 2010 2011 2012 of total revenue coming from this market with 2009 2010 2011 2012 25% from Japan itself. Their products are 100% Turnover (LHS) Net profit (LHS) manufactured in Asia from countries like Growth (RHS) Net margin (RHS) Thailand, China, Philippines, Vietnam and Malaysia. Source: Bloomberg Source: Bloomberg
SWOT Analysis Geographic sales breakdown (FY12) Sales breakdown ( FY12)
Strength: Flagship products, brushless DC motors, deliver Europe highly competitive environmental advantages Machinery precisely matched to the needs of the times 9% Rest of the 10% Other- North World Auto Parts Nidec’s brushless DC motors hold global America 1% 6% leadership positions in a broad spectrum of 12% Electronic motor markets for applications ranging from and Optic information technology devices and automobiles to home appliances and industrial 14% Small equipment Japan 26% Precision Asia Moto Weakness: Mid-Size Reliant on their two largest customers which 52% 44% Motors represent 22% of net sales for 2012 and the largest customer accounts for 12%. 26%
Development: The company has already merged or acquired four different companies. (two US, Italy and South Korea) Plans to continue to position business acquisitions as an important pillar of its strategic growth plans. Source: Bloomberg Source: DBS Vickers General Data Earnings Record
• Listed on Tokyo stock exchange – Ticker: 6594 JT FY Mar (JPY m) 2009 2010 2011 2012 • Headquarters: Kyoto (Japan) • Production bases: Thailand, China, Philippines, Turnover 613,458 587,459 688,530 682,320 Vietnam, Malaysia Gross profit 130,565 151,122 175,360 158,591 • Employees: 107,489 Operating profit 51,806 78,342 90,527 73,070 • Company website: http://www.nidec.co.jp/ Net profit 28,353 51,961 52,333 40,731 EPS (JPY) 197.42 373.04 375.91 296.25
Balance Sheet
FY Mar (JPY m) 2009 2010 2011 2012
Total assets 702,884 692,791 748,205 800,401 Total liabilities 345,197 291,260 337,699 374,790 Shareholders' equity 357,687 401,531 410,506 425,611
Source: Bloomberg, Company, DBS Vickers
Page 42
Company Focus Johnson Electric
Bosch (private company) Company Profile Sales trend Profitability
Bosch Group is the leading global supplier of technology and services. It operates in the areas EUR m Yoy, % EUR m % of automotive, industrial, and consumer goods 60,000 30 3,000 6 and building technology. 50,000 20 2,000 4
40,000 10 1,000 2 It is the world’s largest independent parts 30,000 0 0 supplier to the automotive industry and this 20,000 0 business sector accounts for ~60% of their annual 10,000 (10) (1,000) (2) turnover. The company was set up in Stuttgart in (2,000) (4) 1886 by Robert Bosch. It is a private, family- 0 (20) owned company with majority of its shares held 2008 2009 2010 2011 by a charitable foundation, Robert Bosch Stiftung 2008 2009 2010 2011 GmbH. Turnover (LHS) Net profit (LHS) Growth (RHS) Net margin (RHS) The group, including all its subsidiaries, regional companies, sales and service partners, are represented in ~150 countries. In 2011 itself, Bosch spent 4.2 billon Euros for R&D and applied for over 4,100 patents worldwide. Source: Bloomberg Source: Bloomberg
SWOT Analysis Geographic sales breakdown (FY11) Sales breakdown ( FY11)
Strength: Strong financial performance The Industrial Global presence – comprises of over 350 Americas subsidiaries in 80 locations in more than 50 Technology countries. 17.8% 15.6% All other Weakness: Rest of the Change of megatrends such as energy efficiency, segments World climate protection, and scarcity of resources. 0.0% Increase prominence of information, 1.7% communication, and internet technologies, which Automotive are ever changing the competitive landscape. Europe Technology 59.0% Development: Consumer 59.0% Asia Further expand their market position worldwide, Goods 21.5% focusing on growth regions of Asia, South 25.3% America, and Central and Eastern Europe. Additional sales companies and agencies in Africa and the Middle East. Increase flexibility and agility to cope with the economy and the market. Source: Bloomberg Source: DBS Vickers General Data Earnings Record
• Private company FY Dec (EUR m) 2008 2009 2010 2011 • Headquarters: Gerlingen (Germany) • Subsidiaries locations : US, Germany, India, Brazil, Turnover 45,127 38,174 47,259 51,494 China, France, Czech Republic, Japan, Spain, Turkey, Hungary, Italy, United Kingdom, Portugal, Romania, Gross profit 13,574 10,656 16,195 16,947 Netherlands, Switzerland, Australia, Malaysia, Austria, Operating profit 1,486 (1,119) 3,197 3,973 Belgium, South Korea, Russia, Poland, Sweden, South Net profit 344 (1,260) 2,377 1,746 Africa, Vietnam, Tunisia EPS (EUR) #N/A N/A (1.05) 1.98 1.45 • Employees: 302,500 (37% based in Germany) • Company website: http://www.bosch.com/ Balance Sheet FY Dec (EUR m) 2008 2009 2010 2011
Total assets 46,761 47,509 52,683 54,616 Total liabilities 23,752 24,440 26,440 27,699 Shareholders' equity 23,009 23,069 26,243 26,917
Source: Bloomberg, Company, DBS Vickers
Page 43
Company Focus
Johnson Electric
Brose (private company)
Company Profile
Brose is a partner to the international automobile industry and supplies mechatronic systems and electric drives to about 80 automotive manufacturers and more than 30 suppliers. Brose has 53 locations in 23 countries on all major automotive markets worldwide.
Brose is a German private, family-owned company founded by Max Brose in Berlin and Ernst Jühling in Coburg in 1919.
Currently it is the fourth largest family owned company among the top 100 automotive suppliers worldwide. Brose are currently focusing on new products designed to cut fuel consumption and develop component and systems to make automobiles safer and more comfortable to use.
SWOT Analysis
Strength: Ranked one of the best employers in the industry by international research institute CRF for four years in a row.
Has a global market share of 44% in the automotive door systems market. Recognized as a key supplier for window regulators by PSA Peugeot Citroën
Weakness: Highly reliant on their current products which is a very niche market. The current market is unstable, with continuous changes in requirements, especially in the environmental and safety areas.
Development: Recently opened a new production plant in Chongqing (31 July 2012)
Brose plans to start operations in six new plants in Hungary, Russia, China, the USA and Brazil over the next 12 months.
General Data
• Private company • Headquarters: Coburg (Germany) • Production bases: Mexico, US, Brazil, Germany, UK, Sweden, Russia, Spain, Portugal, France, Belgium, Czech Republic, Slovakia, Hungry, Turkey, Africa, China • Employees: ~20,000
Company website: http://www.brose.de Source: Company, DBS Vickers
Page 44
Company Focus Johnson Electric
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Company Focus
Johnson Electric
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is published.
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