26 July 2016 Asia Pacific/Japan Equity Research Electrical Equipment (Network Equipment (Japan)) / MARKET WEIGHT
Anritsu (6754 / 6754 JP) Rating (from Outperform) NEUTRAL* Price (25 Jul 16, ¥) 644 DOWNGRADE RATING Target price (¥) (from 1,000) 655¹ Chg to TP (%) 1.7 Market cap. (¥ bn) 88.41 (US$ 0.83) 5G business to grow after 2020; mobile profits Enterprise value (¥ bn) 76.50 Number of shares (mn) 137.28 soft until then Free float (%) 70.0 ■ Action: We gave our view of 5G networks in our 21 July report, 5G in the runup 52-week price range 897 - 560
*Stock ratings are relative to the coverage universe in each to 2020 (Part 1). Although chip development is accelerating, we think Anritsu analyst's or each team's respective sector. has limited opportunities at the carrier development stage, and forecast core ¹Target price is for 12 months. mobile profits to decline steadily for 2–3 years. We lower our FY3/17–18
Research Analysts estimates and introduce our FY3/19 forecasts. We previously expected R&D- related demand, but on further examination we do not see 5G-driven earnings Hideyuki Maekawa growth until at least 2020. We lower our target price from ¥1,000 to ¥655 and 81 3 4550 9723 [email protected] downgrade the stock from Outperform to NEUTRAL. Yoshiyasu Takemura ■ Investment case: A different product portfolio means Anritsu cannot take part in 81 3 4550 7358 NTT DoCoMo’s 5G testing, and with two rivals participating we cannot expect it [email protected] to grow its business at the 5G developing phase. Anritsu is positioned as it was for LTE. As opportunities for earnings growth emerged after LTE specs were decided, we do not think its competitiveness has declined, particularly in 5G, and accordingly estimate that its earnings structure and profits can expand in the long term when 5G rolls out. However, we cannot expect demand for R&D testing equipment to accelerate over the next 2–3 years, and see this, together with soft demand for testing equipment for manufacturing due to slower smartphone volume growth, contributing to steady profit declines for the mobile segment. ■ Risks: These include near-term order upside due to rebounding capex (Qualcomm) and demand growth for 5G development sufficient to compensate for slower demand for testing equipment for manufacturing. Possible risks include ongoing YoY dips for quarterly testing equipment orders and cuts to guidance. ■ Valuation: We have switched from P/E (FY3/16E 16.1x) to P/B in valuing the shares as we cannot expect growth potential. We base our ¥655 target price on our end-FY3/17 BPS estimate (¥574.45) and a P/B of 1.14x (product of the TOPIX P/B of 1.19x and the TOPIX relative P/B of 0.96x).
Share price performance Financial and valuation metrics
Year 3/16A 3/17E 3/18E 3/19E Price (LHS) Rebased Rel (RHS) Sales (¥ bn) 95.5 96.0 95.0 95.5 1000 120 Operating profit (¥ bn) 5.9 7.0 6.1 5.7 Pre-tax profit (¥ bn) 5.4 7.0 6.1 5.7 800 100 80 Profit for the year (¥ bn) 3.8 5.1 4.5 4.2 600 60 Net income (¥ bn) 3.8 5.1 4.5 4.2 400 40 Comprehensive income (¥ bn) 3.8 7.5 6.9 6.6 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 EPS (¥) 27.4 37.1 32.8 30.6 Change from previous EPS (%) n.a. -43.3 -54.0 The price relative chart measures performance against the IBES Consensus EPS (¥) n.a. 41.6 46.8 46.0 TOPIX which closed at 1325.36 on 22/07/16 EPS growth (%) -50.9 35.6 -11.8 -6.7 On 22/07/16 the spot exchange rate was ¥106.1/US$1 P/E (x) 22.6 17.3 19.7 21.1 Dividend yield (%) 3.9 2.3 2.2 1.9
Performance over 1M 3M 12M EV/EBITDA(x) 7.8 6.8 7.2 7.2 Absolute (%) 7.3 0.9 -22.2 P/B (x) 1.1 1.1 1.1 1.1 Relative (%) -2.7 5.7 -2.3 ROE(%) 4.9 6.6 5.6 5.1 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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26 July 2016 Earnings estimates Near-term outlook North America smartphone majors’ adoption of chips from manufacturers such as Intel is supporting brisk demand for modem chips, and although we expect spending on test and measurement (T&M) equipment to increase, we see slowing volume growth for smartphones (we forecast 4.6% CAGR for 2015–18, Figure 1) depressing demand for T&M equipment for manufacturing. We also expect R&D spending constraints due to weakness (loss of market share) at Qualcomm to affect demand for T&M equipment for R&D, and accordingly forecast continued weakness for Anritsu’s mobile segment. At the same time, demand for server-use optical products is firm in the network infrastructure segment’s optical business, and demand for Anritsu equipment with specs for optical module manufacturing processes is expanding. The current focus is 10Gbps, while 40Gbps is the focus of development demand. In addition, LTE investment in North America is soft, and while we can look for investment in small cells, this is still not of a scale to contribute to earnings growth.
Figure 1: Global handset/smartphone unit outlook
2,500 100%
2,000 80%
409 324 532 464 661 1,500 60% 828 1,011
1,221 mn unitsmn 1,000 1,290 40% 1,561 1,647 1,164 1,168 1,437 1,505 1,018 1,302 500 1,019 20% 727 494 305 124 151 173 0 0% 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017E 2018E
Smartphone Feature phone YoY % Smartphone change (RHA)
Source: IDC, Credit Suisse (global team) estimates Long-term outlook 5G plans around the world Developments in 5G are central to assessing the company’s long-term growth prospects. In our 21 July report, 5G in the runup to 2020 (Part 1), we laid out the likely roadmap for 5G. However, individual countries are pushing ahead with their own 5G strategies. Our electric components sector analyst Akinori Kanemoto says Korea, Japan, the US and China are the most advanced in developing 5G, while Europe, which was slow off the mark in 4G, announced a 5G Manifesto in July 2016 calling for EU-member states to catch up lost ground. We think Europe will aim to roll out commercial 5G services in line with target milestones planned by Korea, Japan, the US and China in 2018-20. Below is our take on 5G developments in each country:
■ Korea is planning to launch some 5G services by 2018, when the city of Pyeongchang is due to host the winter Olympic and Paralympic games. Services are likely to launch on the 28GHz band.
Anritsu (6754 / 6754 JP) 2 26 July 2016
■ In Japan, NTT DoCoMo plans to begin commercial services two years after Korea to coincide with the Tokyo 2020 Olympics. Services will probably use the 3.4–3.8GHz and 28GHz bands.
■ In the US, Verizon plans to start commercial testing in 2017 and AT&T intends to launch commercial services in 2020. Again, the 28GHz band appears to be the strongest candidate. On 14 July, the Federal Communications Commission (FCC) became the first body worldwide to open up spectrum for 5G services.
■ In China, China Mobile, China Unicom and China Telecom all plan to start 5G services in 2020. Testing is already underway in the 3.4–3.6GHz band, led by the IMT 2020 (5G) Promotion Group, but 3.3–3.4GHz, 4.4–4.5GHz and 4.8–4.9GHz are also candidates.
■ In Europe, Vodafone and Deutsche Telekom are actively developing 5G plans but still trail progress by Korea, Japan, the US and China. However, we think the release of the 5G Manifesto shows the EU will make up lost ground by 2020.
Figure 2: Progress toward 5G in key regions and likely frequency bands
Phase 1 Phase 2
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Activities of the 5G mobile evolution forum Tokyo Adopt strategic orientation towards R&D, standardization activities, international tie-ups, and education Olympics/Paralympics Japan 5G technology R&D via tie-ups between industry, academia, and the government Commercialization Consider 5G frequency band via R&D target in Japan
Spectrum 3.4GHz..28GHz? WRC-19: 24.25GHz-86GHz?
Expect start of 5G pre-service in parts of Korea→ PyeongChang Olympics/Paralympics
S.Korea Korean government: Has allocated 1.6tn KRW to 5G R&D in 2014–21. Aiming for application by 2020. Commercialization target for SK Telecom/KT
5G Forum Others： 600MHz, 3.5-3.7GHz? Consider cases of 5G use, required conditions, technology Spectrum 28GHz? 28GHz? WRC-19: 24.25GHz-86GHz? IMT-2020 (5G) Promotion Group Consider cases of 5G use, required conditions, technology Commercialiation Beijing target in China Future Mobile Communication Forum Olympics/Paralympics China Start of 5G SIG working group. Will also release White Paper.
863 Program 5G Others： 3.3-3.4GHz/4.4-4.5GHz/4.5-4.9GHz? Chinese government: Allotted RMB300mn to 863 Program 5G project. Spectrum 3.4-.3.6GHz? WRC-19: 24.25GHz-86GHz?
Horizon 2020・ 5G PPP Target period for Vodafone application Allocated EUR700mn to 5G research in 2014–20 Europe Commercialization target for at least 1 city Others： 3.4-3.6GHz, 3.6-3.8GHz ? in each EU country Spectrum 3.4-3.6GHz? WRC-19: 24.25GHz-86GHz?
5G Americas Commercialization target for AT&T N.America Verizon: partial commercial testing Others： 600MHz, 3.5-3.7GHz?
28GHz/37GHz Spectrum WRC-19: 24.25GHz-86GHz? 39GHz/64-71GHz?
Source: Credit Suisse
Anritsu (6754 / 6754 JP) 3 26 July 2016
Figure 3: Schedule for 5G introduction in Japan 2014 2015 2016 2017 2018 2019 2020 2021 2022 5G application→
Disclosure of test Disclosure of test 5G system 2020 July Tokyo demonstratio Olympics applications (Frequencies 6GHz and Network development
5G MF (Japan) 5G compatible product 5G compatible product roadmap development? (Based on development? (Based on
Proposals for standards in Japan divided into two phases
Source: Nikkei BP, Credit Suisse Anritsu’s position: business opportunies after specifications decided Anritsu specializes in supplying specialist T&M equipment once frequencies to be included in specifications have been decided. Competitors therefore have more general-purpose instruments for basic research. For product portfolio reasons, Anritsu is not able to participate in initial development of 5G being undertaken by close business partner NTT DoCoMo (Figure 4). South Korea, Japan, and the US are likely to adopt their own specifications. The standardization of 5G frequencies is expected to occur in the 3rd Generation Partnership Project’s (3GPP) releases 15 and 16 (2018–20). A ramp-up in R&D would not be cost effectiveness until then, which means commercial services are likely to start two or three years thereafter. Anritsu’s business seems likely to grow from then on.
Figure 4: NTT DoCoMo’s wide-ranging 5G R&D efforts
Use of broadband in high-frequency bands Existing frequency bands
UHFband Low SHF band High SHF band EHF band Ex. 800MHz. 2Ghz 3-6GHz 6-30GHz >30GHz
Wireless technology tests
Alcatel-Lucent Huawei Fujitsu NEC Ericsson Samsung Mitsubishi-Electric Nokia
Test of new Realization of Test of Test of time Test of new Test of ultra- Test of Test of candidate efficiency- cooperative domain wireless wideband wideband wideband signal waves interface Massive MIMO Massive MIMO boosting scheduling beamforming hybrid compatible concept and beamforming, beamforming, with M2M and technologies between ultra- using ultra- Massive MIMO beamforming, beam follow- beam follow- broadband for high-density multi-element beam follow- up control up control telecommunic frequencies optical antennas up control ations that can be extension used with a stations wide range of frequency bands
5G telecommunications system Study, testing of 5G devices technology tests Tests of measuring instruments
Intel Mediatek Qualcomm Panasonic Keysight Rohde&Schwartz
Test of handset Experiment on Tests to examine Tests of solutions using Study of evaluation Measurements, analysis, chipsets wireless interface feasibility of use etc., to evaluate OTA image application technolog ies for considering usage suitable for a in small, low- transmission and Massive MIMO combination of power technology and wireless characteristics scenarios and the characteristics in ultra- diversified service non-orthogonal consumption 5G technology that m akes using high-frequency wideband bands demanded of 5G multiple access devices factoring efficient use of various (NOMA) and in expansion of telecom m unications frequency bands and multi-user mobile using hig h-frequency wireless telecom interference broadband bands and measurement cancellation m ethods and testing of electrical (MUIC) characteristics, etc.
Source: NTT DoCoMo, Credit Suisse
Anritsu (6754 / 6754 JP) 4 26 July 2016
Anritsu also did not participate in NTT DoCoMo’s basic testing in the commercialization of LTE. Anritsu’s mobile business did not start growing until FY3/12, two years after Release 8 was formulated in 2009 (Figure 5). A similar trend is likely for 5G. In conclusion, we strongly believe Anritsu’s failure to be selected as NTT DoCoMo’s partner for 5G testing should not be considered particularly negative as it stems from Anritsu’s different product portfolio.
Figure 5: Anritsu – Sales trend of mobile development and manufacturing: related LTE business expanded from FY3/12
45,000 40,000 35,000 30,000 25,000 20,000 million JPY million 15,000 10,000 5,000 0 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 CSE CSE CSE J GAAP IFRS
R&D Manufacturing
Source: Company data, Credit Suisse estimates Conversely, the development of automotive and other applications should increase demand for general-purpose T&M equipment. Anritsu has directed more resources to this field in response to progressing development in Europe and the US. However, we think this field is unlikely to make earnings contributions in the next few years. Demand for Anritsu’s T&M equipment for the development of mobile technology does not seem likely to grow over the next two or three years, in our view. These market conditions seem likely to prolong the downtrend in T&M profit over the next three years. We expect the T&M business to book OP of ¥5.3bn (+13% YoY, but −2% excluding ¥700mn in restructuring costs booked in FY3/16) in FY3/17, ¥4.3bn (−19%) in FY3/18, and ¥3.8bn (−12%) in FY3/19.
Figure 6: Anritsu – T&M segments sales breakdown
80,000
70,000
60,000
50,000
40,000
million JPY million 30,000
20,000
10,000
0 12/3 13/3 14/3 15/3 16/3 17/3 CSE 18/3 CSE 19/3 CSE
Mobile devices Networks and infrastructure Electronics
Source: Company data, Credit Suisse estimates
Anritsu (6754 / 6754 JP) 5 26 July 2016
Valuation We have switched from P/E to P/B in valuing the shares because we think the potential for growth is weak and expect profit to decline for the next three years. Our target price of ¥655 is based on a P/B of 1.14x applied to our FY3/17E BPS of ¥574.45. We arrive at our P/B of 1.14x by applying the TOPIX P/B of 1.19x to the average TOPIX-relative P/B, discounted by 1 standard deviation to 0.96x. Previously, we calculated our target price on FY3/16E EPS of ¥61.05 and a global telecom equipment sector average P/E of 16.1x. Our previous P/E-based valuation would result in a theoretical value of ¥568, applying a multiple of 15.3x, the average for the global telecom equipment sector, to our FY3/17E EPS of ¥37.10. We therefore expect the shares to continuing trade within a narrow range above a floor of around ¥570 based on book value per share and our P/E-based valuation.
Figure 7: Anritsu – Absolute P/B Figure 8: Anritsu – TOPIX relative P/B Anritsu relative P/B(x) Anritsu absolute P/B(x) 3.5 3.0
3.0 2.5 2.5 2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0
0.0
Mar-14 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-15 Mar-16
Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
Mar-13 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-14 Mar-15 Mar-16
Sep-12 Sep-09 Sep-10 Sep-11 Sep-13 Sep-14 Sep-15 Sep-08 Source: Thomson Reuters Source: Thomson Reuters
Figure 9: Anritsu – Absolute P/E Figure 10: Anritsu – TOPIX relative P/E
Anritsu absolute P/E(x) Anritsu relative P/E(x) 2.0 30.0 1.8
25.0 1.6 1.4 20.0 1.2 1.0 15.0 0.8
10.0 0.6 0.4 5.0 0.2 0.0
0.0
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-08 Source: Thomson Reuters Source: Thomson Reuters
Figure 11: Communications equipment sector – Valuation Communication Equipment Stock P/E (x) P/B (x) EV/EBITDA (x) EV/Sales (x) Price Cons Cons Cons Cons Cons Cons Cons Cons Ticker 25-Jul FY1 FY2 FY1 FY2 FY1 FY2 FY1 FY2 Anritsu (JPY) 6754 644 15.5 13.7 1.1 1.0 7.2 5.4 0.6 0.5 Keysight Technologies (US$) KEYS 29.48 12.1 11.4 3.3 2.8 8.5 8.0 1.6 1.5 Viavi Solutions (US$) VIAV 7.12 19.2 18.7 1.9 1.8 7.0 7.1 1.3 1.2 Anite PLC (GBP) AIE 125.75 Spirent Communications PLC (Euro) SPT 87.50 14.6 12.5 1.4 1.4 8.9 7.9 1.3 1.2 Sector Average 15.3 13.8 1.8 1.7 7.6 6.7 1.1 1.1 Source: Thomson Reuters, Bloomberg
Anritsu (6754 / 6754 JP) 6 26 July 2016
Figure 12: Anritsu – Earnings forecasts by segment Segment P/L IFRS IFRS IFRS IFRS IFRS CoE CS E CS E CS E CS E (old) CS E (old) 1Q 2Q 1H 3Q 4Q 2H (mn JPY) 12/3 13/3 14/3 15/3 16/3 16/3 16/3 16/3 16/3 16/3 16/3 17/3 17/3 18/3 19/3 17/3 18/3 Test and Measurement Sales 70,556 71,232 75,962 73,443 18,070 17,795 35,865 16,834 15,030 31,864 67,729 68,000 67,000 65,000 64,500 77,500 77,500 YoY 0.0% 1.0% 6.6% -3.3% 2.9% -6.8% -2.2% -6.4% -20.0% -13.4% -7.8% 0.4% -1.1% -3.0% -0.8% 2.6% 0.0% Operating profit 13,841 14,985 13,011 8,943 1,824 1,327 3,151 1,607 (52) 1,555 4,706 5,500 5,300 4,300 3,800 10,300 11,100 YoY 0.0% 8.3% -13.2% -31.3% -6.7% -51.2% -32.6% -11.3% -102.1% -63.6% -47.4% 16.9% 12.6% -18.9% -11.6% 9.6% 7.8% Operating profit margin 19.6% 21.0% 17.1% 12.2% 10.1% 7.5% 8.8% 9.5% -0.3% 4.9% 6.9% 8.1% 7.9% 6.6% 5.9% 13.3% 14.3%
Products Quality Assurance Sales 14,200 14,439 16,919 16,198 3,683 5,595 9,278 4,387 5,226 9,613 18,891 20,000 20,000 21,000 22,000 18,500 19,000 YoY 0.0% 1.7% 17.2% -4.3% 29.7% 16.1% 21.2% 23.5% 4.8% 12.6% 16.6% 5.9% 5.9% 5.0% 4.8% 2.8% 2.7% Operating profit 570 814 1,208 824 (3) 578 575 292 327 619 1,194 1,400 1,400 1,500 1,600 1,100 1,300 YoY 0.0% 42.8% 48.4% -31.8% -99.2% 16.5% 338.9% 1227.3% -51.3% -10.7% 44.9% 17.3% 17.3% 7.1% 6.7% 0.0% 18.2% Operating profit margin 4.0% 5.6% 7.1% 5.1% -0.1% 10.3% 6.2% 6.7% 6.3% 6.4% 6.3% 7.0% 7.0% 7.1% 7.3% 5.9% 6.8%
Others Sales 8,866 9,014 8,970 9,198 1,893 1,983 3,876 1,955 3,079 5,034 8,910 9,000 9,000 9,000 9,000 10,000 10,000 YoY -26.5% 1.7% -0.5% 2.5% 6.6% 3.8% 5.2% -14.7% -4.4% -8.7% -3.1% 1.0% 1.0% 0.0% 0.0% 0.0% 0.0% Operating profit (411) (86) (96) 1,115 (54) 34 (20) 113 (96) 17 (3) 300 300 300 300 900 900 YoY -148.5% ------10100.0% 0.0% 0.0% 0.0% 0.0% Operating profit margin -4.6% -1.0% -1.1% 12.1% -2.9% 1.7% -0.5% 5.8% -3.1% 0.3% 0.0% 3.3% 3.3% 3.3% 3.3% 9.0% 9.0%
Total Sales 93,622 94,685 101,853 98,839 23,647 25,372 49,019 23,178 23,335 46,513 95,532 97,000 96,000 95,000 95,500 106,000 106,500 YoY 1.1% 7.6% -3.0% 6.7% -1.8% 2.1% -2.8% -13.6% -8.5% -3.3% 1.5% 0.5% -1.0% 0.5% 2.4% 0.5% Total Operating profit 14,000 15,714 14,123 10,882 1,530 1,707 3,237 1,939 721 2,660 5,897 7,200 7,000 6,100 5,700 12,300 13,300 YoY 12.2% -10.1% -22.9% 7.6% -46.7% -30.0% -27.0% -80.0% -57.5% -45.8% 22.1% 18.7% -12.9% -6.6% 7.9% 8.1% Operating profit margin 15.0% 16.6% 13.9% 11.0% 6.5% 6.7% 6.6% 8.4% 3.1% 5.7% 6.2% 7.4% 7.3% 6.4% 6.0% 11.6% 12.5%
Source: Company data, Credit Suisse estimates
Figure 13: Anritsu – Earnings forecasts summary 7/25 price (¥) Est. Sales Operating profit Pretax Profit Net profit Diluted EPS P/E ¥644 as of; ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) (x) Mar-12 Actual 93,622 NM 14,000 NM 13,094 NM 7,972 NM 62.2 NM Mar-13 Actual 94,685 1.1 15,714 12.2 16,139 23.3 13,888 74.2 98.4 58.3 Mar-14 Actual 101,853 7.6 14,123 -10.1 14,239 -11.8 9,318 -32.9 64.9 -34.0 Mar-15 Actual 98,839 -3.0 10,882 -22.9 11,591 -18.6 7,857 -15.6 55.7 -14.1 Mar-16 Actual 95,532 -3.3 5,897 -45.8 5,434 -53.1 3,760 -52.1 27.4 -50.9 Mar-17 CS E (new) 7/26/2016 96,000 0.5 7,000 18.7 7,000 28.8 5,100 35.6 37.1 35.6 17.3 CS E (prev) 7/10/2015 106,000 2.4 12,300 7.9 12,300 7.9 9,000 7.1 65.5 7.1 9.8 CoE 4/27/2016 97,000 1.5 7,200 22.1 7,100 30.7 5,300 40.9 38.6 41.0 16.7 IBES E 98,600 3.2 7,760 31.6 7,688 41.5 5,708 51.8 41.6 51.8 15.5 Mar-18 CS E (new) 7/26/2016 95,000 -1.0 6,100 -12.9 6,100 -12.9 4,500 -11.8 32.8 -11.8 19.7 CS E (prev) 7/10/2015 106,500 0.5 13,300 8.1 13,300 8.1 9,800 8.9 71.3 8.9 9.0 IBES E 101,840 3.3 8,840 13.9 8,788 14.3 6,432 12.7 46.8 12.7 13.8 CS E (new) 7/26/2016 95,500 0.5 5,700 -6.6 5,700 -6.6 4,200 -6.7 30.6 -6.7 21.1 IBES E 101,367 -0.5 9,133 3.3 8,947 1.8 6,317 -1.8 46.0 -1.7 14.0 Source: Company data, I/B/E/S, Credit Suisse estimates
Anritsu (6754 / 6754 JP) 7 26 July 2016
Figure 14: Anritsu – Financial summary In JPY bn, unless otherwise stated Profit & Loss 3/15A 3/16A 3/17E 3/18E 3/19E Key Financials 3/15A 3/16A 3/17E 3/18E 3/19E Sales revenue 98.8 95.5 96.0 95.0 95.5 Growth(%) COGS 46.1 47.8 47.2 47.1 48.0 Sales -3.0 -3.3 0.5 -1.0 0.5 SGA 29.6 29.6 30.0 30.0 30.0 EBIT -22.9 -45.8 18.7 -12.9 -6.6 R&D 12.9 12.8 11.8 11.8 11.8 Net Income -15.6 -52.1 35.6 -11.8 -6.7 Other op income(expense) -4.1 -4.6 -4.2 -4.0 -4.0 EPS -14.1 -50.9 35.6 -11.8 -6.7 EBITDA 14.3 9.9 11.2 10.1 9.7 Margins(%) Depr. & Amort. 3.4 4.0 4.2 4.0 4.0 EBITDA 14.4 10.3 11.7 10.6 10.2 Goodwill amort. 0.0 0.0 0.0 0.0 0.0 EBIT 11.0 6.2 7.3 6.4 6.0 EBIT 10.9 5.9 7.0 6.1 5.7 Pretax profit 11.7 5.7 7.3 6.4 6.0 Net interest expense 0.1 0.0 0.0 0.0 0.0 Net income 7.9 3.9 5.3 4.7 4.4 Associates 0.0 0.0 0.0 0.0 0.0 Valuation(x) Net other non-op income(exp.) 0.6 -0.5 0.0 0.0 0.0 EV/Sales 1.1 0.8 0.8 0.8 0.7 Recurring profit 11.6 5.4 7.0 6.1 5.7 EV/EBITDA 7.8 7.8 6.8 7.2 7.2 Extraordinary gain & loss 0.0 0.0 0.0 0.0 0.0 EV/EBIT 10.2 13.0 10.9 11.9 12.2 Profit before tax 11.6 5.4 7.0 6.1 5.7 PER 15.1 22.6 17.3 19.7 21.1 Income tax 3.7 1.7 1.9 1.6 1.5 PBR 1.5 1.1 1.1 1.1 1.1 Minorities 0.0 0.0 0.0 0.0 0.0 ROE analysis(%) Net Income 7.9 3.8 5.1 4.5 4.2 ROE 10.2 4.9 6.6 5.6 5.1 Balance Sheet 3/15A 3/16A 3/17E 3/18E 3/19E ROIC 11.3 5.9 7.6 6.8 6.4 Cash & equivalents 34.9 37.4 40.7 44.7 47.8 Asset turnover 77.9 76.7 75.2 72.9 71.9 Receivables 25.0 19.9 20.0 19.8 19.9 Tax burden 32.2 30.7 27.1 26.2 26.3 Inventories 19.2 18.4 18.6 18.6 19.0 Financial leverage(x) 1.6 1.6 1.6 1.6 1.6 Other current assets 5.0 4.9 4.9 4.8 4.9 Credit ratio(%) Current assets 84.1 80.5 84.1 87.9 91.5 Net debt/Equity net cash net cash net cash net cash net cash Property, plant & equipments 26.9 27.7 27.3 26.3 25.3 Net debt/EBITDA -0.5 -0.8 -1.1 -1.6 -1.9 Intangibles 2.6 3.2 3.1 2.9 2.8 Interest converage ratio(x) 8.7 5.0 6.3 5.7 5.3 Other non-current assets 13.3 13.1 13.1 13.1 13.1 Per share data 3/15A 3/16A 3/17E 3/18E 3/19E Non-current assets 42.8 44.1 43.5 42.4 41.3 No. of shares(millions) 141 137 137 137 137 Total assets 126.9 124.6 127.7 130.2 132.8 EPS(¥) 55.7 27.4 37.1 32.8 30.6 Payables 1.8 1.2 1.2 1.2 1.2 BPS(¥) 557.8 552.3 574.5 593.2 611.8 Short term debt 18.2 8.8 8.8 8.8 8.9 DPS(¥) 24.0 24.0 15.0 14.0 12.0 Other current liability 14.5 11.5 11.3 11.6 11.9 Dividend payout ratio(%) 43.1 87.7 40.4 42.7 39.2 Total current liability 34.5 21.6 21.2 21.5 21.9 Long term debt 9.6 20.5 20.1 20.1 20.1 Other non-current liability 4.1 6.7 7.5 7.2 6.8 Total liabilities 48.2 48.8 48.8 48.8 48.8 Shareholders equity 78.7 75.9 78.9 81.5 84.0 Minority interests 0.0 0.0 0.0 0.0 0.0 Total shareholder funds 126.9 124.6 127.7 130.2 132.8 Cashflow 3/15A 3/16A 3/17E 3/18E 3/19E Operating cashflow 7.6 10.2 11.0 10.3 9.3 Investing cashflow -6.0 -9.0 -5.2 -4.4 -4.4 Financing cashflow -11.2 2.5 -2.4 -2.0 -1.7 Free cash flow 1.5 1.2 5.8 5.9 4.9 Source: Company data, Credit Suisse estimates
Anritsu (6754 / 6754 JP) 8 26 July 2016
Companies Mentioned (Price as of 25-Jul-2016) AT&T (T.N, $42.94) Alcatel Lucent (ALUA.F, €3.47) Anite (AIE.L^H15, 125.75p) Anritsu (6754.T, ¥644, NEUTRAL, TP ¥655) China Mobile Limited (0941.HK, HK$97.0) China Telecom (0728.HK, HK$3.86) China Unicom Hong Kong Ltd (0762.HK, HK$8.09) Deutsche Telekom (DTEGn.F, €15.27) Ericsson (ERIC.OQ, $7.44) Fujitsu (6702.T, ¥396) Huawei (Unlisted) Intel Corp. (INTC.OQ, $34.69) JDS Uniphase Corp (VIAV.OQ, $7.12) Keysight Tech (KEYS.N, $29.48) MediaTek Inc. (2454.TW, NT$236.0) Mitsubishi Electric (6503.T, ¥1,302) NEC (6701.T, ¥282) NTT DoCoMo (9437.T, ¥2,840) Nokia (NOK.N, $5.81) Panasonic (6752.T, ¥1,030) QUALCOMM Inc. (QCOM.OQ, $60.73) Rohde & Schwarz (Unlisted) Samsung Electronics (005930.KS, W1,502,000) Spirent (SPT.L, 87.5p) Verizon Communications Inc (VZ.N, $55.87) Vodafone Group (VOD.L, 234.9p)
Disclosure Appendix Important Global Disclosures Hideyuki Maekawa and Yoshiyasu Takemura each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Anritsu (6754.T)
6754.T Closing Price Target Price Date (¥) (¥) Rating 03-Sep-13 1,256 1,560 O 01-Jul-14 1,168 1,460 10-Oct-14 757 1,170 28-Jan-15 864 1,100 10-Jul-15 794 1,000 * Asterisk signifies initiation or assumption of coverage.
OUTPERFORM
3-Year Price and Rating History for Fujitsu (6702.T)
6702.T Closing Price Target Price Date (¥) (¥) Rating 14-Nov-13 456 420 N 09-Apr-14 588 680 10-Oct-14 675 760 13-Apr-15 836 870 05-Jun-15 733 740 31-May-16 448 450 * Asterisk signifies initiation or assumption of coverage.
NEUTRAL
Anritsu (6754 / 6754 JP) 9 26 July 2016
3-Year Price and Rating History for Mitsubishi Electric (6503.T)
6503.T Closing Price Target Price Date (¥) (¥) Rating 14-Apr-14 1,107 1,250 N 27-Aug-14 1,318 1,430 02-Mar-15 1,392 1,500 01-Jun-15 1,693 1,750 22-Feb-16 1,134 1,340 * Asterisk signifies initiation or assumption of coverage.
NEUTRAL
3-Year Price and Rating History for NEC (6701.T)
6701.T Closing Price Target Price Date (¥) (¥) Rating 09-Apr-14 297 285 N 10-Oct-14 346 385 05-Jun-15 406 390 31-May-16 261 265 * Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Anritsu (6754 / 6754 JP) 10 26 July 2016
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 51% (43% banking clients) Neutral/Hold* 35% (17% banking clients) Underperform/Sell* 13% (38% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for Anritsu (6754.T)
Method: We base our ¥655 target price on our end-FY3/17 BPS estimate (¥574.45) and a P/B of 1.14x (product of the TOPIX average P/B of 1.19x and the TOPIX relative P/B of 0.96x; as of July 2016). We think the company has limited opportunies at the 5G carrier development stage. Our NEUTRAL rating is based on a comparison of the company's potential total return versus our coverage universe.
Risk: Risks to our ¥655 target price and NEUTRAL rating for Anritsu include near-term order upside due to rebounding capex (Qualcomm) and demand growth for 5G development sufficient to compensate for slower demand for testing equipment for manufacturing. Possible risks include ongoing YoY dips for quarterly testing equipment orders and cuts to guidance.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (6702.T, 6701.T) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (6754.T, 6702.T, 6701.T, 6503.T) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (6702.T, 6701.T).
For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=239271&v=4q2iho8xr9tl8ee5xs57a3w2b . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Anritsu (6754 / 6754 JP) 11 26 July 2016
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (6701.T). As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited ...... Hideyuki Maekawa ; Yoshiyasu Takemura To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Hideyuki Maekawa ; Yoshiyasu Takemura
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Anritsu (6754 / 6754 JP) 12 26 July 2016
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This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
6754_072616_Anritsu_E.doc Anritsu (6754 / 6754 JP) 13