HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023

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HIRANO TECSEED CO., LTD. (6245 JP)FY23 OP WILL STILL BE NE GATIVE YOY DESPITE IMPROVED PRODUCTION . CAPITAL ALLOCAT ION FRAMEWORK ANNOUNCED

FY23 1H RESULTS
Hirano Tecseed (hereafter HT) reported FY23 1H OP of ¥769mil (-48.6% YoY)
on sales of ¥22,346mil (+22.3% YoY). Having revised down its 1H guidance prior
to the 1H results announcement, sales landed better than expected, thanks toincreased production of secondary LiB electrode coating machinery. However,OP fell short of the original forecast of ¥1,040mil (-30.5% YoY) due to 1) higher
commission payments to LiB electrode coating machinery distributors as sales
increased (+74.7% YoY to ¥16,681mil in 1H), and 2) a deterioration in sales mix
in the Industrial Machinery segment, along with lower sales.
The FY23 1H OP YoY decline of -¥727mil (-48.6%) comprised of a +¥77mil YoY(+9.2%) gain in the Coating and Laminating Machinery segment, which wasoffset by a sharp -¥603mil YoY (-54.4% YoY) decline in the Industrial Machinery.
Hirano Tecseed (6245 JP): Earnings Summary and Guidance
FY22(¥mil)
1H
FY
1H
YoY (%)

FY23
1H CE

FY CE

YoY (%)

Sales

18,27042,423

22,34622.3

19,00041,000

-3.4

GP

3,012

6,679

3,030

0.6

N/A

N/A

N/A

GPM (%)

16.5

15.7

13.6

-2.9ppt

N/A

N/A

N/A

SG&A

1,515

3,585

2,260

49.1

N/A

N/A

N/A

8.3

8.5

10.1

+1.8ppt

N/A

N/A

N/A

1,496

3,093

769

-48.6

1,040

2,920

-5.6

8.2

7.3

3.4

-4.8ppt

5.5

7.1-0.2ppt

1,557

3,219

814

-47.7

1,100

3,000

-6.8

8.5

7.6

3.6

-4.9ppt

5.8

7.3-0.3ppt

NP*

1,078

2,243

564

-47.7

750

2,100

-6.4

EPS (¥)

71.59

148.87

37.42

-47.7

49.76

139.34-6.4

SG&A/Sales (%)
OP
OPM (%)RP
RPM (%)

Source: Nippon-IBR based on Hirano Tecseed's results presentation material* NP attributed to the parent's shareholders

Although 1H production levels improved YoY, the continuous surge in material
costs resulted in HT’s gross profit margin [GPM] contracting from 15.7% in FY22
to 13.6% in FY23 1H (-2.9ppt YoY). Furthermore, since the firm’s sales arereported on a percentage of completion basis, inventory of materials used arealso reviewed on the same basis.
1H SG&A expanded +¥744mil / +49.1% YoY, primarily due to a rise in salescommissions to distributors as LiB coating machinery sales increased. This
resulted in the OPM declining -4.8ppt YoY to 3.4%.

EXECUTIVE SUMMARY• Hirano Tecseed (hereafter HT)
reported FY23 1H OP of ¥769mil(-48.6% YoY) on sales of ¥22,346mil(+22.3% YoY).
• While 1H sales landed in line withguidance, OP fell short due to 1) anincrease in commission payments to
LiB electrode coating machinery
distributors on higher sales, and 2) aworsening sales mix in the Industrial
Machinery segment, combined withweaker sales.
• The full year FY23 guidance remains
unchanged. While production levels
recovered, as material supply issues
were gradually resolved, delays inshipments on the back of changes inmachine specifications – such asdelivery locations which results indifferent requirements – continued.
Consequently, full-year FY23 sales
growth will be weaker given theincreased number of adjustments toequipment specs.
• With the 1H results release, HTannounced its surplus cash capital
allocation, which is estimated at¥7,000mil + during the medium-term
management plan. The funds will beallocated to five areas:
1. Growth investment ¥3,000mil+,
2. Strategic alliance, or shareholder
return¥3,000mil+,
3. DPS (minimum ¥56.00 /share),4.

Maintenance CAPEX ¥1,000mil,

5.

Working capital.

While the overall order trend in EV-related CAPEX remained strong, 1H orders
in the Laminating and Coating Equipment segment slumped -91.0% YoY to¥3,580mil as customers had (1) front-loaded their orders in FY22, expecting
continuous growth in the EV market, and (2) have since, pended orders due tochanges in their production locations and alternations and updates in machine
specifications. Consequently, deliveries have been delayed.

HIRANO TECSEED CO., LTD (6245 JP)

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HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023

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Hirano Tecseed (6245): Sales, Production, Order and Order Backlog Breakdown
FY22(¥mil)

Coating and
Laminating
Machinery

Industrial
Machinery

FY23

Q1

Q2

1H

FY

YoY (%)Q1

Q2

YoY (%)

QoQ (%)1H

YoY (%)

Sales

6,657

6,163

12,821

31,17917.5

10,441

7,785

26.3

-25.4

18,22742.2

Production

5,783

5,493

11,27727,352

22.5

9,050

6,938

26.3

-23.3

15,98941.8

Order Received

24,49915,25839,75846,503

-20.5

849

2,731

-82.1

221.6

3,580

-91.0

Order Backlog

71,43080,52580,52568,91228.6

59,31954,265

-32.6

-8.5

54,265

-32.6

Sales

2,262

2,533

4,796

9,774

-2.2

1,720

1,540

-39.2

-10.4

3,261

-32.0

Production

1,729

1,751

3,480

7,196

-3.8

1,364

1,247

-28.7

-8.5

2,612

-24.9

Order Received

715

1,462

2,178

4,757

-62.7

626

1,620

10.8

158.6

2,247

3.2

Order Backlog

13,221

12,15012,150

9,750

-34.0

8,657

8,737

-28.1

0.9

8,737

-28.1

Sales

306

347

653

1,470

10.2

422

435

25.4

3.0

857

31.3

Production

235

264

500

1,195

19.3

354

360

36.1

1.7

714

42.9

Order Received

623

357

980

2,233

67.2

337

531

48.5

57.7

868

-11.5

Order Backlog

796

807

807

1,242

159.2

1,157

1,253

55.3

8.3

1,253

55.3

Sales

9,226

9,044

18,27042,423

12.0

12,584

9,761

7.9

-22.4

22,34622.3

Production

7,748

7,509

15,25735,74416.0

10,769

8,547

13.8

-20.6

19,316

26.6

Order Received

25,83817,07942,91753,494

-26.3

1,812

4,883

-71.4

169.4

6,696

-84.4

Order Backlog

85,44893,482

93,482

79,906

16.1

69,13464,256

-31.3

-7.1

64,256-31.3

Others

Total

Source: Nippon-IBR based on Hirano Tecseed's FY22 and FY23 Tanshin

As of FY23 Q2-end, the order backlog for the Coating and Laminating Machinery segment of ¥54,265mil (-32.6% YoY /-8.5% QoQ) has contracted from the FY22 Q2 peak of ¥80,525mil. Although production levels have been recovering,
resulting in 1H sales landing better than the initial company estimate, both GPM and OPM worsened as HT’s prices
were fixed at the time when the orders were received, while costs surged at an unexpected rate, especially in FY22.
Moreover, HT had procured materials and components upfront during the COVID pandemic when the cost of thosematerials was also much higher due to supply shortage. To tackle these cost issues and improve GPM and OPM, thefirm aims to improve sales by:•••

Reviewing its supply contracts when a change in specifications is required due to changes in shipment location bycustomers.
Pass on cost increases associated with required upgrades to the price.
Improve production systems, including those of its subcontractors, by frontloading specifications Increase
production capacity to monetise order backlog so as to gain new orders.

At the same time, HT aims to reduce COGS and SG&A by the following measures:
•
•
•
•
•

Reduce production costs by using standardised designs and specifications across product models.
Raise the in-house production of core components.
Increase monitoring of production costs.
Review distributor contracts to negotiate commission rate.
Improve productivity of the operation of the company by promoting digital transformation.

HIRANO TECSEED CO., LTD (6245 JP)

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HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023

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PERFORMANCE BY SEGMENT

HT has three business segments, of which two – the Coating and Laminating Machinery segment and the Industrial
Machinery segment – combined generate 96.2% of total consolidated sales and 96.8% of consolidated OP. Consolidated
sales can also be divided by applications.
•

Coating and Laminating Machinery Segment:
The largest component of this segment is electrode coating equipment for secondary LiBs. FY23 1H segment OP
improved +9.2% YoY to ¥918mil on sales of ¥18,227mil (+42.2% YoY). The segment OPM continued to deteriorate,from 6.6% in FY22 1H, 6.4% in FY22 and then to 5.0% in FY23 1H. In Q2 alone, the segment reported OP of ¥267mil(-24.7% YoY / -58.9% QoQ) on sales of ¥7,785mil (+26.3% YoY / -25.4% QoQ), generating an OPM of 3.4%. Sales
were further split into domestic sales of ¥687mil (-29.0% YoY) and overseas sales of ¥17,539mil (+48.0% YoY).
The main reason for the deterioration in the FY23 1H OPM, was the rise in sales commissions due to the increasein LiB electrode coating equipment sales. Given the production delays, progress on changes to specifications bycustomers and higher costs (subcontractors / materials) also increased production costs.
Given HT pays its suppliers and subcontractors within a month of receiving an order, delays in revenue recognition
were extended to as much as 12 months due to changes in specifications as customers change shipment locationsof coating machines. Although the 1H segment order backlog declined by -32.6% YoY to ¥54,265mil on the back ofimproved levels of production, it is still as high as 1.7x of the segment’s recent peak sales in FY22.
Sales are recognised based on the percentage of completion method. As a result, any delays to the production
process will be reflected in the order backlog and contract assets on the BS. At the same time, the firm reviews the
production costs as production progresses. The rapid surge in material and energy costs of over the past year is notreflected in orders currently included in order backlog.

•

Industrial Machinery Segment:
FY23 1H segment OP fell -54.4% YoY to ¥504mil on sales of ¥3,261mil (-32.0% YoY). Sales are further split into
domestic sales of ¥1,422mil (+1.9% YoY) and exports of ¥1,839mil (-45.9% YoY). HT’s deposition equipment ismainly used in electronic materials applications such as MLCCs and forming polyimide films. Demand remains solid
especially in China. FY23 1H segment orders rose +3.2% YoY to ¥2,247mil while the order backlog declined -28.1%
YoY to ¥8,737mil. 1H OMP worsened by -7.6ppts YoY to 15.5%, with the Q2 OPM contracting -12.7ppt YoY / -2.6ppt
QoQ to 14.1%, due to changes in product mix. Compared to FY22 1H, sales of ceramic sheet forming equipment
were flat YoY, while sales of polyimide films forming equipment and glass cloth production equipment declined.
Hirano Tecseed (6245): Segment Financial Summary
FY22(¥mil)

Q2

1H

FY

Q1

Q2

YoY (%)

QoQ (%)1H

YoY (%)

6,657

6,163

12,821

31,17910,441

7,785

26.3

-25.4

18,227

42.2

Operating Profit

485

355

841

1,985

650

267

-24.7

-58.9

918

9.2

OPM (%)

7.3

5.8

6.6

6.4

6.2

3.4

-2.3ppt-2.8ppt

5.0-1.5ppt

2,262

2,533

4,796

9,774

1,720

1,540

-39.2

-10.4

3,261

-32.0

Operating Profit

429

677

1,107

2,069

287

217

-68.0

-24.4

504

-54.4

OPM (%)

19.0

26.8

23.1

21.2

16.7

14.1

-12.7ppt-2.6ppt

15.5-7.6ppt

Sales

306

347

653

1,470

422

435

25.4

3.0

857

31.3

Operating Profit

25

37

63

82

20

27

-28.0

35.8

47

-25.2

OPM (%)

8.3

10.9

9.7

5.6

4.7

6.3

-4.6ppt+1.5ppt

5.5-4.2ppt

9,226

9,044

18,27042,423

12,584

9,761

7.9

-22.4

22,346

22.3

Operating Profit¹

674

822

1,496

3,093

629

140

-82.9

-77.6

769

-48.6

OPM (%)

7.3

9.1

8.2

7.3

5.0

1.4

-7.7ppt-3.6ppt

3.4-4.7ppt

Sales
Coating and Laminating
Machinery

Sales
Industrial Machinery

Others

Sales
Total

FY23

Q1

Source: Nippon-IBR based on Hirano Tecseed's FY21, FY22 and FY23 Tanshin*1: Total OP = HQ costs are Total segment OP deducted by HQ costs.

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HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023

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Sales by Application
FY21(¥mil)

FY22

FY23

Q1

Q2

Q3

Q4

FY Total

Q1

Q2

Q3

Q4

FY Total

Q1

Q2

Display - related

1,636

1,321

596

150

3,704

662

1,144

1,223

783

3,815

661

291

Electronic materials-related

2,579

1,413

1,622

2,155

7,770

2,123

2,005

2,495

1,579

8,203

1,257

1,654

Household product-related

296

195

250

313

1,056

256

108

168

157

690

94

79

3,464

5,687

5,383

6,613

21,150

5,036

4,517

6,861

8,633

25,048

9,480

7,201

Other

870

1,139

1,107

1,066

4,184

1,147

1,268

1,208

1,041

4,666

1,089

535

Total

8,847

9,757

8,961

10,29937,866

9,226

9,044

11,95812,19442,423

12,584

9,761

Energy- related

Source: Hirano Tecseed Co., Ltd.

FY23 OUTLOOK

Although the 1H results were short of the firm’s original forecast provided with the release of its FY22 results, HT had
revised down the 1H guidance prior to the results announcement and has kept its full-year FY23 guidance for OP of¥2,920mil (-5.6% YoY) on sales of ¥41,000mil (-3.4% YoY).
Although production levels recovered as issues with the supply of materials gradually eased, delays in shipments on
the back of changes in machine specifications still continue. Therefore, full-year sales growth will likely be weaker YoY
due to a rising number of equipment specifications adjustments – such as changes in delivery location which result indifferent requirements – and will lead to delivery delays.
Based on the firm’s FY23 guidance, the OPM is estimated to improve to 7.1% from 3.4% in 1H. HT continues to engage
in price negotiation to pass on cost increases and costs associated with updating and upgrading machine specifications
to customers.
As well as aiming to promote further delivery management and productivity improvements, while also keeping a close
eye on customers' CAPEX trends, HT is looking to capture new market demand to ensure growth over the medium tolong term, especially in the US. The company set up a subsidiary in the US to gain the turnkey contracts rather than justselling coating machinery and establish service and maintenance businesses. However, HT’s lack of production capacity
remains an issue. Although HT’s LiB electrode coating equipment is highly rated by global battery makers, shortage of
production capacity continues to delay shipments.
With the order backlog at record levels, the average lead time from order receipt to the equipment delivery(installation) currently takes between 2~2.5 years. Some 80% of the current order backlog is made of orders received
before FY22. Currently, HT is in a position not to drastically increase orders without risking longer delivery cycle.
Since orders for LiB electrode coating equipment rapidly surged in FY21, the firm’s requirement for working capitalreached approx. ¥10,100mil, to satisfy the level of production. However, due to changes in specifications of LiB
electrode coating equipment, some orders in the current order backlog have become less profitable – though notunprofitable. Consequently, as noted above, HT is considering renegotiating prices in some cases. In the case ofcancellations, the firm has already realised revenue based on the percentage of completion basis, hence will unlikely
report impairment losses in the future.
LONG-TERM VISION 2030

Vision and Targe - Recap
Hirano Tecseed announced its Long-Term Vision 2030 plan, during which the firm’s aim is to become a global leader incoating machines. HT is looking to enhance corporate value by establishing a stable revenue base based on thefollowing three goals:
1. Capturing the top market share in coating equipment in energy-related and electronic materials.
2. Expanding its coverage globally from manufacturing to maintenance through enhancing its overseas network.
3. Contributing to industrial development and the global environment through its coating technology
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HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023
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The two areas of growth focus will remain 1) energy-related application, including LiB electrode coating equipment,
but will also extend to next generation batteries, such as solid-state batteries [SSB] and fuel cells, and 2) electronicmaterials applications, including coating equipment for capacitors loaded in EVs, and for electronic materials used in
5G high-frequency wave.
By expanding its existing business, as well as development of the cutting-edge technologies, HT is targeting an OPM of
12.0% in FY30 vs 7.3% in FY22, on sales of ¥60,000mil (8-yr CAGR +4.4%), and ROE of more than 10.0% (vs 6.4% in FY22).
Capital Allocation Policy to optimise shareholder equity.
With the 1H results announcement, HT outlined its capital allocation plan for its surplus cash, which is estimated at¥7,000mil+, during the medium-term management plan. Capital will be allocated to capture growth as well as directed
to improve shareholder equity so as to improve ROE and PBR.
HT plans to allocate capital into the following five areas:
1. Growth investment ¥3,000mil+
HT plans to invest approx. ¥2,000mil on global production capacity expansion, as well as ¥1,000mil on digital twin
/ smart factory technology to improve production efficiency. The firm may invest additional capital to expand its
service and maintenance business in the US and other investment to enhance enterprise value.
2. Strategic Alliance ¥3,000mil+
HT plans to allocate funds to build strategic alliances to solidify its procurement capability of core components. If
strategic alliances are not realised during the medium-term plan, the excess funds will be allocated to either growthinvestments, or to shareholder return including share buyback.
3. Dividend Payments
As for shareholder returns, management aim to maintain a minimum annual dividend of ¥56.00/share and pay out
more than 35% of EPS. Dividends will be regularly reviewed to optimise shareholder equity which will subsequently
improve PBR and ROE.
4. Maintenance CAPEX ¥1,000mil
HT plans to allocate ¥1,000mil on updating existing factories.
5. Working CapitalThis will be equivalent to three-month sales.

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HIRANO TECSEED (6245 JP) RESEARCH UPDATE – 13 DECEMBER 2023

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