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In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.
“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6535 9688 in respect of any matters arising from or in connection with this report.”
www.dbsvickers.com Refer to important disclosures at the end of this report
ed-OY / sa- AH
BUY HK$5.10 HSI : 21,698 (Initiate Coverage) Price Target : 12-Month HK$ 6.50 Reason for Report : Initiation Potential Catalyst: Fast growth in Hybrid/ EV car sales DBSV vs Consensus: Expect higher sales growth from CFM products but net profit slightly below consensus as we are more conservative on near term margin improvement. Analyst Galant Ng +852 2971 1707 [email protected] Dennis LAM +852 2971 1922 [email protected]
Price Relative
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Relative Index
Johnson Electric (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation FY Mar (US$ m) 2012A 2013F 2014F 2015F Turnover 2,141 2,248 2,387 2,555 EBITDA 314 329 340 352 Pre-tax Profit 221 239 256 274 Net Profit 187 202 217 232 Net Pft (Pre Ex.) 187 202 217 232 EPS (US$) 0.05 0.06 0.06 0.06 EPS (HK$) 0.40 0.44 0.47 0.50 EPS Gth (%) 4.6 8.3 7.3 6.9 Diluted EPS (HK$) 0.40 0.44 0.47 0.50 DPS (HK$) 0.10 0.11 0.12 0.13 BV Per Share (HK$) 3.16 3.48 3.84 4.22 PE (X) 12.6 11.7 10.9 10.2 P/Cash Flow (X) 7.9 8.8 8.0 7.8 P/Free CF (X) 10.2 13.2 11.6 11.0 EV/EBITDA (X) 7.0 6.3 5.6 5.0 Net Div Yield (%) 2.0 2.1 2.3 2.5 P/Book Value (X) 1.6 1.5 1.3 1.2 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 13.2 13.2 12.8 12.4 Earnings Rev (%): New New New Consensus EPS (US$): 0.06 0.06 0.06 Other Broker Recs: B: 3 S: 1 H: 4
ICB Industry: Industrials ICB Sector: Electronic & Electrical Equipment Principal Business: Providers of motors and motion subsystems Source of all data: Company, DBSV, Bloomberg, HKEX
Quiet evolution prompts re-rating
• BUY Johnson on its evolution from low-end motor maker into a high value-added auto and industrial component supplier
• Energy saving cooling fan modules for hybrid cars a key growth driver
• High end valuation justified by market gains in higher valued products, consistent free cashflow yield and potentially higher dividend payout
Morphing into a high value-added component supplier 50- year veteran, Johnson Electric has been long overlooked by a 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 in recent years, transforming it into a high value-added auto parts supplier, and one of the largest industrial component suppliers in the world.
Environmentally-friendly cooling fan modules (CFM) to drive automotive segment. We think Johnson’s increasingly significant cooling fan modules (CFM) business (part of the company’s Auto Products Group (“APG”)) (20% of the total revenue) could comfortably outperform the global auto market growth rate. Hybrid vehicle sales are estimated to grow at a CAGR of 19% in 2011-2015 (according to Pike Research). This will drive demand for Johnson’s higher end CFM products as Johnson are one of the few quality suppliers able to supply these to hybrid vehicles. We estimate CFM to constitute over 70% of Johnson’s growth in FY13E.
Higher valuation justified. Johnson has traded between P/E 8x-15x over the past 3 years. Although the share has already bounced from its recent lows, we think the stock could yet test the upper end of this range, as more credence is given to the company’s steadily improving market position, strength in higher-end auto components, consistently high FCF yield (c.9%) and higher dividend payout potential. Johnson’s share has lagged other HKEx listed industrial stocks despite the company demonstrating similar market dominance, strong corporate governance and as consistent an operating performance as its peers. We believe this longtime laggard can thus catch up with its peers and we initiate coverage with a BUY rating and a TP of HK$6.5 based on a high end 14.5x FY13E P/E.
At A GlanceIssued Capital (m shrs) 3,604Mkt Cap (HK$m/US$m) 18,381 / 2,372Major Shareholders (%) Wang Koo Yik Chun 60.84
F ree F loat (%) 39.16Avg Daily V olume (m shrs) 1.9
DBS Group Research . Equity 22 October 2012
China / Hong Kong Company Focus
Johnson Electric Bloomberg: 179 HK | Reuters: 179.HK
Company Focus
Johnson Electric
Page 2
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
Company Focus
Johnson Electric
Page 3
Investment Summary Evolving into a high value-added component supplier. Although long regarded as a low-end motor manufacturer, Johnson has undergone something of a ‘quiet revolution’, evolving almost unnoticed by the market in recent years into a high value-added auto parts supplier, and one of the largest component suppliers of industrial products. Testament to the increasing technological content in Johnson’s products and their ability to continuously upgrade product quality, the massive surge in raw material prices over the past 6 years has wreaked very little damage on the company’s consistently healthy gross margins.
We believe Johnson has historically been partially a victim of perception, long seen by the market merely as just another low-end industrial play. As such, we believe the share price has not yet reflected the quiet transformation in the company’s products and its rapidly improving fortunes.
GP margin remains resilient despite rise in copper price
FY06 FY07 FY08 FY09 FY10 FY11 FY1221
22
23
24
25
26
27
28
-50%
0%
50%
100%
150%
200%
250%
300%
Johnson's GP margin since FY06Copper price movement since 2005
Source: Bloomberg, Company, DBS Vickers
Hybrid vehicles a key driver for growth. A key source of future growth for Johnson is the auto industry’s increasing appetite for higher quality cooling fan modules (“CFM”) used in hybrid vehicles. Johnson is fully exploiting this demand as one of the few suppliers of these motors used in hybrid and electric vehicles. The CFM sub-segment has significantly outperformed the broader market, growing 34% and 17% y-o-y in FY11 and FY12 respectively, against global auto production growth of only 3% y-o-y in 2011. We expect the CFM business will grow at 18% and 13% to US$495m and US$557m in FY13E and FY14E respectively, and will represent more than 70% of Johnson’s growth in FY13E.
CFM outperforms global auto sales growth
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY11
FY12
FY13
F
FY14
F
FY15
F
FY16
F
FY17
F
CFM sales growth Hybrid growthGlobal auto sales
Source: OICA, Pike Research, DBS Vickers, Company
We estimate Johnson’s market share at 4.6% and 5.2% for the cooling fan market (including non hybrid) in FY11 and FY12. Using history as a guide to the potential impact CFM could have on Johnson’s fortunes over the next few years, a key driver of Johnson’s revenue over the past two decades was the development of Electronic Power Steering (EPS). EPS in turn created huge demand in brush DC motors from the 1990s onwards benefitting Johnson and which the market duly rewarded at the time. If history is anything to go by, we think the Hybrid/ EV CFM product line could therefore be Johnson’s new EPS story over the coming decade.
Johnson outperforms the Global auto market
-20%
0%
20%
40%
60%
80%
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
E
Global Auto Production GrowthJohnson Rev Growth
2012
E
Source: Company, OICA, DBS Vickers
Company Focus
Johnson Electric
Page 4
The growing case for a higher 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 to 25%-30% during FY10-FY12 due to global economic uncertainties. Looking forward, as the market recovers; we believe the company may increase its dividend payout ratio if no major acquisition takes place, supported by a strong net cash position of US$192m in FY12. For a company with such strong and consistent free cashflow yield, we believe this could potentially trigger a re-rating.
Premium valuation justified, Initiate with a BUY.
Johnson has traded on a P/E of between 8x-15x over the past 3 years. Although Johnson’s share price has rebounded from its recent lows, we believe a further re-rating to the high end of the above range would be more than justified. This is due to 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 the fact that, despite investors traditionally favouring companies with strong market positions, great corporate governance and consistent operating performances, despite Johnson boasting a similar track record in all of these areas, its share price performance still lags compared to other HKEx listed industrial stocks such as Techtronic (669 HK) and VTech (303 HK).
We initiate coverage with a BUY rating and a TP of HK$6.5 based on a 14.5x FY13E P/E, close to the high end of its historical trading range. The closest peer to Johnson would be Mabuchi (6592. JP), which currently trades at a FY12 P/E of 22.6x.
Dividend Payout
0
10
20
30
40
50
60
70
FY0
3
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6
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7
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9
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1
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3F
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5F
%
Source: Company, DBS Vickers
YTD share price performance lagged industrial peers
-10%0%
10%20%30%40%50%60%70%80%90%
Jan
-12
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-12
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-12
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r-12
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Johnson Electric Techtronic Vtech
Source: Bloomberg
Company Focus
Johnson Electric
Page 5
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.
Company Focus
Johnson Electric
Page 6
Financial Summary
IPG- “Industrial Products Group” (35% of group’s revenue) - Steady 2% and 4% growth. Although we estimate smart meters and medical device products to deliver 11% growth in FY13E, the weak global economy drags down demand for other sub-segments such as traditional home appliances and consumer electronics. Offsetting the decline in both sub-segments, we estimate a 2% and 4% overall growth to US$772m and US$800m for the entire IPG business in FY13E and FY14E
APG -“Auto Products Group” (60% of group’s revenue) – Sales growth of 8% driven by strong Cooling Fan Module. We estimate that the APG segment will record 8% and 7% growth to US$1,373m and US$1,471m in FY13E and FY14, respectively. We estimate that the proportion of sales from Cooling Fan Module will further increase from 20% in FY12 to 22% and 23% in FY13E and FY14E, respectively. This represents a contribution of over 36% and 38% to total APG sales in FY13E and FY14E, respectively.
Gross margin - Improvement from efficiency gain and lower material prices. We believe 1) lower material costs 2) operating
efficiency and 3) technology advancement can improve Johnson’s GP margins. The higher skew in product mix to higher margin Cooling Fan Module products can also improve overall GP margins. Overall we estimate GP margins to improve 0.1ppt each year from 27.3% in FY12 to 27.4% and 27.5% in FY13E and FY14E respectively.
Net margins - Expect 8% and 6% growth in net profits for FY13E and FY14E. Taking into account improving operating maintenance and tighter cost controls, Opex/sales ratio is expected to reduce from 18% in FY12 to 17% in FY13E. As a result we expect net profit margins to improve from 8.7% in FY12 to 9% in FY13E. Overall we expect a 8% and 6% growth in net profits to US$202m and US$215m for FY13E and FY14E respectively.
Financial position – Solid financial position and return profile. Johnson has a net cash position of US$195m in FY12. Despite the slowdown in the global economy, the company has maintained an average free operating cashflow of US$290m representing a FCF yield of 9.7% in FY12. Moreover it has also registered a ROE of 15% in FY12 and we expect an average ROE of 13% for FY12-FY14E.
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
Company Focus
Johnson Electric
Page 7
SWOT Analysis
Strengths Weakness
• Leader in the motion systems industry for automotive and industrial products.
• Portfolio of well-known customers
• Worldwide innovation centres focus in different sectors to create differentiation in products.
• Global manufacturing bases helps sourcing for multinational customers
• Export-oriented business affected by the health of the global economy
• Strongly related to the global auto market as APG applications account for 60% of sales
• Higher copper and steel prices means higher raw material costs
Opportunities Threats
• Gain market share in the emerging auto markets (e.g. China and India)
• Fast growing environmental-friendly vehicle increases demand in high quality Cooling Fan Modules.
• Increase demand in smart devices help IPG growth
• Global restructuring reduces costs
• Slowdown in global auto production
• Economic slowdown lowers industrial product demand
• Global operations increases FX risks
Source: DBS Vickers
Company Focus
Johnson Electric
Page 8
Company profile
Company Background
Corporate History. Found by the late Wang Seng Liang and Wang Koo Yik Chun in 1959, Johnson Electric began to produce micro motors in Hong Kong. In 1972, Patrick Wang (son of the late Wang) established its AC Motor business and began production of micro-motors for the automotive industry in the USA in 1976. The company had established its first production plant in Shajing, Shenzhen in1982 and got listed on the HKEX in 1984.
After its listing, the company continued to expand its business including establishing its Japanese branch office in 1988 and opening its engineering centre in Germany in 1992.
In the 2000s, Johnson began to expand its footprint through a series of M&A activities. In 1999, 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 are Saia-Burgess AG and Parlex in 2005.
Johnson’s timeline
1959 1972 1976 1982 1984 1988 1992 2001 20102003 2007
Founded by the late Mr. Wang Seng Liang and Mrs. Wang Koo Yik Chun to produce micro motors.
- Established Johnson Electric in USA.- Began production of micro-motors for the automotive industry.
Listed on Hong Kong Stock Exchange.
Opened Engineering center in Germany.
Opened brushless DC motor technical and production center in Italy.
- Opened automotive motor production plants in Chennai, India.- Opened motor production plant in Beihai, Guangxi, China.
Dr. Patrick Wang established AC Motor Business.
Established plant in Shajing, Shenzhen, China.
Established Johnson Electric branch office in Japan.
Automotive and Industry divisions established.
Established the Johnson Medtech division in Hong Kong.
Source: Company
Organisation Structure. Johnson Electric is one of the world’s largest providers of motors, solenoids, micro-switches, flexible printed circuits and control systems. Its business is classified into two major segments: 1) Automotive products group (APG) 2) Industry products group (IPG). The two segments account for 60% and 35% of the group’s total revenue. Other businesses
include Johnson Medtech (JMT), Components Services (C&S) and Saia-Burgess Controls, a provider of programmable control systems and the sales of control units which accounted for 5% of total sales. The company has an annual production capacity of over one billion units.
Company Focus
Johnson Electric
Page 9
Corporate structure
Automotive Products Group
Johnson Electric Group
Johnson Medtech Other Business
Industry Products Group Components & Services
Source: Company
Directors and Management Composition. Johnson’s senior management team and board of directors consist of a group of experienced and professional members.
Honorary Chairman and Non-executive Director: Madam Yik-Chun Koo Wang, age 95, is the honorary chairman of the company and is the co-founder of Johnson Electric. She was the vice-chairman of the group in 1984 and was actively involved in the development of the group in the early stages.
Chairman and Chief Executive- Patrick Wang is the son of the late Wang Seng Liang. He joined the group in 1972, was appointed managing director in 1984 and was elected as Chairman and CEO in 1996. He is a member of the nomination and corporate governance committee. Wang obtained his BSc and MSc degrees in Electrical Engineering and has an Honorary Doctorate of Engineering from Purdue University in Indiana, USA.
Vice-Chairman: Winnie Wang is the sister of Patrick Wang. She joined the group in 1969 and was appointed executive director in 1984 and was elected as vice-chairman in 1996. She is a member of the remuneration committee.
Executive Director: Austin Jesse Wang is the son of Patrick Wang. He joined the group in 2006 and became a director in 2009. He is the general manager of Saia-Burgess Controls Greater China and prior to that was senior manager of operations at Saia-Burgess China Industry Products Group and
technical product manager of Saia-Burgess Controls AG. He has previously worked as a consulting engineer in the computer industry. Wang graduated from Massachusetts Institute of Technology with an M.Eng and B.S degrees in Computer Science and Electrical Engineering.
Senior Vice President, Strategic Manufacturing: Tung Shing Choi joined Johnson Electric in 1968 and has over 40 years of experience in motor component manufacturing, motor assembly processes and the utilisation of machines and fixtures. He is responsible for the global manufacturing management of the group.
Senior Vice President, Strategic Marketing & Sales: James Randolph Dick has over 35 years of experience in high technology management. He joined Johnson in 1999, and was responsible for marketing and selling, prior to joining the group he held executive positions with Xerox in USA, IBM in Europe and Astec Plc in Hong Kong.
Senior Vice President, Supply Chain Services: Robert Allen Gillette joined the Group in 2007 and is responsible for providing leadership strategic direction in supply chain management for all business units. Prior to joining the group, he worked for Emerson Electric where he held various operations, marketing and supply chain positions in North America and Asia.
Company Focus
Johnson Electric
Page 10
Senior Vice President, IPG- Europe and the Americas: Joseph Alan Guisinger joined in 2004 and is responsible for the strategic, commercial and operational direction of the Industry Products Group (IPG) in Europe and Americas. Prior to joining the group, he held senior positions in Emerson Electric.
Executive Vice President: Christopher John Hasson joined the group in 2002 and is responsible for corporate business development, mergers and acquisitions, corporate strategic planning and supervision of the legal and company secretarial functions. Prior to joining the group, he was a partner at the Boston Consulting Group.
Senior Vice President, APG Asia: Kam Chin Ko joined the group in 1988 and is responsible for the strategic, commercial and operational direction of the Automotive Products Group (APG) in Asia.
Senior Vice President, IPG- Asia: Yiu Cheung Kwong joined the Group in 1999 and is responsible for the strategic, commercial and operational direction of the Industry Products Group (IPG) in Asia. Prior to joining the group, he had 10 years experience with TDK, NHK and Philips where he held positions in product engineering, product procurement and sales and marketing.
Senior Vice President, Human Resources: Peter Henry Langdon joined the Group in 2007 and is responsible for Human Resources, Global Environmental, Health and Safety, and Training and Development. Prior to joining Johnson, he was responsible for Human Resources and was the assistant corporate secretary for a major international energy service company.
Senior Vice President, Corporate Engineering: Yue Li is responsible for overall corporate technology engineering operations and Value Innovation Programs. Prior to joining the group in 2004, he worked for Emerson Electric in St. Louis as director of new products, and for Carrier Corporation in Syracuse as director of power electronics and motor technologies and for Emergency One Inc in Florida as vice president of product management.
Senior Vice President and Chief Financial Officer: Jeffrey L. Obermayer joined the group in 2010 and had 28 years experience with BorgWarner Inc in USA and Germany, where he held senior executive positions in finance, business development, treasury and risk management and accounting.
Company Focus
Johnson Electric
Page 11
Competitive Strengths
A leading provider of motion systems to supply global automakers. Johnson Electric has over 50 years of experience in producing motors and switches in global automotive products and industrial products. It is now of the major auto components suppliers to global automotive makers including, BMW, Volkswagen, Mercedes Benz, GM and Ford etc.
A comprehensive application of automotive and industrial products. Johnson offers a wide combination of product knowledge, technology and designs in various applications. Its Industry Product Group (IPS) application ranges from power tools, camera, home appliances, medical devices to smart
metre devices etc. The Auto Product Group’s (APG) business includes power train cooling, lighting, steering, HVAC, window lift, suspension and transmission etc.
A strong R&D engineering team. Johnson has innovation centres throughout the world situated in key industrial locations, which facilitates close collaboration with key customers. Each design team focuses on specialised areas to ensure efficient and on-time completion of customer design projects. Moreover, all machinery and a majority of the tools are designed and built in-house to fit Johnson’s unique production engineering process.
Johnson's innovation centres Country
USA Methuen Vandalia Springfield Plymouth
Competencies Flexible PCB Solenoid , Actuators Motor technology , Actuators
Motor technology, Cooling fan module
Germany Halver Dresden Oldenburg
Competencies Switches Motor technology, Actuators, Gear
Switches
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, Medical device subsystems
Motor technology, Electronics, Gear, Medical device subsystems
Cooling fan module, Flexible PCB
Japan Tokyo
Competencies Micro Motors
Location(s)
Source: Company
Company Focus
Johnson Electric
Page 12
Johnson’s production facilities
Source: Company
All tools are designed in-house to meet its high standard. In 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 components provider.
M&A timeline
1999 2001 2004 2005
Acquisition of Electric Motor Systems from Lear Corporation including Gate SpA in Italy.
Acquired motors business of Kautex Textron division.Acquired seat motor business of ArvinMeritor's Light Vehicle Systems division.
Acquired 51% stake in Nanomotion Ltd. for high precision piezo ceramic motors.Acquired Nihon Mini Motor for camera and optical disc drive products.
Acquired Saia-Burgess AG, a Swiss manufacturer of stepper motors, switches, actuators, and control systems.Acquired Parlex, a USA manufacturer of flexible printed circuits and connector solutions.
Source: Company
Company Focus
Johnson Electric
Page 13
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
Company Focus
Johnson Electric
Page 14
Business analysis - Automotive Product Group (APG)
• Accounted for 60% of the group’s total revenue
• Cooling Fan Module (CFM) to grow at 18% and 13% in FY13E and FY14E, respectively, driven by eco-friendly vehicle sales.
• Comprehensive products in different applications and serving well-known quality customers
• Promising outlook of the Cooling Fan Module business leverages on the strong potential in the environmental-friendly vehicles market
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.
The APG product line comprises the following brands: Saia-Burgess for custom actuators and switches; GATE for engine cooling fan modules; and Johnson Motor for DC motors (Standard DC, Compact DC and brushless DC product lines)
APG Applications
Model vehicles nowadays require a large number of motion devices for different applications. According to the company, a standard European/US compact car requires 40 motors, a mid-size car: 60 motors and a luxury sedan demand up to 80 or more motors per vehicle.
Johnson’s APG application serves 13 different parts of an automotive, from engine management, power cooling, power steering to door locks etc.
APG APPLICATIONS
Source: Company
The uses of the APG motion/motor devices are primarily required in three major ways 1) Safety 2) Energy efficiency and 3) Comfort. We believe safety and fuel energy are the key concerns in modern vehicles and has accordingly become especially important in high-end luxury cars.
Safety: Johnson Electric’s ABS motor product line provides leading power density technology for automotive and motorcycle applications. It is the industry leader in electric parking brake motors and custom engineered motor actuators.
Company Focus
Johnson Electric
Page 15
Apart from braking systems, Johnson’s products also help enhance passenger safety in seating applications including seat 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) and Dual Clutch Transmission (DCT) to help improve fuel efficiency.
Comfort: Johnson develops custom HVAC (Heating, Ventilation and Air Conditioning) actuators to create the industry standard for compact and low noise designs for global automakers.
Other areas such as power steering, door locks, mirrors, window lift and seating also require a large number of motion devices to help improve drivers’ comfort, safety and engine efficiency.
Johnson’s APG division covers 13 different auto components with a product portfolio of over 40 different categories. Our analysis categorises the APG business into two sub-segments. 1) Cooling fan module (CFM) 2) General auto components.
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 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 FY12.
What is an Engine Cooling Fan module? An Engine Cooling Fan is also known as a radiator used for cooling internal combustion engines. It is used in automotives, motorcycles aircraft, railway locomotives etc.
Johnson’s CFM primarily addresses the passenger car segments. Its advanced technology is designed to minimise weight, space and noise. Its latest EC (brushless) motor improves fuel efficiency and CO2 emissions by engine temperature management.
APG – Cooling Fan Module
Source: Company
Market outlook- Cooling Fan Module
Outperform global auto market. The CFM unit is one the fastest growing businesses in the group. This sub-segment has recorded 34% and 17% y-o-y growth in FY11 and FY12, accounting for 17% and 20% of the group’s total revenues. The global auto production recorded only 3% y-o-y growth in 2011. As a result, Johnson’s cooling fan business has significantly outperformed the global automotive market by gaining market share.
Continuous market share gain. Assuming an ASP of US$100 for each cooling fan module, we estimated an annual sale of 4.2m units of CFM in FY12. According to OICA data, global auto production was 77.7m and 81m units in 2010 and 2011. Therefore we estimate Johnson’s market share to be 4.6% and 5.2% for the cooling fan market in FY11 and FY12.
Johnson’s CFM Market share estimates
0%
2%
4%
6%
8%
FY10 FY11 FY12 FY13F FY14F FY15F
Source: DBS Vickers
Company Focus
Johnson Electric
Page 16
Assumption table
FY Mar (US$m) FY10 FY11 FY12 FY13F FY14F FY15F
sub-segment breakdownCooling fan 266.8 357.68 420.0 495.1 557.8 624.7Estimated ASP US$ 100 100 100.0 100.0 100.0 100.0Estimated unit sold (m) 2.668 3.577 4.200 4.951 5.578 6.247Total auto production (m) 61.8 77.7 80.1 82.5 85.8 89.2growth (%) -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 concerns, there is a clear trend of automakers developing eco-friendly vehicles such as hybrid and electric vehicles to replace traditional gasoline cars, to reduce CO2 emission. Over the past few years, global sales of hybrids and electric cars have grown rapidly from 480k units in 2008 to 995k units in 2011, according to Pike Research. It is also expected that global sales of eco-friendly vehicles will grow at a CAGR of 18% to 2.87m in 2011-2017.
Global regulations
Country/Region
European Union
United States
Japan
China
Canada
Australia
South Korea
12 % reduction, MY2008-2015 EU NEDC cycle
20% reduction, MY 2011-2016 U.S. FTP
10% reduction, MY 2004-2010 EU NEDC
13% reduction, MY 2012-2015 U.S. FTP
Fuel consumption (L/100km)
GHG emissions (CO2e/mi)
Fuel consumption (L/100km)
Fuel economy (km/L)
20% reduction, MY 2011-2016 U.S. FTP GHG emissions (CO2e/mi)
Fuel economy (mi/gal)
Fuel economy (km/L)
19% reduction, MY 2010-2015 Japan JC08
Regulated metric Program details, reduction in CO2-per-distance emissions
CO2 emissions (CO2/km)
40% reduction, MY 2008-2020 EU NEDC
Source: ICCT
Company Focus
Johnson Electric
Page 17
Global oil price
0
20
40
60
80
100
120
140
160
May
-83
May
-86
May
-89
May
-92
May
-95
May
-98
May
-01
May
-04
May
-07
May
-10
US$/barrel
Source: Bloomberg
Johnson’s capability in CFM EV. In hybrid vehicles, the electric powertrain emits very little waste heat. Consequently, the heat flows in the coolant will have to be better controlled by thermal management. As one of the few names in the world which has the capability to produce CFM for hybrid and EV, Johnson Electric introduced a new cooling fan product line exclusively for hybrids and EVs. The CFM EV is designed to 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 launched under the GATE brand and is designed to maximise airflow with its compact size, low weight and quiet operation.
Further increase its market share in CFM market; revenue expected to grow at 18% and 13% in FY13E and FY14E. We believe that technology advancement in CFM EV will allow Johnson to further increase its market position in the global CFM business. Although the global auto market is only forecasted to grow at 3% in FY13E, we estimate an 18% growth in the CFM segment revenue. We estimate Johnson’s CFM market share to grow from 5.2% in FY12 and to 6% in FY13E, primarily driven by the hybrid and electric vehicle market. As a result, we expect the CFM business to grow at 18% and 13% to US$495m and US$557m in FY13E and FY14E respectively.
Case study: Power Steering
Looking back into the history you can see that Johnson’s revenue grew rapidly by 14 times over the past two decades. We believe one of the major reasons for this success was the development of Electronic Power Steering (EPS) which has created a huge demand in brush DC motors since 1990s.
The “EPS” technology was first introduced in the 1950s. In the 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 vehicles such as the Cadillac and Lincoln etc. The power steering technology did not become popular until the late 1980s and early 1990s. That changed when Honda introduced the first “all electric” power-steering system on its Acura NSX sports car in 1993. The new system, which requires a brush DC motor dominated the market and brought a revolution to the global auto industry. Since then, the EPS system has become a necessity in both passenger and commercial vehicles. This new revolutionary technology created massive business opportunities for auto components makers, especially motor manufacturers.
Johnson electric is one of the beneficiaries from this technological migration process. As a result, although 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 obtained a 12% CAGR between 1990 and 1999, substantially outperforming the auto market. With this, we believe the development of EPS was a major driver and opportunity for Johnson Electric’s revenues and we are trying to look for a new growth driver for Johnson Electric’s future.
Johnson’s sales growth vs global auto
-20%
0%
20%
40%
60%
80%
1985 1990 1995 2000 2005 2010 2015
Global Auto Production Growth
Johnson Rev Growth
CAGR= 18.4%
Source: Company, OICA
Déjà vu: Will eco-friendly Hybrid/Electric vehicles be the future of the market?
We have noticed that there is a growing trend of leading automotive manufacturers starting to push out hybrid models. Although the first batch of modern hybrid cars were produced 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
Company Focus
Johnson Electric
Page 18
seen global sales of hybrid and EV grow from around 520,000 in 2008 to around 930,000 in 2011. According to Pike Research, global sales will triple that of 2011 by 2017 with a CAGR 18% between 2011-2015. Johnson should be able to capitalise on this as they are one of the few suppliers of motors used in hybrid and electric vehicles.
Global hybrid sales
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2008
2009
2010
2011
2012
F
2013
F
2014
F
2015
F
2016
F
2017
FSales Vol
Source: OICA
Sub-segment: General auto components. Johnson did not have the revenue breakdown for different auto component units. Other components applies to any motion devices in an automotive apart from the Cooling Fan Module, (e.g. Heating, Ventilation & Air Conditioning or HVAC, braking, suspensions, power steering and interior components etc)
The general auto components accounts for 67% of APG 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.
Global auto production
0
10
20
30
40
50
60
70
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
E
2013
E
mn
Source: OICA, DBS Vickers
Johnson’s general auto components sales in line with the global auto market growth at a CAGR of 3%. Due to its diversified nature and complicated product portfolio, we estimate that the sub-segment sales will grow in line with the global auto output at 3% and 4% in FY13E and FY14E, respectively.
APG sales to grow at 8%, driven by the strong Cooling Fan Module. We estimate the overall APG segment to record an 8% and 7% growth to US$1,373m and US$1,471m in FY13E and FY14, respectively. We estimate that revenue from the Cooling Fan Module to further grow by 18% in FY13E and 13% in FY14E respectively. This represents a contribution of over 36% and 38% to total APG sales in FY13E and FY14E, respectively.
Company Focus
Johnson Electric
Page 19
APG sales
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY10 FY11 FY12 FY13F FY14F FY15F
Cooling fan Other auto motors
US$m
Source: Company, DBS Vickers
Industry outlook
The global automotive product suppliers market has been affected by the recent economic slowdown. In particular, smaller companies struggled to survive during the crisis, according to the Motor and Equipment Manufacturers Association (MEMA). There were over 50 bankruptcies and about 200 liquidations in 2009 in the automotive supplier sector. However we have seen recovery in global auto production. Based on OICA, global production was 80 million, which is a continuation of the growth trend before 2008, after seeing global production figures dropping in 2008 and 2009. According to Polk Research, the auto market is expected to grow at a CAGR of 5.5% for 2012-2015.
Competitive landscape
Johnson supplies most of their automotive products to other companies, such as Delphi, Denso, etc, as a second tier 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.
Company Focus
Johnson Electric
Page 20
Johnson’s clients/competitors
Company origin
Market cap
US$ m
Stock code
Group revenue(US$ m)
EBIT margin
- %
Gross Profit
margin- %
Specialised area Competition with
others?
Major client
Johnson Electric
Hong Kong 2,211.2 179 HK 2,140.8 10.3% 27.3% Motion and Motors, Cooling Fan, Switches and Relay, Flex Circuits and Microelectronics
BMW, GM, Ford, Daimler, Volkswagen
America Axle
US 729.9 AXL:US 2,585.0 8.6% 17.6% Axles and Driveshafts, Drivetrain components, forged products
and other
Magna GM (73%). Chrysler/Fiat, Volkswagen,
Audi/Scania, Nissan, Daimler Truck/Mercedes, Tata Motors/Jaguar Land
RoverBehr Germany 0.0 not listed 5,160.3 4.7% na Automotive Air Conditioning
and Engine Cooling SystemsPorsche, Daimler, Audi,
BMW, KAMAZ, Hyundai/Kia, PSA Peugeot Citroen
Delphi US 7,070.4 DLPH:US 16,041.0 10.4% 16.6% Electrical/ Electronic Architecture, Electronics &
Safety, Powertrain Systems, Thermal Systems
Valeo, Denso, Lear,
Magneti Marelli, TRW
BMW, Caterpillar, Chrysler, Daimler, Fiat,
Ford, Geely, GM, 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) - spark plug, NaviBridge, Auto
Componenets (OEM) - Air Conditioning System, Engine
Related Components, Body Equipment, Driving Control and
Safety Products, Regulation & Legislation
Delphi, Valeo
Toyota Group, OE Sales for others (Honda, GM, Suzuki), After-market, New business & Others
Lear US 4,278.0 LEA:US 14,156.5 4.8% 8.4% Seating System, Electrical Power Management Systems
Magna GM, BMW, Ford, VW/Audi, Fiat/Chrysler
Magna Canada 7,803.3 MGA:US 28,748.0 4.3% 9.3% Exterior and Interior Systems, Body Systems and Chassis
Systems, Powertrain Systems, Complete Vehicle Assembly,
Vision and Electronic Systems, Tooling, Enginerring and other,
Closure Sytems
Lear GM, BMW, Fiat/Chrysler Group, Ford Motor
Company, Volkswagen, Daimler AG
Magneti Marelli
Italy 0.0 GIL:IM (delisted)
€5.9 billion
na na Electronic Systems, Automotive Lighting, Powertrain, Suspenion
Systems, Exhaust Systems, Motorsport, Plastic Components and Modules, After Market parts
amd Services
all main car manufacturers in Europe
and America, Chery, Suzuki-Maruti, Tata, Piaggio, Ducati and
Harley DavidsonTRW US 4,034.3 TRW:US 16,244.0 7.9% 11.5% Chassis Systems, Occupant
Safety Systems, Electronics, Automotive Components
Delphi, Valeo
Volswagen, Ford, GM
Valeo France 2,986.1 FR:FP 15,132.7 6.5% 17.0% Powertrain Systems, Thermal Systems, Comfort and Driving
Assistance Systems, and Visibility Systems
Delphi, Denso, TRW
Three major global automakers represent
43.3% of the Valeo Group's sales
Valeo's largest customer accounted for 19% of
the Group's accounts and notes receivable
Source: Companies, DBS Vickers
Company Focus
Johnson Electric
Page 21
Business analysis –
Industrial Product Group (IPG) & other businesses
• Accounted for 40% of the group’s total revenue (IPG: 34.6%, Others: 4.6%)
• Steady growth of 3% and 5% ahead in FY13E and FY14E, respectively.
• One of the world’s leading motors suppliers for major industrial products
• Increase awareness of energy savings and efficiency creates huge demand for Smart meters
The Industry Product Group (IPG) provides motion products and customised solutions for various commercial and industrial applications, including home appliances, power tools, business equipments, personal care products, building automation, security, audio-visual and other industrial products.
Similar to the APG segment, Johnson’s product line comprises different brands: Johnson Motor for DC motors (Standard DC, Compact DC, and brushless DC product lines), and AC motors; Saia Motor for stepper motors and synchronous motors; Ledex and Dormeyer for solenoids; and Saia, Bär, Burgess, the-contact for switches.
IPG applications
Source: Company
Company Focus
Johnson Electric
Page 22
Comprehensive product portfolio covers almost every industrial sector.
Johnson’s IPG has a broad range of products covering a large number of sectors. In order to simplify the product mix, we have classified Johnson’s IPG into four major sub-segments. 1) Industrial equipment 2) Home appliances 3) Consumer electronics and 4) Advanced technologies.
IPG Breakdown
Home Appliances
27%
Industrial equipment
19%
Advanced technologies
26%
Consumer electronics
28%
Source: Company, DBS Vickers
IPG sales trend
0
200
400
600
800
1000
FY10 FY11 FY12 FY13F FY14F FY15FIndustrial equipment Home Appliances
Consumer electronics Advanced technologies
US$m
Source: Company, DBS Vickers
Sub-segment breakdown FY Mar (US$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 activities. This sub-segment includes products such as lift trucks, gardening tools, construction equipments and power tools etc. For power tool and construction products, Techtronic (669.HK) is one of Johnson’s major customers. We estimate that 18% of IPG’s revenue comes from this sub-segment.
We believe the industrial equipment sub-segment is mainly driven by the state of the global economy. According to the “World Power Tools Industry” market report by marketresearch.com, global demand for power tools is forecasted to exceed US$28bn in 2013 at a CAGR of 4%. The recovery in the US housing market and the ongoing investment
Company Focus
Johnson Electric
Page 23
in infrastructure and construction in emerging markets are the major drivers for the growth of the power tools market. We estimate a 5% and 6% growth in revenues for this sub-segment in FY13E and FY14E, respectively.
Johnson’s Industrial sub-segment growth vs Techtronic sales growth
-20%
-10%
0%
10%
20%
30%
40%
50%
FY07
FY08
FY09
FY10
FY11
FY12
F
FY13
F
FY14
F
Johnson's industrial production growth*Techtronic's sales growth
* FY07: FY3/08 – FY14: FY3/15F
Source: Companies, DBS Vickers
Slowdown in Home Appliances. The industries served under this sub-segment includes washing machines, refrigerators, dishwashers and floorcare products etc. We estimate the home appliance sub-segment contributes 27% to total IPG sales.
According to Euromonitor, the Top 5 major home appliances brands accounts for 20% of the global market. They are Haier, Whirlpool, LG, Panasonic and G.E. Due to the slowdown in the global economy and the increase in competition; the home appliances industry has suffered a decline in recent years. We expect emerging markets to be the growth drivers for this sub-segment. In particular, China’s rural appliance rebate program should provide support in the near term. However, we do not expect growth in lower-end products can offset the decline in the developed market. As a result, for Johnson’s home appliances sub-segment we estimate a 3% decline in FY13E and we expect sales to stay flat in FY14E.
China’s home appliances
RMB bn
192237
271315
536
40523%
16%
32%
29%
14%
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 20110%
5%
10%
15%
20%
25%
30%
35%
Sales of home appliances (LHS)
Growth y-o-y (RHS)
Source: DBSV
The Top 5 Major Home Appliance Brands in the World
Brand Company HeadquartersMarket share *
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%
* 2009 market share data
Source: Euromonitor
Consumer electronics demand yet to recover. This sub-segment includes cameras, office automation, electronic toys, vending machines, ATM and gaming machines etc. We believe that consumer electronics is the largest sub-segment, accounting for 28% of IPG’s revenue.
According to the CCID report, total global consumer electronic product output reached 2.1b pieces in 2010, a 12.6% y-o-y growth from 2009. This growth was mainly driven by an increase in demand for finance machines and vending machines, as a result of increases in automation to cut labour costs. In particular, global finance machine sales grew 9% to US$2.2b in 2010. However, global office automation equipment sales shrank at an average of 4.5% in 2009 and 2010 due to the slowdown in the economy. Due to higher exposure in the automation segment, the slowdown in such products will drag down overall growth. Hence, we estimate a mild 2% drop in FY13E.
Company Focus
Johnson Electric
Page 24
Consumer electronics
0
100
200
300
400
500
600
700
2007 2008 2009 2010 2011
US$bn
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 from this sub-segment.
With the general population’s increase in health awareness, food safety and health related expenses; the medical equipment market has achieved continuous growth in recent years. According to the CCID report, global medical equipment sales reach US$91.7b in 2011, representing a y-o-y growth of 21.3%.
Moreover, smart electric meters have also become an important device nowadays for improving power efficiency, to reduce energy consumption and for cost savings. According to Pike Research, the smart meter penetration was below 4% in 2008. It is forecasted to reach 18% in 2012 and to exceed 55% by 2020.
Global market of medical test equipment
0
10
20
30
40
50
60
2008 2009 2010 2011
US$bn
Source: CCID
We think that both medical devices and smart meters will be the major growth driver for this sub-segment. We estimate an 11% growth for FY13E. We believe this will overtake consumer electronics to become the largest contribution in the overall IPG segment.
IPG sub-segments growth
-30%-20%
-10%0%
10%20%
30%40%
50%
FY10 FY11 FY12 FY13F FY14F FY15F
Industrial equipmentHome AppliancesConsumer electronicsAdvanced 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
Company Focus
Johnson Electric
Page 25
demand for other sub-segments, particularly traditional home appliances and consumer electronics. Offsetting the decline in both sub-segments, we therefore estimate a 2% and 4% overall growth to US$772m and US$800m, respectively, for the entire IPG business in FY13E and FY14E.
Overall IPG revenue
0
100
200
300
400
500
600
700
800
900
FY10 FY11 FY12 FY13F FY14F FY15F
US$m
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$93m in FY12, accounting for 4% of the group’s total revenues. These businesses are high value-added services and niche, which means they are less affected by the global economy condition. Moreover the high barrier to entry nature of the business prevents vigorous competition. Looking ahead, we expect 10%
and 11% growth in the other businesses for FY13E and FY14E, respectively, contributing c.4.6% and 4.8% of the total revenue respectively.
Other businesses revenue
0
50
100
150
200
250
FY10 FY11 FY12 FY13F FY14F FY15F
US$m
Source: Company, DBS Vickers
Company Focus
Johnson Electric
Page 26
Financial – Income Statement
• Revenue growth driven by Cooling Fan Module (CFM) at a CAGR of 15% in FY13E and FY14E.
• Margin recovery on track due to stabilised raw material prices
• Expecting more APG revenue from emerging markets.
Cooling Fan Module (CFM) business to continue the success story. We believe the technology advancement in CFM EV will allow Johnson to further increase its market position in the global CFM business. Although the global auto market is only forecasted to grow at 3% in FY13E, we estimate an 18% growth in the CFM segment revenue. We estimate Johnson’s CFM market share to grow from 5.2% in FY12 further to 6% in FY13E primarily driven by the hybrid and electric vehicle market. As a result we expect the CFM business to grow at 18% and 13% to US$495m and US$557m in FY13E and FY14E respectively.
We estimated that revenue contribution from the CFM business to increase from 19.6% in FY12 to 23.3% in FY14E.
Due to its diversified nature and complicated product portfolio, we estimate that other APG sales (excluding CFM) will grow in line with the global auto output at 3% and 4% in FY13E and FY14E. Overall we expect APG segment to grow 8% and 7% to US$1,373m and US$1,471m in FY13E and FY14, respectively.
For the IPG segment, although we estimate smart meters and medical device products to deliver an 11% growth in FY13E, the weak global economy drags down demand for other sub-segments, particularly traditional home appliances and consumer electronics. Offsetting the decline in both sub-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$93m in FY12, accounting for 4% of the group’s total revenue. Looking ahead, we expect a stable 10% and 11% growth in the other businesses for FY13E and FY14E, contributing c. 4.6% and 4.8% of the total revenue respectively due to its high value-added nature.
Overall, we expect Johnson to register mid single-digit revenue growth in FY13E and FY14E. We believe the relatively slow-growing IPG segment will drag down the overall growth rate.
However, in the longer term, the IPG segment should regain its growth momentum driven by advanced technology products, such as medical devices and more importantly, smart meters.
Johnson’s overall sales trend
0
500
1000
1500
2000
2500
3000
FY10 FY11 FY12 FY13F FY14F FY15F
Other businessesIndustry Products Group ("IPG")Automotive Products Group ("APG")
US$m
Source: Company, DBS Vickers
Europe to remain the largest geographical segment but Asia-Pacific to catch up. Due to Johnson’s product quality and brand recognition, the company has a strong APG customer portfolio which includes Volkswagen, BMW, Daimler-Benz, GM and Ford etc. Despite the slowdown in the European economy, quality automakers such as BMW and Benz are registering record high-sales benefitting from the strong growth in emerging markets. Looking ahead, we still expect the European automakers to outperform their US peers in the near term. In the longer term, we expect higher revenue contribution from the Asian region with increasing demand from domestic automakers and JV manufacturers in China and India.
Company Focus
Johnson Electric
Page 27
Global auto production geography, 2011
Japan12%
France3%
Spain3%
USA5%
Brazil4%
South Korea7%
India5%
Others27%
Germany10%
China24%
Source: OICA
Steel and copper account for the bulk of raw materials. The company does not have a breakdown of its cost structure in its annual report. However we estimated that raw material accounts for approximately 60% of the COGS, while direct labour accounts for 8% and overhead accounts for 25%. Among the raw materials, we estimate that 50% is steel, copper (35%), plastic (5%), transmission (5%) and other components (5%).
Cost breakdown
Others4%
Labour6%
Raw material
65%
Overhead25%
Source: Company, DBS Vickers
Commodity prices on a downward trend helps reduce cost 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 company has managed to improve its GP margins to return to the 27% level due to effective product mix change and commodity hedging.
Gross margin
20
25
30
35
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
F
FY14
F
FY15
F
%
Source: Company, DBS Vickers
The price of steel increased sharply from US$300 per tonne in 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$335 per tonne.
Flat sheet steel price
2,500
3,000
3,500
4,000
4,500
5,000
5,500
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
RMB/ton
Source: Custeel
Company Focus
Johnson Electric
Page 28
The price of copper has also demonstrated an upward trend since 2009 and it increased substantially in 2011. The average closing price of the LME three-month copper futures increased 17% y-o-y in 2011. In 1H12, we saw a gradual decrease in copper prices.
LME copper price
0
2000
4000
6000
8000
10000
12000
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
US$/MT
Source: Bloomberg
The recent price correction in both copper and steel prices has reduced cost pressure for Johnson. Moreover, the company has also hedged against the copper price to reduce the risk of a sharp increase in commodity prices. Looking forward, we expect a mild 0.1ppt improvement from 27.3% in FY12 to 27.4% in FY13E and 27.5% in FY14E.
Wage increase in China of minimal impact to Johnson. Rising wages in China should not have a significant impact on Johnson’s overall production cost. Currently 60% of the products are manufactured in China. We estimate that direct labour accounts for only 8% of COGS. Assuming a 10-15% rise in wages, the net impact on total COGS is less than 1%.
Rmb appreciation not a key issue. We estimate that direct labour and overheads accounts for 33% of the total COGS. However, since only 60% of the production is done in China, the actual impact is lower than expected. Our sensitivity 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 down the Rmb appreciation forecast from 3% to less than 2% by end 2012.
Sensitivity analysis
Net profit
Copper
-30% -20% -10% 0% 10% 20% 30%
6% 31.7% 30.0% 28.4% 26.7% 25.1% 23.4% 21.8%
4% 32.0% 30.3% 28.7% 27.0% 25.4% 23.7% 22.1%
2% 32.2% 30.6% 28.9% 27.3% 25.6% 24.0% 22.3%
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%
-4% 33.0% 31.4% 29.7% 28.1% 26.4% 24.8% 23.1%
-6% 33.3% 31.7% 30.0% 28.4% 26.7% 25.1% 23.4%RM
B a
pp
reci
atio
n
0
50
100
150
200
250
FY10 FY11 FY12 FY13F FY14F FY15F0
20
40
60
80
100
120
140
160
Net profit (LHS) YoY growth (RHS)
US$m %
Source: DBS Vickers Source: Company, DBS Vickers
Expect 8% and 6% growth in net profits for FY13E and FY14E. Taking into account improving operating maintenance and tighter cost controls, Opex/sales ratio is expected to reduce from 18% in FY12 to 17% in FY13E. As a result we
expect net profit margins to improve from 8.7% in FY12 to 9% in FY13E. Overall we expect an 8% and 6% growth in net profits to US$202m and US$215m for FY13E and FY14E respectively.
Company Focus
Johnson Electric
Page 29
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
0
10
20
30
40
50
60
70
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3F
FY1
4F
FY1
5F
%
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.
Company Focus
Johnson Electric
Page 30
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.
Company Focus
Johnson Electric
Page 31
Valuation
Current valuation trading at discount to global peers. Johnson Electric is a leading manufacturer of motors and switches for global automotive and industrial products. It is also a major auto components supplier to the world’s leading car makers. Leveraging on the increase in demand in environmental-friendly products, Johnson is likely to benefit from it and outperform the global industrial sector.
Johnson is currently trading at 11.7x FY13E P/E and 10.9x FY14E P/E multiples. Johnson has traded between a P/E of 8x-15x in the past 3 years. Although Johnson’s share price has rebounded from recent lows, we believe further re-rating to the high end of the range is justified due to the Company’s continually improving market position, strength in higher end auto component space, its consistently high FCF yield of 9% and potentially higher dividend payout.
Among its global peers, Mabuchi Motor (6592.JP) and Nidec (7756.JP) manufacture motion components to both automotive and home & industrial sectors. Both companies trade at an average of 14.5x FY13E P/E (Mar-end). We believe the two Japanese companies are the closest comparable to Johnson in the market.
We derived a TP of HK$6.5 based on a 14.5x FY13E P/E. This is comparable with global peers in diversified sector. Johnson has evolved from a low-end motor manufacturer to a high value-added auto parts suppliers, as well as one of the largest component suppliers for industrial products. We believe Johnson deserves a premium to ordinary auto component suppliers. Our valuation is also supported by our DCF model that assumes a 7% equity risk premium, 3% risk-free rate and 2.5% terminal growth.
Peers valuation
Mkt GP P/FCF PE PE Yield Yield P/Bk P/Bk ROE ROE
Currency Price Cap^ Fiscal Margin 11A 12F 13F 12F 13F 12F 13F 12F 13F
Company Name Code Local$ 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
Company Focus
Johnson Electric
Page 32
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
EBITDA Margin % 11.3 15.3 14.7 14.6 14.3 13.8 Copper price +/- 10%
GP margin -/+ 1.6ppt
APG growth (%) (11.5) 37.5 (5.3) 2.4 3.7 6.4 Rmb appreciation +/- 2%
Net Profit -/+ 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 2015FRevenues (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
Company Focus
Johnson Electric
Page 33
Income Statement (US$ m) Margins Trend FY Mar 2010A 2011A 2012A 2013F 2014F 2015FRevenue 1,741 2,104 2,141 2,248 2,387 2,555Cost of Goods Sold (1,259) (1,524) (1,556) (1,633) (1,731) (1,853)Gross Profit 481 580 584 615 655 702Other Opng (Exp)/Inc (371) (344) (363) (378) (402) (433)Operating Profit 111 236 221 237 254 269Other Non Opg (Exp)/Inc 0 0 0 0 0 0Associates & JV Inc 0 0 0 0 0 0Net Interest (Exp)/Inc (7) (9) (1) 1 2 5Exceptional Gain/(Loss) 0 0 0 0 0 0Pre-tax Profit 104 226 221 239 256 274Tax (16) (36) (32) (34) (37) (39)Minority Interest (10) (9) (2) (2) (3) (3)Preference Dividend 0 0 0 0 0 0
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
2011A 2012A 2013F 2014F 2015F
Operating Margin % Net Income Margin %
Net Profit 77 182 187 202 217 232Net Profit before Except. 77 182 187 202 217 232EBITDA 197 322 314 329 340 352Growth Revenue Gth (%) (4.8) 20.9 1.7 5.0 6.2 7.1EBITDA Gth (%) 45.0 63.6 (2.5) 4.6 3.5 3.5Opg Profit Gth (%) 135.9 113.1 (6.2) 7.3 6.9 6.0Net Profit Gth (%) 2,870.8 136.1 2.7 8.3 7.3 6.9Margins & Ratio Gross Margins (%) 27.7 27.5 27.3 27.4 27.5 27.5Opg Profit Margin (%) 6.4 11.2 10.3 10.6 10.6 10.5Net Profit Margin (%) 4.4 8.6 8.7 9.0 9.1 9.1ROAE (%) 7.4 14.6 13.2 13.2 12.8 12.4ROA (%) 3.8 8.1 8.1 8.5 8.5 8.5ROCE (%) 5.5 11.1 10.2 10.5 10.4 10.2Div Payout Ratio (%) 30.7 23.4 24.7 25.0 25.0 25.0Net Interest Cover (x) 16.4 25.1 207.8 NM NM NMSource: Company, DBS Vickers
Company Focus
Johnson Electric
Page 34
Interim Income Statement (US$ m) Margins Trend FY Mar 1H2010 2H2010 1H2011 2H2011 1H2012 2H2012
Revenue 812 929 1,031 1,073 1,118 1,023Cost of Goods Sold (596) (664) (735) (790) (814) (742)Gross Profit 216 266 296 284 304 281Other Oper. (Exp)/Inc (187) (184) (172) (172) (185) (178)Operating Profit 29 82 124 112 119 102Other Non Opg (Exp)/Inc 0 0 2 (2) 3 (3)Associates & JV Inc 0 0 0 0 0 0
Net Interest (Exp)/Inc (3) 3 (6) (4) (4) 3Exceptional Gain/(Loss) 0 0 0 0 0 0Pre-tax Profit 26 85 120 106 118 103Tax (10) (6) (22) (14) (16) (15)Minority Interest (5) (6) (5) (3) 0 (2)Net Profit 10 73 93 89 102 85
0%
2%
4%
6%
8%
10%
12%
14%
1H10
2H10
1H11
2H11
1H12
2H12
Operating Margin % Net Income Margin %
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 27.5Opg Profit Margins (%) 3.5 8.8 12.0 10.4 10.6 10.0Net Profit Margins (%) 1.3 7.9 9.0 8.3 9.1 8.3 Source: Company, DBS Vickers
Company Focus
Johnson Electric
Page 35
Balance Sheet (US$ m) Asset Breakdown
FY Mar 2010A 2011A 2012A 2013F 2014F 2015F
Net Fixed Assets 395 413 379 401 426 455Invts in Associates & JVs 2 2 2 2 3 3Other LT Assets 800 869 871 848 826 805Cash & ST Invts 372 379 401 545 684 828Inventory 196 253 240 241 257 276Debtors 360 422 384 419 445 476Other Current Assets 5 4 2 3 3 4
Total Assets 2,131 2,342 2,280 2,459 2,644 2,846 ST Debt 7 134 203 225 215 204Other Current Liab 430 460 437 445 473 506LT Debt 402 179 2 0 0 0Other LT Liabilities 119 147 150 150 150 150
Shareholder’s Equity 1,122 1,362 1,462 1,611 1,776 1,952Minority Interests 51 60 26 28 31 34Total Cap. & Liab. 2,131 2,342 2,280 2,459 2,644 2,846 Non-Cash Wkg. Capital 131 219 190 218 232 250Net Cash/(Debt) (36) 66 195 320 469 623Debtors Turn (avg days) 75.5 73.2 65.5 68.0 68.0 68.0Creditors Turn (avg days) 106.2 105.2 90.8 90.0 90.0 90.0Inventory Turn (avg days) 61.1 64.2 59.9 57.0 57.0 57.0Asset Turnover (x) 0.8 0.9 0.9 0.9 0.9 0.9Current Ratio (x) 2.1 1.8 1.6 1.8 2.0 2.2Quick Ratio (x) 1.7 1.3 1.2 1.4 1.6 1.8Net Debt/Equity (X) 0.0 CASH CASH CASH CASH CASHNet 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 44.0Z-Score (X) 3.4 4.8 0.0 0.0 0.0 NA Source: Company, DBS Vickers
Net Fixed Assets - 25.2%
Assocs'/JVs - 0.1%
Bank, Cash and Liquid
Assets - 33.3%
Inventory - 15.1%
Debtors - 26.3%
Company Focus
Johnson Electric
Page 36
Cash Flow Statement (US$ m) Capital Expenditure FY Mar 2010A 2011A 2012A 2013F 2014F 2015F
Pre-Tax Profit 104 226 221 239 256 274Dep. & Amort. 87 87 93 91 86 83Tax Paid (19) (28) (28) (34) (37) (39)Assoc. & JV Inc/(loss) 0 0 0 0 0 0(Pft)/ Loss on disposal of FAs 0 0 0 0 0 0Chg in Wkg.Cap. 85 (98) 23 (28) (15) (18)Other Operating CF 42 107 (10) 1 2 5Net Operating CF 298 294 299 269 293 304
Capital Exp.(net) (51) (75) (67) (90) (90) (90)Other Invts.(net) 0 1 5 0 0 0Invts in Assoc. & JV 0 0 29 0 0 0Div from Assoc & JV 0 0 0 0 0 0Other Investing CF (4) 2 2 0 0 0Net Investing CF (54) (72) (31) (90) (90) (90)
0102030405060708090
100
2011A 2012A 2013F 2014F 2015F
Capital Expenditure (-)
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 0Other Financing CF (15) (41) 10 (1) (2) (5)Net Financing CF (136) (187) (175) (34) (64) (71)Currency Adjustments 2 5 4 0 0 0Chg in Cash 111 41 96 144 139 143Opg CFPS (US$) 0.06 0.11 0.08 0.08 0.09 0.09Free CFPS (US$) 0.07 0.06 0.06 0.05 0.06 0.06 Source: Company, DBS Vickers
Company Focus
Johnson Electric
Page 37
PE band chart
PB band chart
1
2
3
4
5
6
7
Jun
-09
Oct
-09
Feb
-10
Jun
-10
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Share Price (HK$)
8x
10x
11x
13x
15x
1
2
3
4
5
6
7
Jun
-09
Oct
-09
Feb
-10
Jun
-10
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Share Price (HK$)
0.8x
1.0x
1.3x
1.6x
1.8x
Source: Bloomberg, DBS Vickers Source: Bloomberg, DBS Vickers
Company Focus
Johnson Electric
Page 38
Appendix
Key management team
Name Age Role Responsibilities Date of Joining Experience Relationship
Executive Director
Patrick Shui-Chung Wang
61Chairman and Chief Executive
Member of Nomination and Corporate Governance Committee
1972 (joined the Group)1976 (appointed as a Director)1984 (appointed as Managing Director)1996 (elected Chairman and Chief Executive)
Chairman and a director of the HK Applied Science and Technology Research Institute Company LtdNon-ED and member of the Audit Committee of HSBC LtdNon-ED and member of the Nomination Committee of VTech Holdings LtdNon-ED of Tristate Holdings Ltd
Son
Winnie Wing-Yee Wang
65 Vice-ChairmanMember of Remuneration Committee
1969 (joined the Group)1971 (appointed as a Director)1984 (appointed as Executive Director)1996 (elected Vice-Chairman)
Non-ED of Tristate Holdings Ltd Daughter
Austin Jesse Wang
31Executive Director
2006 (joined the Group)2009 (appointed as a Director)
GM of Saia-Burgess China Industry Products Groupwas Technical Product Manager of Saia-Burgess Controls AGCommittee member of Shenzhen Committee of the Chinese People's Political Consultative Conferenceworked as a consulting engineer in the computing industry
Grandson
Non-executive Director
Yik-Chun Koo Wang
95Honorary Chairman
Co-founderVice-Chairman of Group in 1984 and was actively involved in development of the Group in its early stages
Mother
Peter Kin-Chung Wang
58 Non-ED Member of Audit Committee 1982
Chairman and CEO of Tristate Holdings LtdChairman and MD of Hua Thai Manufacturing Public Company Ltdwon the Young Industrialist Award of HK in 1998received the Outstanding Industrial Engineer Award from School of Industrial Engineering of Purdue Universitymember of Anhui Provincial Committee of Chinese People's Political Consultative Conferencehonorary chairman of the HK Garment Manufacturers Associationgeneral committee member of the Textile Council of HK Ltddirector of the Federation of HK Garment Manufacturers
Son
Source: Company
Company Focus
Johnson Electric
Page 39
Key management team (continued) Name Age Role Responsibilities Date of Joining Experience
Peter Stuart Allenby Edwards
64 INEDChairman of Nomination and Corporate Governance Committee
1995 (Appointed as INED)
is a Solicitor and was Senior Partner of Johnson, Stokes & Master until 30 Sept 1996Chairman of the HK Branch of the International Fiscal AssociationChairman of the Revenue Law Committee of the HK Law Societymember of the Joint Liaison Committee on Taxationmember of the International Academy of Estate and Trust Lawdirector of a number of investment and holding companiesdirector of Martin Currie Pacific Trust plc.
Patrick Blackwell Paul
64 INED
Chairman of Audit CommitteeMember of Nomination and Corporate Governance Committee
2002 (appointed as INED)
Chairman and Senior Partner of PricewaterhouseCoopers in HK from 1994-2001INED of The HK and Shanghai Hotels, Ltd. INED of Pacific Basin Shipping Ltd.Chairman of the Supervisory Board of the British Chamber of Commerce in HK
Michal John Enright
53 INEDChairman of Remuneration CommitteeMember of Audit Committee
2004 (appointed as INED)
was a professor at Harvard Business Schoolcurrently a professor at the University of HK School of BusinessDirector in Enright, Scott & Associates, a HK-based consulting firm
Joseph Chi-Kwong Yam
64 INEDMember of Remuneration Committee
2010 (appointed as INED)
was Chief Executive of HKMA from 1993-2009Executive Vice President of the China Society for Finance and Banking, a society managed by People's Bank of ChinaMember of the Board of Directors, the Corporate Responsibility Committee and the Risk Committee of UBS AGINED, Chairman of the Risk Management Committee and member of the Strategic Development Committee of China Construction Bank Corporationmember of the advisory committees of a number of academic and private institution focusing in finance
Source: Company
Company Focus
Johnson Electric
Page 40
Key management team (continued)
Name Age Role Responsibilities Date of Joining ExperienceSenior Management
Tung-Sing Choi
62Senior VP, Strategic Manufacturing
Global Manufacturing Management of the Croup
1968
40 years of experience in motor component manufacturing, motor assembly processes and the utilisation of machines and fixtures
James Randolph Dick
58
Senior VP, Strategic Marketing & Sales
Developing responses to macro market issuesLeading the Company's productising and selling process
1999
35 years of experience in high technology management throughout the worldheld Executive positions with Xerox (US), IBM (Europe) and Astec (BSR) plc
Robert Allen Gillette
46Senior VP, Supply Chain Services
Provide leadership and strategic direction in supply chain management for all business units of Johnson Electric
2007worked for Emerson electric, holding various operations, marketing and supply chain positions in N. America and Asia
Joseph Alan Guisinger
45
Senior VP, Industry Products Group - Europe and the Americas
Strategic, commercial and operational direction of the Industry Products Group in Europe and the Americas
2004worked for Emerson electricheld senior positions in Supply Chain Management in Asia and North America
Christopher John Hasson
49 Executive VP
Corporate business development, M&A, corporate strategic planningSupervision of the legal and company secretarial functionsBusiness units and investments under Johnson Electric Capital, including Saia-Burgess Controls
2002was partner at The Boston Consulting Group
Kam-Chin Ko 46
Senior VP, Automotive Products Group - Asia
Strategic, commercial and operational direction of the Automotive Products Group in Asia
1988
Doctor of Engineering from HK Polytechnic UniversityPreviously led the Components and Services Group and the Corporate Engineering functionsMember of The Institute of Engineering and TechnologyMember of the Institute of Industrial Engineers
Yiu-Cheung Kwong
46
Senior VP, Industry Products Group - Asia
Strategic, commercial and operational direction of the Industry Products Group in Asia
1999
have been a General Manager for Home Appliance Business Unit10 years experience with TDK, NHK and Philips, where he held a verity of positions in product engineering, product procurement , and sales & marketing
Peter Henry Langdon
63Senior VP, Human Resources
HR, Global Environmental, Health and Safety, and Training and Development
2007
was responsible for HRwas the Assistant Corporate Secretary for a major international energy service company
Yue Li 52Senior VP, Corporate Engineering
Overall corporate technology engineering operations and Value Innovation Programs
2004
PhD from University of Wisconsin-Madisonworked for Emerson Electric in St. Louis as director of new productsworked for Carrier Corporation in Syracuse as director of power electronics and motor technologiesworked for Emergency One Inc. in Florida as VP of product management
Source: Company
Company Focus
Johnson Electric
Page 41
Mabuchi Motors (6592.JT)
Company Profile
Sales trend
Profitability
Mabuchi Motor was established in 1954 in Japan. It is currently listed on Tokyo Stock Exchange in 1986. Mabuchi manufactures and sells small DC motors to a range of industries, from automotive products to home & industrial equipment to optical & precision instruments. Mabuchi manufactures 100% of their products overseas, mainly in China. Mabuchi relies on their presence in Asia with 75% of their total revenue coming from the Asian market.
020,000
40,00060,000
80,000100,000
2009
2010
2011
1H11
1H12
(30)(20)
(10)0
1020
Turnover (LHS)Growth (RHS)
Yoy, %JPY m
(1,000)0
1,0002,0003,0004,0005,0006,000
2009
2010
2011
1H11
1H12
(2)0246810
Net profit (LHS)Net margin (RHS)
%JPY m
Source: Bloomberg Source: Bloomberg
SWOT Analysis
Geographic sales breakdown (FY11)
Sales breakdown ( FY11)
Strength: 20% global market share in the power windows market Diverse portfolio and long company history
Weakness: Fluctuation in market prices of steel and other materials. Fluctuation in exchange rates from yen and other Asian currencies as Mabuchi relies on the Asian market with all its operations located there. 100% of production is done outside Japan and in Asia.
Development: Expand business in China by developing an integrated development, production, and sales system in China and by reinforcement of quality and technology support of the Chinese automakers.
Europe16%
Japan12%
The Americas
9%
Asia & Other63%
Audio & Visual 12%
Optical16%
Home appliances
20%
Auto 52%
Source: Bloomberg Source: DBS Vickers General Data
Earnings Record
• Listed on Tokyo stock exchange – Ticker: 6592 JT
• Headquarters: Chiba (Japan)
• Production bases: Hong Kong, China, Taiwan, Vietnam
• Employees: 33,918 (95% in production division)
• Company website: http://www.mabuchi-motor.co.jp/
FY Dec (JPY m) 2009 2010 2011 1H11 1H12
Turnover 70,369 82,752 78,886 38,897 42,080
Gross profit 18,564 22,689 19,047 9,809 10,653
Operating profit 3,019 6,624 3,066 1,845 2,843
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
Company Focus
Johnson Electric
Page 42
Nidec (6594.JT)
Company Profile
Sales trend
Profitability
Nidec was established in 1973 in Japan. In 1979, they became the first company worldwide to put spindle motors into practical use, in an 8-inch-diameter hard disk drives. Like Mabuchi, they manufacture and sell motors for similar target industries. In 1998, Nidec was listed on the Tokyo Stock Exchange. It is currently also listed on the Osaka Stock Exchange as well as the New York Stock Exchange. Nidec has a strong presence in Asia, with 78% of total revenue coming from this market with 25% from Japan itself. Their products are 100% manufactured in Asia from countries like Thailand, China, Philippines, Vietnam and Malaysia.
500,000
550,000
600,000
650,000
700,000
2009
2010
2011
2012
(20)
(10)
0
10
20
Turnover (LHS)Growth (RHS)
Yoy, %JPY m
010,00020,00030,00040,00050,00060,000
2009
2010
2011
2012
02
46
810
Net profit (LHS)Net margin (RHS)
%JPY m
Source: Bloomberg Source: Bloomberg
SWOT Analysis
Geographic sales breakdown (FY12)
Sales breakdown ( FY12)
Strength: Flagship products, brushless DC motors, deliver highly competitive environmental advantages precisely matched to the needs of the times
Nidec’s brushless DC motors hold global leadership positions in a broad spectrum of motor markets for applications ranging from information technology devices and automobiles to home appliances and industrial equipment
Weakness: Reliant on their two largest customers which represent 22% of net sales for 2012 and the largest customer accounts for 12%. 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.
Rest of the World
1%
Europe9%
North America
12%
Japan26%
Asia52%
Small Precision
Moto44%
Mid-Size Motors26%
Electronic and Optic
14%
Machinery10% Other-
Auto Parts6%
Source: Bloomberg Source: DBS Vickers General Data
Earnings Record
• Listed on Tokyo stock exchange – Ticker: 6594 JT
• Headquarters: Kyoto (Japan)
• Production bases: Thailand, China, Philippines, Vietnam, Malaysia
• Employees: 107,489
• Company website: http://www.nidec.co.jp/
FY Mar (JPY m) 2009 2010 2011 2012
Turnover 613,458 587,459 688,530 682,320
Gross profit 130,565 151,122 175,360 158,591
Operating profit 51,806 78,342 90,527 73,070
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
Company Focus
Johnson Electric
Page 43
Bosch (private company)
Company Profile
Sales trend
Profitability
Bosch Group is the leading global supplier of technology and services. It operates in the areas of automotive, industrial, and consumer goods and building technology. It is the world’s largest independent parts supplier to the automotive industry and this business sector accounts for ~60% of their annual turnover. The company was set up in Stuttgart in 1886 by Robert Bosch. It is a private, family-owned company with majority of its shares held by a charitable foundation, Robert Bosch Stiftung GmbH. 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.
010,00020,00030,00040,00050,00060,000
2008
2009
2010
2011
(20)
(10)
0
10
20
30
Turnover (LHS)Growth (RHS)
Yoy, %EUR m
(2,000)
(1,000)
0
1,000
2,000
3,000
2008
2009
2010
2011
(4)
(2)
0
2
4
6
Net profit (LHS)Net margin (RHS)
%EUR m
Source: Bloomberg Source: Bloomberg
SWOT Analysis
Geographic sales breakdown (FY11)
Sales breakdown ( FY11)
Strength: Strong financial performance Global presence – comprises of over 350 subsidiaries in 80 locations in more than 50 countries. Weakness: Change of megatrends such as energy efficiency, climate protection, and scarcity of resources. Increase prominence of information, communication, and internet technologies, which are ever changing the competitive landscape. Development: Further expand their market position worldwide, focusing on growth regions of Asia, South 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.
Rest of the World1.7%
The Americas
17.8%
Asia21.5%
Europe59.0%
Automotive Technology
59.0%Consumer Goods25.3%
Industrial Technology
15.6%All other segments
0.0%
Source: Bloomberg Source: DBS Vickers General Data
Earnings Record
• Private company
• Headquarters: Gerlingen (Germany)
• Subsidiaries locations : US, Germany, India, Brazil, China, France, Czech Republic, Japan, Spain, Turkey, Hungary, Italy, United Kingdom, Portugal, Romania, Netherlands, Switzerland, Australia, Malaysia, Austria, Belgium, South Korea, Russia, Poland, Sweden, South Africa, Vietnam, Tunisia • Employees: 302,500 (37% based in Germany)
• Company website: http://www.bosch.com/
FY Dec (EUR m) 2008 2009 2010 2011
Turnover 45,127 38,174 47,259 51,494
Gross profit 13,574 10,656 16,195 16,947
Operating profit 1,486 (1,119) 3,197 3,973
Net profit 344 (1,260) 2,377 1,746
EPS (EUR) #N/A N/A (1.05) 1.98 1.45
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
Company Focus
Johnson Electric
Page 44
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
Company Focus
Johnson Electric
Page 45
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Company Focus
Johnson Electric
Page 46
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