(Million Yen) (Yen) (Yen) (Yen) Consolidated Quarter Sales ... order backlog on the Machinery side

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    URL: www.walden.co.jp

    Written by Yoshiyuki Muroya

    E-mail: yoshiyuki_muroya@walden.co.jp

    Phone:+81 3 3553 3769

    FREUND CORPORATION (6312)

    Consolidated FY Sales OP RP NP EPS DPS BPS

    (Million Yen) (Yen) (Yen) (Yen)

    FY02/2013 16,396 1,470 1,618 765 88.8 20.0 1,066.7

    FY02/2014 17,616 1,286 1,341 787 91.4 25.0 1,187.5

    FY02/2015CoE 18,000 1,340 1,420 800 92.8 30.0 -

    FY02/2014 YoY 7.4% (12.5%) (17.1%) 2.9% - - -

    FY02/2015CoE YoY 2.2% 4.2% 5.8% 1.5% - - -

    Consolidated Quarter Sales OP RP NP EPS DPS BPS

    (Million Yen) (Yen) (Yen) (Yen)

    Q1 FY02/2014 4,656 562 581 309 - - -

    Q2 FY02/2014 4,224 281 291 161 - - -

    Q3 FY02/2014 3,545 156 172 68 - - -

    Q4 FY02/2014 5,189 286 295 248 - - -

    Q1 FY02/2015 3,506 (20) (0) (29) - - -

    Q1 FY02/2015 YoY (24.7%) - - - - - -

    Source: Company Data, WRJ Calculation

    1.0 Executive Summary (31 July 2014)

    Firm Domestic Demand

    FREUND CORPORATION, involved with developments of machinery (incorporating proprietary

    formulation technology), mainly for pharmaceutical industry, is seeing a sharp recovery in order intake and

    order backlog on the Machinery side. Order intake and order backlog for existing machinery are rising

    sharply, driven by increasing demand for domestic generic pharmaceuticals in particular, while order intake

    associated with newly-introduced “TABREX”, which is tablet-printing machinery, is starting to take off on a

    full-fledged basis. The Company suggests that it takes 6 months to 9 months for incoming order intake to

    book sales, as has been the case so far, eventually suggesting that the bulk of accumulated order backlog as

    of the end of Q1 is to be booked as sales by the end of FY02/2015. Meanwhile, the Company has long-term

    growth potentials, as well. One of the major factors that are expected to contribute to future growth is

    ongoing developments of overseas markets on the Machinery side. Through the developments in here, the

    Company plans to raise its ratio of overseas sales from 24.9% in FY02/2014 to 30.0% in FY02/2017.

    Nevertheless, the Company’s quarterly earnings tend to fluctuate depending on the timing of orders,

    shipments and acceptance inspections. In Q1 FY02/2015, there was a swing downward as a whole.

    In Q1 FY02/2015, sales came in at ¥3,506m (down 24.7% YoY) and operating loss ¥20m (versus operating

    profit ¥562m in the previous year). On top of substantial decreases in sales, the Company suffered from

    one-off expenses almost ¥100m, having resulted in operating loss with the Company. By business segment,

    sales came in at ¥1,794m (down 41.1%) and operating profit ¥47m (down 90.4%) on the Machinery side,

    while sales ¥1,711m (up 6.4%) and operating profit ¥80m (down 50.3%) on the Chemical side. Operating loss

    http://www.walden.co.jp/ mailto:yoshiyuki_muroya@walden.co.jp

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    ¥20m with the Company comprised collective operating profit from the two business segments and

    elimination ¥149m. On the Machinery side, sales and earnings declined significantly, negatively affected by

    major corrections of order intake and order backlog in Q4 FY02/2014, having temporarily taken place in line

    with delayed order booking, etc. Meanwhile, in Q1 FY02/2015, they increased favorably over the year,

    ¥3,648m (up 20.5%) and ¥6,945m (up 27.7%), respectively. At the same time, the changes were so significant,

    when compared with ¥1,853m and ¥4,991m, respectively, in Q4 FY02/2014. On the Chemicals side, sales

    were driven by ongoing strengths of dietary supplements. However, a change in sales mix in line with

    decreasing sales of highly-value-added pharmaceutical excipients forced this business segment suffer from

    earnings correction, while hiking procurement prices of raw materials, mainly due to yen’s depreciation, was

    another negative factor.

    The Company’s new midterm management plan “Change & Challenge 2014 to 2016 (FY02/2015 to

    FY02/2017)”, released on 17 April 2014, is calling for prospective sales ¥23,000m, operating profit ¥2,300m

    and operating profit margin 10.0% in FY02/2017, i.e., the last year of the periods. Compared with sales

    ¥17,616m, operating profit ¥1,286m and operating profit margin 7.3% in FY02/2014, sales are to rise 9.3%

    and operating profit 21.4% in terms of CAGR over the next three years, while operating profit margin up

    2.7% points during the same periods. On the Machinery side, sales are to rise 8.9% in terms of CAGR

    through “Global cultivations & enhanced new product developments”, while 10.0% on the Chemicals side

    through “Focus on new products & pursuit of competitiveness on existing products”.

    IR Representative: Corporate Administration Division (+81 3 5292 0215 ir@freund.co.jp)

    mailto:ir@freund.co.jp

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    2.0 Company Profile

    A Leader of Formulation Technology & Machinery for Pharmaceutical Industry

    Company Name FREUND CORPORATION

    Company Website

    IR Information

    Share Price

    Established 22 April 1964

    Listing 24 July 1996 (Tokyo Stock Exchange JASDAQ Standard: Ticker 6312)

    Capital ¥1,035m (As of the end of May 2014)

    No. of Shares 9,200,000 shares, including 577,722 treasury shares (As of the end of May 2014)

    Main Features  70% share in the domestic market for granulation & coating machinery

     One of the three major players on a global basis

     An ample room to cultivate in overseas markets on the Machinery side

    Businesses Ⅰ. Machinery

    Ⅱ. Chemicals

    Top Management Chairman & CEO: Yasutoyo Fusejima, President & COO: Iwao Fusejima

    Shareholders Yasutoyo Fusejima 10.3%, FIL Corp. 9.0% (As of the end of February 2014)

    Headquarters Shinjuku-ku, Tokyo JAPAN

    No. of Employees Parent: 189, Consolidated: 369 (As of the end of May 2014)

    Source: Company Data

    3.0 Recent Trading & Prospects

    Q1 FY02/2015 Results

    In Q1 FY02/2015, sales came in at ¥3,506m (down 24.7% YoY), operating loss ¥20m (versus operating profit

    ¥562m during the same period in the previous year), recurring loss ¥0.7m (recurring profit ¥581m) and net

    loss ¥29m (net profit ¥309m). Although sales declined sharply and the Company saw operating loss, the

    results were effectively in line with the assumptions of initial Company forecasts. Meanwhile, as mentioned

    earlier, order intake and order backlog on the Machinery side recovered so sharply.

    http://www.freund.co.jp/english/ http://www.freund.co.jp/english/ http://www.bloomberg.com/quote/6312:JP

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    Machinery: Quarterly Order Intake & Order Backlog

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    3,026 2,491 2,697

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    Order Backlog (Million Yen) RHS Order Intake (Million Yen) LHS

    Source: Company Data, WRJ Calculation

    On the Machinery side, which accounted for 76.6% of operating profit (before elimination) with the Company

    in FY02/2014, the Company makes great use of outsourcing in production and the gearing does not tend to

    work very much. In other words, the Company is mainly exposed to variable costs, while not much exposed

    to fixed costs. This was not exceptional in Q1 results and thus the Company remained making operating

    profit, albeit almost nothing, in spite of substantial decreases in sales as much as down 41.1% over the year.

    It should have been the case that the Company avoided making any operating loss as a whole, but one-off

    negative factors came up, having resulted in al