Pentax turn-around outlined

Started Sep 17, 2007 | Discussions thread
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tweedle Veteran Member • Posts: 4,480
Pentax turn-around outlined

This Friday, the Tokyo branch of stockbroker Goldman Sachs released a 21-pages study on new Pentax-owner Hoya.

The paper pays a particular interest to the near-to-medium future of Pentax.

Informations in the report are explicitly said to be based on direct talks with Hoya management. I suppose it is only fair to believe, that these views largely reflect Hoya's actual intentions with Pentax.

A few snips:

Merger already in progress:

We understand from contact with Hoya management that it has already made some progress with a study of internal conditions at Pentax, and has set up a merger project team that includes experts on company turnarounds.

Hoya-Pentax integration appears to be running smoothly:

There appear to be no major mergerrelated concerns at present [...] we expect a positive boost on the pace of integration from the switch to a cash buyout from a stock swap and the fact that Pentax’s management team has opted to step down.

Hoya's focus is on weeding out unprofitable products and rethinking prices:

Initial improvements in Pentax’s margins over the next one to two years are likely to accrue from efforts at the micro level to sharpen up its basic functions: weeding out unprofitable products in the various divisions, rethinking product pricing based on cost levels and competitiveness, beefing up marketing initiatives, reviewing its fund collection and payment terms, and taking a renewed look at R&D projects.

Pentax product pricing is out-of-tune with product quality:

Each of Pentax’s divisions generates dramatically lower margins than peers despite producing products that compete well on quality, and a thorough implementation of simple moves like those listed above should feed through to better earnings.

10 pct. Pentax profitability expected by 2011:

We see Pentax's contribution raising total after-tax profit growth out to FY2011 to 10%, above the 8% we estimate from existing businesses. In FY2011 terms, this means we estimate operating profits will rise to ¥172.9 bn from ¥156.7 bn.

Two phases lined up for Pentax turn-around:

We see two phases to Pentax’s contribution. The first will be in the initial one to two years, where profit growth is driven by an operational review of existing businesses that brings Pentax products up to their rightful levels of profitability. The second will come in the third and fourth years, when we expect sales and profits to grow in the healthcare business, centering on endoscopes, as well as in optical components.

Promising future for Hoya:

We see Hoya’s current share price as highly attractive to investors with a time horizon of one year or longer [...] we believe it has yet to price in management’s aggressive M&A-driven growth strategy [...] Our 12-month target price of ¥5,000 suggests potential return of 34%, and we see further upside over the next 2-3 years if potential M&A is priced in.

My personal comment: If the operational review of bringing Pentax products up to their rightful levels will go one for the next two years, this might imply that any possible selling of the camera division will have to wait until after that. No company owner like to sell a division before its profit potential is documented.

Three analysts were responsible for the paper, all from Goldman Sachs Japan Co., Ltd.:

Shin Horie
+81(3)6437-9850
shin.horie@gs.com

Toshiya Hari
+81(3)6437-9853
toshiya.hari@gs.com

Mari Murakami
+81(3)6437-9933
mari.murakami1@gs.com

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