By:
Luke Smrek, AIM Student at Marquette University
Disclosure:
The AIM International Equity Fund currently holds this position. This article
was written by myself, and it expresses my own opinions. I am not receiving
compensation for it and I have no business relationship with any company whose
stock is mentioned in this article.
Summary
• HOYA Corporation (OTC: HOCPY) engages in the manufacture and sale of imaging and optical
products, electronics, and medical-related equipment through two main segments:
Life Care and Information Technology. The company
makes electro-optical components used in high-tech and medical products.
The company was founded in 1941 and is headquartered in Tokyo, Japan.
•
In July 2019 HOYA received
authorization by Amakusa City in Kunamoto Prefecture, for a scotopic vision
eyeglass-type wearable device which assists individuals who have
difficulty seeing in dark places due to nyctalopia. HOYA aims to expand this to other
local governments in Japan.
• For the first quarter
ended July 30, 2019, net profit has increased by 6% compared to the first
quarter in 2018. Profit from ordinary operating activities increased by 9%
compared to 2018 mainly due to decreasing expenses and increasing net profit in
the IT segment driven by mask and blank sales.
• Contact lenses have
proved to be a large driver in the Life Care segment with sales growing from
new customers and unit price increases. With the acquiring of a retailer in the
Chugoku region, HOYA looks to continue with their strong performance with
contact lenses. Eyeglass lenses struggled with capacity constraints and a
result sales only grew by 1%. A second factory in Vietnam is set to go online
in November and mainly target mass merchants in North America.
• HOYA Corporation is a market leader in eye glass and optical products and
is poised to continue being in a unique position in the industry as healthcare
begins to collaborate with technology. Healthcare innovation is being driven by
rapidly developing technology within the industry to take patient care to a
higher level.
Key
points:
Organic growth for the first quarter in the Life Care
segment grew by 3%. It was led by an increase in contact lenses which saw a 7%
YoY sales growth and intraocular lenses with 5%. Growth in the Life Care
segment is expected to be driven by M&A’s in IOL’s and continued growth of
contact lenses.
Masks and blanks have
been a large driver in the IT segment the last few months with 22% YoY sales
growth. Blanks were driven by 7nm tape-outs and EUV sales doubled to account
for 29% of total blank sales. Mask sales were strong in the first quarter
particularly in China, and going forward high growth is expected in the Chinese
market due to the expansion in the external mask shop market.
For the year 2019,
expected annual growth in earnings is 8.0% which is well below the industry average
for medical equipment of 23.1%. HOYA’s revenue growth is expected to be 5.1% for
the year which is below the industry average of 7.9%. While these metrics may show
HOYA underperforming relative to the industry in the future, HOYA is a mature
large cap company that consistently has around the same earnings growth each
year so these metrics should not be worrying.
HOYA has efficiently used
shareholders’ funds in the last year with a return on equity of 20.2% which is
well above the industry average of 9.8%. The company will look to continue
improving on this by increasing their high operating margins on sales,
specifically by reducing operating expenses.
What
has the stock done lately?
The AIM international equity
fund purchased HOYA on March 4th, 2019, at a price of $64.72 and
since then it has risen to a high of $85.80 on September 9th, 2019.
The stock is currently at $84.53 which is 1.48% below the high. Since the
initial date of purchase, the stock has increased by 30.60% to its current
price. Similarly, over the last three months HOYA has seen an increase in price
by 12.16%. The company will look to continue their strong performance over the
next few quarters.
Past
Year Performance:
HOYA’s stock price has increased in the
last year by 49.31%. Recent performance in earnings and revenue indicate that
the rest of 2019 will continue to be a strong year. Shareholder return over the
last year was 53.7% which is well above the U.S medical equipment industry
return of 15.6%. These figures show that future cash flows for 2019 will
continue to increase.
Source:
FactSet
My
Takeaway
HOYA has performed
extremely well over the last year and since the initial purchase. They are
increasing their high margins and focusing on increasing production capacity to
generate even higher sales and get access to new markets. Management has
successfully continued to meet earnings each quarter with new targets and goals
being put in place to continue grabbing market share. Organic growth has been
in the mid-to-high singles digits the last quarter and in the last few years,
showing overall stability and the ability to meet earnings. With healthcare
innovation relying more on technology, HOYA should continue with their
strategic decisions that have been allowing the company to grow at a fast pace
and take strides in the industry.
Source:
FactSet
