20140419-高盛-Leading_competitor_in_high-growth_mobile_displays__initiate_with_Buy_29页_408kb

Summary of Japan Display Inc. Investment Analysis

Core Content

This document provides an investment analysis of Japan Display Inc., highlighting its position in the high-growth mobile display sector and initiating coverage with a "Buy" recommendation. The report outlines the company's strengths in technology and cost control, its strategic moves in the LTPS-LCD panel market, and the rationale for its target price based on valuation metrics.

Main Points

Company Overview

• Specialization: Japan Display Inc. is a leading manufacturer of small and mid-size LCD panels using LTPS (Low-Temperature Polysilicon) technology.
• Market Position: It is the largest competitor in the LTPS-LCD panel market with a 38% market share by value (as of 2012).
• Growth Prospects: The LTPS-LCD panel market is expected to grow at 23% annually by value over the next four years.

Investment Recommendation

• Rating: Buy
• Target Price (12 months): ¥1,100
• Upside Potential: 36% from current price (¥809)
• Valuation: The stock trades at 9X FY3/15E P/E, which is below the average P/E of 16X for the Japan electronic components sector.

Key Drivers of Growth

1. Earnings Growth:
   • Expected to rise significantly in Q2–Q3 FY3/15E due to new product launch preparations and seasonal tailwinds.
   • OP (Operating Profit) is forecasted to grow from ¥1.8bn in 3/13 to ¥81.6bn in 3/15E.
2. Market Share Expansion:
   • Anticipated to gain more traction in mid-range smartphones and tablets.
   • Expected to increase its market share and price competitiveness in the high-end smartphone market.
3. Pixel Eyes Technology:
   • Unique in-cell touch panel technology that offers cost advantages.
   • Attach rate is projected to increase from 6% in 3/14E to 21% in 3/15E.

Valuation Analysis

• Valuation Methodology: Based on FY3/15E EV/GCI vs CROCI/WACC.
• EV/DACF Multiple: Applied a 40% discount to the sector average of 8X, resulting in a target EV/DACF of 4.8X.
• Target Price Derivation: Using the EV/DACF of 4.8X, the target price of ¥1,100 is derived, implying an FY3/15E P/E of 15X (assuming normal tax rate).

Financial Highlights

• Revenue Growth: Expected to increase by 36.6% in FY3/14E, 27.1% in FY3/15E, and 6.9% in FY3/16E.
• Operating Profit: Projected to grow significantly from ¥1.8bn to ¥81.6bn.
• EPS (Earnings Per Share): Expected to rise from ¥6.5 to ¥93.3.
• P/E Ratio: Drops from 12.4X in FY3/14E to 9.3X in FY3/15E.
• EV/EBITDA: Falls from 3.8X in FY3/14E to 2.5X in FY3/15E.

Key Risks

• Demand Fluctuations: Potential for lower-than-expected demand in the LTPS-LCD market.
• Order Variability: Uncertainty in order volume from key clients.
• Currency Risk: Impact of foreign exchange fluctuations on profitability.

Key Information

Market Structure

• LTPS-LCD vs Large LCD: LTPS-LCD is a high-growth, customized market, whereas large LCDs are more commoditized.
• Industry Dynamics: Japanese firms have a significant share in LTPS-LCD, and the industry is less competitive than large LCDs.

Competitive Edge

• Technology: Strong LTPS-LCD technology and customization capabilities.
• Cost Control: Superior cost management, particularly with in-cell touch panel technology.
• Strategic Positioning: Positioned to benefit from the shift towards higher-resolution mobile displays.

Financial Metrics

• Current Price: ¥809
• Market Cap: ¥486.5bn
• Net Income: Expected to rise from ¥3.9bn to ¥56.1bn.
• Dividend Yield: Projected to increase to 0.6% in FY3/15E.

Conclusion

Japan Display Inc. is positioned as a strong player in the high-growth LTPS-LCD panel market, with significant potential for earnings growth and market share expansion. The current valuation appears undervalued compared to the sector average, and the company's unique technology and cost advantages justify the "Buy" recommendation with a 12-month target price of ¥1,100.