Bridge Report Nippon Piston Ring (6461)

Transcription

Bridge Report（6461） October 15, 2015
Bridge Report
http://www.bridge-salon.jp/company_e
Nippon Piston Ring (6461)
Company
Nippon Piston Ring Co., Ltd.
Code No.
6461
Exchange
TSE First Section
Industry
Machinery (Manufacturing)
President
Akira Yamamoto
HQ Address
5-12-10, Honmachi Higashi, Chuo-ku, Saitama City, Saitama, Japan
Business
Description
Nippon Piston Ring boasts of just under 30% and 40% market shares of piston
rings and valve seat inserts used by Japanese automobile manufacturers
respectively. Its primary customers include Toyota Motors and other Japanese
motor vehicle manufacturers, but sales to European and North American motor
vehicle manufacturers are also expanding. Efforts to expand sales in the
non-automobile engine realm are also being conducted.
Year-End
March
Home Page
http://www.npr.co.jp/english/index.html
Akira Yamamoto,
President
－ Stock Information －
Share Price
Shares Outstanding
¥1,980
DPS (Est.)
Market Cap.
8,374,157shares
Dividend Yield (Est.)
¥60.00
3.0%
EPS (Est.)
¥182.51
¥16.58billion
PER (Est.)
10.8x
ROE (actual)
7.9%
BPS (actual)
Trading Unit
100 shares
PBR (actual)
¥374.19
0.5x
* Share price as of close on October 15, 2015. Shares outstanding as of end of the most recent quarter.
EPS, DPS and PBR have been adjusted to reflect the impending reverse stock split expected to be implemented on October 1, 2015.
－ Earnings Trends －
Fiscal Year
(Units: ¥mn)
Sales
Operating Profit
Current Profit
Net Profit
EPS (¥)
DPS (¥)
March 2010
39,035
-610
-1,163
-2,787
-33.94
0.00
March 2011
47,411
4,195
3,298
1,666
20.29
0.00
March 2012
49,168
3,847
3,336
4,118
50.14
3.00
March 2013
47,018
2,225
2,184
2,013
24.50
5.00
March 2014
50,430
1,759
1,733
1,352
16.45
5.00
March 2015
51,657
1,946
2,172
2,173
26.44
6.00
March 2016 Est.
52,000
2,200
2,100
1,500
182.51
60.00
* Estimates are those of the Company.
EPS, DPS have been adjusted to reflect the impending reverse stock split expected to be implemented on October 1, 2015.
This Bridge Report provides details of Nippon Piston Ring Co., Ltd. and other information including the corporate
overview, Midterm Business Plan and an interview with President Akira Yamamoto.
― Index ―
1. Company Overview
2. Fiscal Year March 2015 Earnings Review
3. Fiscal Year March 2016 Earnings Estimates
4. 6th Midterm Business Plan
5. Interview with President Akira Yamamoto
6. Conclusions
1
Key Points
・Nippon Piston Ring manufactures and sells piston rings and valve seat inserts which are important components for
automobile engines. The Company boasts of a market share just under 30% of piston rings supplied to Japanese
automobile manufacturers. Nippon Piston Ring provides its products to all Japanese automobile manufacturers and
many prominent overseas automobile manufacturers. The Company also boasts of strengths in metallic materials,
surface quality improvement and precision processing technologies. New products are being developed to expand the
range of its businesses into the metal injection molding products, dental implant, and other realms not related to
automobile engine parts.
・Sales rose by 2.4% year-on-year to ¥51.6 billion during fiscal year March 2015. The main products of piston rings and
valve seat inserts supplied to both Japanese and overseas motor vehicle manufacturers trended favorably. The overseas
share of the total sales reached 52% and exceeded sales within Japan for the first time. The disappearance of fees
associated with the tax refund claim suit that occurred in the previous term, cost reductions and higher production
volume offset increases in depreciation, labor, materials and fuels expenses and allowed current profits to rise by 25.4%
year-on-year to ¥2.1 billion.
・Nippon Piston Ring estimates for fiscal year March 2016 call for sales to rise to a record high of ¥52.0 billion and the
ratio of overseas sales to grow by 3% points to 55%. Sales of piston rings to Ford and valve seat inserts to General
Motors, Volkswagen and Audi are expected to trend strongly. Cost reductions and higher production volume are
expected to absorb higher sales, general and administrative expenses and to allow operating profit to rise by 13.0%
year-on-year to ¥2.2 billion. However, current profit is expected to decline by 3.4% year-on-year to ¥2.1 billion, and net
profit attributable to parent company shareholders to fall by 31.0% year-on-year to ¥1.5 billion. Dividend payment is
expected to be raised by ¥1 per share to ¥6 per share (Dividend in the previous term includes a special ¥1 dividend to
commemorate the Company’s 80th year of operations) for an anticipated dividend payout ratio of 32.9% (Actual
dividend estimate is expected to be ¥60 after the reverse stock split is considered).
・As part of the " Establishing the Foundations for Nippon Piston Ring to Prosper for 100 Years" strategy, Nippon
Piston Ring seeks to expand sales of its existing products and to cultivate new markets. At the same time, the Company
has established the following three goals: 1) Creating strategic products that are highly differentiated; 2) Promoting
revolutionary manufacturing, and; 3) Promoting commercialization of new products (Non-automobile engine parts)
within its 6th Midterm Business Plan, which will conclude in fiscal year March 2018. In doing so, the Company seeks to
achieve sales of ¥55.0 billion and operating profit margin of 7% or higher during the final year of its Plan.
・Compared with the share price performance of its two competitors and the TOPIX Index, Nippon Piston Ring has
underperformed both TPR and the TOPIX index over the past 10 years and most recently during the past one year.
Improvement of profit margins appears to be a major issue for the Company and President Akira Yamamoto recognizes
this as an important management issue. Consequently, efforts will be implemented to achieve the goals of “¥55.0 billion
in sales and operating profit margin of 7% or higher” outlined in the recently started Sixth Midterm Business Plan.
1. Company Overview
Nippon Piston Ring manufactures and sells important automobile engine parts such as piston rings and valve seat inserts.
The Company boasts of a market share of just under 30% of piston rings provided to Japanese automobile manufacturers,
and supplies its products to all Japanese automobile manufacturers and many prominent overseas automobile
manufacturers.
Nippon Piston Ring boasts of strengths in metallic materials, surface quality improvement and precision processing
technologies. New products are being developed to expand the range of its business into the metal injection molding
products, dental implants, and other products not related to automobile engines.
2
<Corporate History>
Nippon Piston Ring was founded by Tomonori Suzuki in 1931 in Kawaguchi City, Saitama Prefecture just prior to the
start of mass domestic production of automobiles by manufacturers such as Toyota and Nissan, following the
Government program for “establishment of an automobile industry” adopted in August 1935. The company name Nippon
Piston Ring Co., Ltd. was officially adopted along with the establishment of the factory in Kawaguchi City in 1934.
During the Second World War, the Company began mass production of chrome plated rings for airplanes. At the end of
the War in 1945, the factory was temporarily closed, but the company began operations along with the listing of its shares
on the Tokyo Stock Exchange in 1949.
Nippon Piston Ring’s earnings expanded rapidly along with the rapid expansion in Japanese automobile exports, and the
strong demand for vehicles due to economic growth in the post-war reconstruction within Japan.
Beginning to provide products to German and American motor vehicle manufacturers in the 1970s, the Company has
continued organizing a global manufacturing and sales structure, establishing overseas manufacturing facilities in
Thailand, Indonesia, China and some other countries since 2000.
The metal injection molding products business and dental implants business were acquired in 2014 as part of the strategy
of expanding its product lineup outside of the motor vehicle engine parts realm.
<Corporate Philosophy>
Corporate
1. We pursue every business operation on the principle of placing the No. 1 priority on customers.
Philosophy
2. We respond with flexibility to changes in the environment and secure appropriate levels of profits to reflect our
appreciation of our shareholders, suppliers, and business partners.
3. In harmony with society, we contribute to the progress of human beings by securing the position of a global
comprehensive parts manufacturer.
4. We strive for the prosperity of the corporation and welfare if its employees through perpetual efforts for innovation
and improvement in performance.
Our Corporate
We strive for the prosperity of our company and our welfare by combining our ingenious attempts and diligence through
Action Guideline
close teamwork of the employees in the realms of manufacturing, sales and engineering.
President Akira Yamamoto believes that repetitive explanations on a face to face basis of the Company’s corporate
philosophy and action guideline are highly important. Therefore he visits Japanese and overseas plants and facilities to
conduct discussions and explain the corporate philosophy and action guideline with all staff.
<Market Environment>
◎ Global Automobile Production Volume
According to the research company “IHS Automotive”, the production volume of light vehicles of less than six tons in
gross weight is expected to continue to increase from 87.00 million units in fiscal year 2014 to over 100 million in 2018,
and to eventually reach 107 million in 2022.
Looking at the details of these estimates, light vehicles manufactured in Europe, North America, Japan and other
developed economic regions are expected to see only slight increases. However, stronger growth in China, ASEAN
countries, South America, India and other developing economic regions is expected to allow their share of light vehicles
to rise from 49.9% in 2014 to 56% in 2022. And while overall average growth is expected to be 2%, it is expected to
reach 4% in developing markets.
3
(Source: Nippon Piston Ring)
At the same time, production estimates by power train (Drive system) call for a slight decline in the share of gasoline and
diesel engines due to the rise of environmental awareness, and an increase in the share of hybrid (HV) systems, using
gasoline engines and electric motors, and plug-in hybrid (PHV) systems. However, the share of gasoline, diesel,
ethanol/compressed natural gas, PHV&HV and EV drive train vehicles of the total 107 million units of light vehicle
production expected in 2022 is expected to be 63%, 20%, 8%, 9% and 1.2%, respectively. Consequently, demand for
piston rings and valve seat inserts is expected to continue to trend strongly based upon this estimate for gasoline and diesel
engine drive trains to continue to be the main power trains for light vehicles in the future.
◎Competitor Comparisons
Stock
Code
Company
Sales
YY
Operating
YY
Operating
Name
(¥bn)
Growth
Margin
ROE
Market
PER
PBR
Cap (¥bn)
(x)
(x)
Profit (¥bn)
Growth
6461
NPR Co., Ltd.
52.000
0.7%
2.200
13.0%
4.2%
7.9%
17.000
11.1
0.5
6462
Riken Corp.
73.500
1.4%
5.800
3.3%
7.9%
6.6%
44.830
9.8
0.6
6463
TPR Co., Ltd.
175.400
5.8%
21.200
9.3%
12.1%
18.3%
105.195
8.1
1.3
* Sales, operating profit are estimates of the respective companies. ROE is based upon actual data from the previous year. Market
capitalization, PER, and PBR are based upon closing share prices of the respective companies as of August 28, 2015.
There are three publicly traded companies that manufacture piston rings, including Nippon Piston Ring. Riken
Corporation (6462) boasts of a top share of the piston ring market of close to 50%, but TPR Co., Ltd. boasts of much
larger earnings than the other two companies.
Both Nippon Piston Ring and Riken have PBRs of less than one. Nippon Piston Ring needs to grow its earnings to rectify
this undervaluation, while also increasing its brand recognition.
<Business Description>
◎ Main Products
As reflected in the Company name, piston rings are one of the main products manufactured. In addition, valve seat inserts
and various other automobile parts are manufactured and sold. In fiscal year March 2015, automobile related parts
4
accounted for 86.6% of total sales.
At the same time, metal injection molding products business and the dental implant products business were acquired in
2014. New product development is being promoted as a means of expanding its business in the non-automobile engine
components realm.
(Please Refer to “4. Sixth Midterm Business Plan” for further information about new businesses and products)
(Metal Injection Molding Products)
(Dental Implant Products )
5
<Engine Cutaway Diagram>
<Piston Rings>
Piston rings are fitted in grooves that run around the circumference
of pistons and have spring-like characteristics to act as a seal for
ideal combustion within the combustion chamber of the engine
cylinders and control lubrication of the piston and cylinder walls
by forming precise circles. Moreover, three piston rings are
normally used, to form a seal to prevent leakage of oil, allow heat
to escape and reduce both friction wear and baking.
Smooth movement of pistons will be impeded and fuel
consumption will be negatively impacted should the tensional
（同社提供資料を弊社にて加工）
force of the piston ring placed on pistons be too high. Conversely,
loss of power and increased oil consumption will result if the
tensional force of the piston ring placed on pistons is too low.
Consequently, optimization of the tensional forces of piston rings is crucial in ensuring the optimum performance of
internal combustion piston engines.
An oil film is formed between the cylinder wall and pistons to reduce friction wear and baking, which could be caused by
the high speed movement of pistons within a high-heat condition of cylinders. However, it’s not thicker the better; piston
oil rings need to be designed to ensure that an optimal thickness of oil film is formed.
Piston rings are required to provide wear resistance, material strength, heat resistance, heat conductivity, and oil retention
capacity to ensure the optimal performance and durability of engines.
In recent years, with the rapid rise in awareness of environment issues, a swift response is vital to adjust to a system that
certifies vehicles with low output levels of nitrous oxides and hydrocarbons, and regulations to enforce reductions in a
carbon dioxide emission. Consequently, the need for high performance piston rings that respond to these developments
and the need for improvements in fuel consumption is on the rise.
With regards to the characteristics required to piston rings, development of piston rings with low friction construction,
thinner width, new surface treatment processes, highly durable and low- cost materials is being conducted. At the same
time, development and proposal of optimal design technologies using its tuning technic is also being promoted.
6
Nippon Piston Ring is one of only few companies that have the ability to stably manufacture and supply piston rings,
which, as you may see, require extremely advanced technological capabilities, and are able to consistently develop
revolutionary technologies.
(Automobile Engine Use Piston Rings)
(Marine Engine Use Piston Rings)
<Valve Seat Inserts>
Valve seat inserts are parts which are press fitted into the valve seating portion of cylinder heads. Valve seat inserts are a
very important part made from sintered alloys that boast of high resistance to wear and deterioration under high heat
conditions, and ensure that a tight seal is formed for clean and efficient combustion. Nippon Piston Ring boasts of quality
valve seat inserts that meet the needs of automobile manufacturers at a high level, using a wide range of material variation,
leveraging its superior materials development capabilities. Consequently, the Company boasts of a top share of slightly
less than 40% of valve seat inserts provided to Japanese automobile manufacturers, and it is expanding its sales to
overseas motor vehicle manufacturers.
(Valve Seat Inserts)
<Camshafts>
Camshafts are a part designed to open and close the valves for each cylinder in piston engines. Nippon Piston Ring has
patented a special camshaft called assembled sintered camshafts, which are lightweight, high resistance to contact
pressure and capable of adopting a wide variety of designs. They are used by Fuji Heavy Industries in all of its engines, as
well as used by truck manufacturers, which require highly durable products.
7
◎ Customers
Nippon Piston Ring supplies piston rings and valve seat inserts to all Japanese automobile manufacturers.
The products supplied by the Company are extremely important in improving the performance of engines and require
high levels of technical expertise. In recent years, the need to improve fuel consumption and to seek alternative fuels due
to the growing importance of environmental issues has contributed to expanded sales to Audi, Volkswagen, Ford, General
Motors and other non-Japanese automobile manufacturers.
Main Customers
Japanese
Products Supplied
Main Customers
Non-Japanese
Products Supplied
Piston Rings
Valve Seat Inserts
Piston Rings
Valve Seat Inserts
Toyota
○
○
Daimler
○
○
Fuji Heavy
○
○
BMW
○
○
Honda
○
○
Audi/VW
○
Nissan
○
○
Renault
○
Daihatsu
○
○
Fiat
Mazda
○
○
GM
Mitsubishi Motors
○
○
Ford
○
Suzuki
○
○
Chrysler
○
Yamaha Motor
○
○
Hyundai Motor
Kawasaki Heavy
○
○
Proton
○
Isuzu Motors
○
○
Perodua
○
Hino Motor
○
○
Hero MotoCorp
Kubota
○
○
Guangzhou Automobile
○
Komatsu
○
○
Shanghai Automotive Industry
○
○
○
First Automobile Works
○
○
○
○
○
<Manufacturing and Sales Facilities>
<Japan>
Nippon Piston Ring maintains four manufacturing facilities and seven sales offices (Sapporo, Sendai, Tokyo, Osaka,
Nagoya, Hiroshima, Fukuoka) within Japan.
(Manufacturing Facilities)
Facility, Plant Name
Main Products Manufctured
NPR Iwate Co., Ltd., Ichinoseki Plant
Automobile Use, Land, Marine and Other Engine Use Piston Rings
NPR Iwate Co., Ltd., Senmaya Plant
Automobile Use, Land, Marine and Other Engine Use Cast Piston Ring (Blanks and Machining)
NPR Fukushima Works Co., Ltd.
Valve Seat Inserts, Cylinder Liners, Cast Camshafts
NPR Tochigi Plant
Assembled Sintered Camshafts, Marine Use Piston Rings, Valve-train Parts, Metal Injection
Molding Products, etc.
8
<Overseas>
Nippon Piston Ring maintains both manufacturing and sales facilities for piston rings, valve seat inserts and other products
in the United States, China, ASEAN countries, and India.
(Manufacturing Facilities)
Facility, Plant Name
Location
Format
NPR of America, Inc., Michigan Plant
US
100% Owned Subsidiary
Valve Seat Inserts
NPR of America, Inc., Kentucky Plant
US
Piston Rings
China
Piston Rings, Cylinder Liners
China
50% Owned Joint Venture
Valve Seat Inserts
PT.NT Piston Ring Indonesia (NTRI)
Indonesia
Piston Rings, Valve Seat Inserts
PT.NPR Manufacturing Indonesia (NPMI)
Indonesia
Cast Piston Rings
Thailand
Seojin Cam Co., Ltd (SECO)
Korea
Capital Participation
Assembled Sintered Camshafts
IP Rings Ltd. (IPR)
India
Capital Participation
Piston Rings
India
NPR Group 100% Owned Subsidiary
NPR Auto Parts Manufacturing(Yizheng) Co.,
Ltd.(NAMY)
NPR ASIMCO Powdered Metals
Manufacturing (Yizheng) Co., Ltd.(NAPM)
Siam NPR Co., Ltd. (SNPR)
NPR Auto Parts Manufacturing India Pvt. Ltd.
(NPRI)
Main Products Manufctured
Valve Seat Inserts, Compressor
Parts
Valve Seat Inserts
9
<Characteristics and Strengths>
Nippon Piston Ring’s highly advanced technologies and ability to consistently supply highly reliable functional
automobile parts maintained throughout its 80 year history of operations has allowed it to become the choice of both
Japanese and overseas automobile manufacturers. In recent years, development of major products, which can contribute
to reductions in exhaust gases and the achievement of “over 50% thermal efficiency rates” in internal combustion engines,
is being conducted.
Nippon Piston Ring’s Three Main Technology Categories
Technologies
Metallic Materials
Details
Development of plain cast iron, high strength and wear resistant low alloy cast iron, high temperature resistant and
wear resistant high alloy cast iron, high functional steel, sintered alloy metal, and other materials with high
functionality demanded by various automobile manufacturers.
Surface
Increasing the value addition of materials by giving necessary functions such as heat & wear resistance and lubricating
Processing
property through thermal spray, plating, nitriding, PVD, DLC and other material surface processing.
(Improvements)
Precision
Creating various precise forms and dimensions through machine processing, plastic forming and other processes.
Processing
With regards to product development, the ability to combine the said technologies and its forte of simulation technologies
applied to engines is one of Nippon Piston Ring’s strengths.
In addition, automobile manufacturers, to whose business the Company’s high levels of technological expertise are
critical, are what the Company calls its “client assets,” which are an important part of its corporate value.
【ROE Analysis】
FY3/11
FY3/12
FY3/13
FY3/14
FY3/15
ROE
12.8
26.7
10.4
5.9
7.9
Net Profit Margin
3.51
8.38
4.28
2.68
4.21
Asset Turnover Ratio (x)
0.76
0.82
0.78
0.82
0.80
Leverage (x)
4.78
3.90
3.13
2.69
2.34
While ROE has generally trended downward during the past five years, this is not an issue as it is a result of the reduction
in interest bearing liabilities and subsequent declines in leverage.
However, profit margins have been identified as an issue for improvement and the 6th Midterm Business Plan calls for
efforts to boost “operating profit margin of 7% or more.”
2. Fiscal Year March 2015 Earnings Overview
(1) Consolidated Earnings
FY3/14
Share
(¥mn)
FY3/15
Share
YY Change
Sales
50,430
100.0%
51,657
100.0%
+2.4%
Gross Profit
10,405
20.6%
10,864
21.0%
+4.4%
SG&A
8,646
17.1%
8,918
17.3%
+3.1%
Operating Profit
1,759
3.5%
1,946
3.8%
+10.6%
Current Profit
1,733
3.4%
2,172
4.2%
+25.4%
Net Profit
1,352
2.7%
2,173
4.2%
+60.7%
Favorable Trends in Main Products Allow Both Sales And Profits to Grow
Sales rose by 2.4% year-on-year to ¥51.6 billion. Sales of the main products of piston rings and valve seat inserts supplied
to both Japanese and overseas automobile manufacturers trended favorably. Also, the overseas sales ratio rose to 52% to
10
exceed sales within Japan for the first time.
The disappearance of fees associated with the tax refund claim suit that occurred in the previous term, cost reductions
(¥0.8 billion) and higher production volume (¥0.31 billion) offset increases in depreciation (¥0.37 billion), labor (¥0.35
billion) and materials & fuel (¥0.25 billion) expenses and allowed current profits to rise by 25.4% year-on-year to ¥2.1
billion.
(2) Sales Trend by Product
FY3/14
Piston Rings
Share
FY3/15
Share
YY Change
250
50%
255
49%
+2.0%
Valve Seat Inserts
83
17%
88
17%
+6.0%
Assembled Camshafts
35
7%
37
7%
+5.7%
Others
136
26%
136
27%
+0.0%
Total
504
100%
516
100.0%
+2.4%
While sales of piston rings were impacted by the dissolution of the joint venture business in Indonesia, strong sales to
Daimler allowed overall sales of piston rings to grow. Sales of valve seat inserts to Honda and overseas automobile
manufacturers and assembled sintered camshafts to Fuji Heavy trended favorably.
(3) Financial Conditions and Cash Flow
◎ Main Balance Sheet Items
End 3/14
(Units: ¥mn)
End 3/15
End 3/14
End 3/15
23,025
23,994
22,299
21,776
Cash, Equivalents
4,702
4,109
Payables
7,265
7,548
Receivables
8,562
9,215
ST Interest Bearing Liabilities
9,120
8,379
14,662
14,161
9,868
9,322
Total Liabilities
36,961
35,938
Net Assets
Current Assets
Inventories
Noncurrent Assets
Tangible Noncurrent Assets
Intangible Noncurrent Assets
Investments, Others
Total Assets
8,169
8,870
39,048
43,269
29,368
31,340
Current Liabilities
Noncurrent Liabilities
LT Interest Bearing Liabilities
995
873
25,111
31,325
8,684
11,055
Retained Earnings
6,193
8,751
62,073
67,264
Shareholder Equity
21,566
24,123
Total Liabilities, Net Assets
62,073
67,264
Total Interest Bearing Liabilities
18,988
17,701
※ Payables include electronically booked liabilities. Interest Bearing Liabilities = Debt + Bonds + Lease Liabilities
Current assets rose by ¥969 million from the end of the previous term due to increases in receivables and inventories
despite a decline in cash and equivalents. Increases in buildings and structures, machinery, transportation equipment, and
investment securities contributed to a ¥4.221 billion increase in noncurrent assets, and allowed total assets to rise by
¥5.191 billion to ¥67.264 billion.
A decline in interest bearing liabilities of ¥1.287 billion contributed to a ¥1.023 billion decline in total liabilities to
¥35.938 billion.
Increases in retained earnings resulting from higher profits and in foreign exchange translation account accompanying the
weaker yen contributed to a rise in net assets of ¥6.214 billion to ¥31.325 billion.
Consequent to these changes, equity ratio rose by 6.1% points from 39.6% at the end of the previous term to a record
high of 45.7% at the end of the current term. As shown in the graph below, interest bearing liabilities and net interest
bearing liabilities have been steadily reduced over time.
11
◎ Cash Flow
(Units: ¥mn)
FY3/14
FY3/15
YY Change
Operating Cash Flow
6,928
6,385
-543
Investing Cash Flow
-6,194
-4,684
+1,510
Free Cash Flow
Financing Cash Flow
Cash, Equivalents at Term End
734
1,701
+967
-3,507
-2,620
+887
4,700
4,109
-591
While profits increased, a rise in inventories caused the margin of cash inflow of operating cash flow to decline. The
disappearance of the outlay for acquisition of subsidiary shares that occurred in the previous term allowed the net cash
outflow of investing cash flow to contract. Consequently, the margin of net inflow of free cash flow expanded.
An increase in the assumption of new long-term debt allowed the net cash outflow of financing cash flow to contract.
Consequently cash position declined.
(4) Topics
◎ Reverse Stock Split, Share Unit Number Change, Dividend Estimate Revision
Based upon the “Share Trading Unit Unification Action Plan” released by all of Japan’s securities exchanges, all of the
listed companies within Japan seek to align their minimum share trading unit at 100 shares.
Furthermore, the stock exchanges have also issued directives requesting that publicly traded companies make adjustments
to their shares so that the minimum trading lot falls between ¥50,000 and ¥500,000 as a means of increasing access to
equity investment by individual investors.
In keeping with these directives, Nippon Piston Ring has reduced its minimum trading share unit number from 1,000 to
100 by conducting a reverse stock split of 1 for 10 with the aim to adjust its outstanding shares to a more appropriate
number. (A resolution was passed during the general shareholders’ meeting held on June 25, 2015.)
① Reverse Stock Split Overview
A 1-for-10 reverse stock split effective on October 1, 2015 to officially registered shareholders as of September 30, 2015
was conducted.
② Overview of Change in Minimum Trading Lot Share Number
Effective on the same day as the reverse stock split, the minimum trading lot share number was reduced from 1,000 to
100 shares.
12
September 25, 2015:
September 28, 2015:
October 1, 2015:
The last day for trading of the minimum trading lot share number of 1,000 shares
The minimum trading lot was changed to 100
The reduction of minimum trading lot share number became effective
③ Dividend Payment Revision
Along with the reverse stock split, the dividend payment for fiscal year March 2016 was revised from ¥6 to ¥60 per
share.
④ Impact upon Shareholders
 While the number of shares was reduced by the reverse stock split, the Company’s assets and capital remain
unchanged. So the 1-for-10 reverse stock split has increased net asset per share by a factor of 10.
 Both the share price and the dividend have increased by 10 fold, thus the total dividend payment remain unchanged.
 The number of shares per one voting right was revised from one per 1,000 to 100 shares.
 Odd lots of shares of less than one share arising from the reverse stock split will be disposed of in one lump sum by
the Company with payment of an equivalent amount of the share price to shareholders. Payment for these odd lots
of shares of less than one is expected to be made in December 2015.
 Nippon Piston Ring is also asking holders of less than 10 shares to inform the company of their holdings of less than
the minimum trading lot share number for purchase prior to the reverse stock split.
3. Fiscal Year March 2016 Earnings Estimates
(1) Full Year Earnings Estimates
FY3/15
Sales
(Units: ¥mn)
Share
FY3/16 Est.
Share
YY Change
51,657
100.0%
52,000
100.0%
+0.7%
Operating Profit
1,946
3.8%
2,200
4.2%
+13.0%
Current Profit
2,172
4.2%
2,100
4.0%
-3.4%
Net Profit
2,173
4.2%
1,500
2.9%
-31.0%
* Estimates are those of the Company.
(Units: ¥mn)
1H FY3/16 Est.
Sales
Share
YY Change
2H FY3/16 Est.
Share
YY Change
26,000
100.0%
3.2%
26,000
100.0%
-1.7%
Operating Profit
1,100
4.2%
-0.3%
1,100
4.2%
+30.4%
Current Profit
1,050
4.0%
-14.2%
1,050
4.0%
+10.7%
700
2.7%
-40.2%
800
3.1%
-20.1%
Net Profit
* Estimates are those of the Company. Also, the above figures reflect revisions of the initial earnings estimates conducted on August 7, 2015.
Expansion in Overseas Sales Contribute to Higher Sales, Profits
Sales are expected to stay flat at ¥52.0 billion. Sales to Japanese automobile manufacturers in North America is expected
to be robust. In addition, sales to Ford, Daimler and GM are also expected to grow.
The overseas sales ratio is expected to rise by another 3% points from the previous year to 55%. Strong sales of piston
rings to Ford, and valve seat inserts to Audi and GM are expected to be a contributing factor to this rise.
Increases in labor expense, depreciation and fluctuation of products pricing of ¥0.51, ¥0.35 and ¥0.25 billion, respectively
are expected to be offset by a reduction in cost of sales of ¥0.72 billion and an improvement in economies of scale
deriving from higher production volumes of ¥0.19 billion, resulting in a 13.0% year-on-year increase in operating profit
to ¥2.2 billion. However, expected contraction in foreign exchange translation gains from the ¥0.14 billion shall
contribute to a 3.4% year-on-year decline in current profit to ¥2.1 billion. The disappearance of ¥0.72 billion in subsidies
which occurred in the previous term is also expected to contribute to a 31.0% year-on-year decline in net profit
contributable to parent company shareholders to ¥1.5 billion.
13
Dividend is expected to be ¥6 per share, the same amount as the previous year when ¥1 was added to commemorate the
80th anniversary of Nippon Piston Ring’s operations. The subsequent dividend payout ratio estimate is 32.9% (Dividend
is expected to be raised to ¥60 per share after the reverse stock split is implemented).
4. 6th Midterm Business Plan
① Reflecting upon the Fifth Midterm Business Plan
The Company has promoted various strategies of its 5th Midterm Business Plan including the main initiatives of
“management based upon cash flow and balance sheet strategies,” “promoting reforms of its cost structure,” and
“leveraging unique technologies to achieve commercialization of new products” under the basic policy of “promoting
business structure reforms.”
The Company has been successful in achieving results in the realms of financial structure improvements, new product
releases, and manufacturing foundation creation. However, it has fallen short of its numerical goals of achieving “sales of
¥52.0 billion or more and the current profit to total asset margin of 6% or more” with the actual sales of ¥51.6 billion and
the current profit to total asset margin of 3.4% being recorded during fiscal year March 2015.
With regards to sales, the metal injection molding products business has contributed to expansion in new realms and
businesses. However, negative factors including changes in market conditions and changes in the vehicle production in
some projects had an impact.
With regards to the current profit to total asset ratio, Nippon Piston Ring has yet to adequately control inventories and
total assets and reduce costs.
② 6th Midterm Business Plan Overview
Nippon Piston Ring celebrated its 80th year of operations in December 2014. At such milestone, efforts are being
conducted to expand sales of existing products and cultivate new markets to “establish the foundations for Nippon Piston
Ring to prosper for 100 years.” These efforts include reflection upon the results of the previous midterm business plan
to get a solid start to the current 6th Midterm Business Plan, which is scheduled to be completed in fiscal year March
2018.
Basic Policy
“Establishing the foundations for Nippon Piston Ring to prosper for 100 years” -- improve
corporate value through marketing and innovation.
Main Initiatives
①
Acquiring strategic models through differentiation of products
②
Promote revolutionary manufacturing
③
Commercialization of new products (Non-automobile engine parts)
④
Strengthening of human resources development to “achieve the world’s highest
quality”
⑤
Targets (FY3/18)
Strengthening corporate social responsibility activities
Sales of ¥55.0 billion or more, operating profit margin of 7% or more
14
◎ Sales, Operating Profit Margin
Investments will be made, and efforts to further reduce cost of sales and improve technology development will be
conducted to achieve operating profit margin of 7% or more in fiscal year March 2018, the final year of the current 6th
Midterm Business Plan.
The overseas sales ratio is expected to rise to 59% in the final year of the Plan based upon the outlook for increases in
sales to overseas automobile manufacturers.
◎ Sales by Product
The targets for compound annual growth rates (CAGR) between fiscal years March 2015 to 2018 are expected to be
2.2%, 1.8% and 11.7% for overall sales, piston rings and valve seat inserts, respectively. While the scale of its sales is still
small, CAGR for new products, including the metal injection molding products business, is expected to be 6.7%.
Sales of piston rings and valve seat inserts to overseas manufacturers are expected to rise from 8.1% in the previous term
to 11.9% in the final year of the Plan.
◎ Capital Investment
15
High levels of capital investments are expected to continue for three years.
Investments for rationalization are expected to be made within Japan with a goal of increasing profit margins. At the same
time, investments for new product development promotion are also expected to be made.
Investments for expansion of capacity are expected to amount to ¥8.8 billion, with ¥2.8 and ¥6.0 billion of this total spent
within Japan and in our overseas manufacturing facilities, respectively.
By the final year of the Plan, production capacity of piston rings within Japan and in our overseas manufacturing facilities
is expected to be equal, with the ratio of production capacity of valve seat inserts expected to be 70% in our overseas
manufacturing facilities.
◎ Efforts in the Realm of Existing Business
<Expand Sales to Overseas Automobile Manufacturers>
As discussed earlier in this report, Nippon Piston Ring already supplies all of the Japanese automobile manufacturers, but
the potential to begin supplying other overseas automobile manufacturers which it does not currently conduct business
with is large.
In many instances, piston rings are supplied to overseas engine manufacturers in modules assembled by tier one suppliers
(Piston suppliers). Consequently development support and individual proposals are conducted to each tier one supplier on
a project base. In particular, development support proposals to piston manufacturers that do not possess evaluation
technologies to assess engines are considered to be an effective marketing strategy.
16
<Gasoline Engine Use Piston Rings>
The automobile manufacturers’ needs for “lighter parts” and “improved thermal efficiency” of engines are on the rise.
While reducing friction and improving combustion are issues to be properly dealt with when enhancing thermal
efficiency, and reductions in the distance between cylinders and various issues associated with material changes require
detailed attention regarding lightening of engines, Nippon Piston Ring has effectively responded with its proprietary
technologies to these issues, resulting in its expanding business with both Japanese and overseas automobile
manufacturers.
<Valve Seat Inserts>
Development of high output, low fuel consumption, and low exhaust gas output engines is being conducted against the
backdrop of stricter exhaust gas regulations. Nippon Piston Ring’s ability to provide thin and large diameter valve seat
inserts have come to be regarded highly and consequently being further adopted by manufacturers.
◎ Efforts to Commercialize New Products
New technologies and technologies maintained by companies acquired through M&A activities have been added to the
Company’s own fundamental technologies. Various efforts to validate tentative theories and to leverage existing
technologies to commercialize new products in non-automobile engine applications are being conducted.
At the current point in time, efforts are being focused upon developing products for motors and dental applications.
< Metal Injection Molding Products Business>
With the goal of expanding the non-automobile engine parts business, the metal injection molding products business of
Sumitomo Metal Mining Co., Ltd. was acquired and sales of products began in May 2014.
While Nippon Piston Ring had mass produced automobile engine parts made from various metallic materials by this
metal injection molding technique, the acquisition of this business will allow it to expand its sales channels by fortifying
its product lineup and strengthening its materials and production technologies.
<Dental Implant Business>
Nippon Piston Ring acquired the dental implant business from Ishifuku Metal Industry Co., Ltd. in October 2014.
This IAT dental implant system uses electric discharge machining to improve the surface conditions for more favorable
bone structure affinity and it received pharmaceutical law certification in October 2014 with subsequent shipments being
started from November 2014.
The metallic materials and precision processing technologies built up in the main automobile engine parts business will
be leveraged in the dental implant business to develop various medical related products.
In addition to the high levels of biological compatibility of the “Ti-Ta alloy” medical product materials currently being
developed, it can be used in magnetic resonance imaging (MRI) because it is non-magnetic in character. Therefore, usage
of this material in pace maker lead wires, electrodes, embolization coils, stents and other products which are placed in the
body for prolonged periods of time is being considered.
Furthermore, Nippon Piston Ring is participating in exhibitions to display its products as a means of cultivating the
United States market, the world’s largest market.
5. Interview with President Akira Yamamoto
We interviewed President Akira Yamamoto to ask him about management mission, strategies and corporate issues and to
provide a message to investors.
President Akira Yamamoto was born on February 9, 1958 and is 57 years old. After joining Nippon Piston Ring in 1981,
he became responsible for production control and created production plans, managed plant financials, and conducted
overseas deployment. Thereafter, he joined the corporate planning department and participated in management of the
overall Company. He then became President of Nippon Piston Ring in June 2013.
His efforts to optimize various tasks in each of his positions within the Company are a valuable asset.
17
<President Akira Yamamoto’s mission>
 I believe that my most important mission as the President is to “cultivate human resources.”

“Cultivating highly capable human resources” is the single most vital element in improving corporate value by
enabling our Company to respond flexibly to changes in customer patterns, laws and regulations, and other societal
changes. This is a never ending issue and we will always endeavor to enhance it.
 In the aftermath of the Lehman Shock, Nippon Piston Ring adopted a strategy of improving its financial conditions
in order to fortify its business foundation. But conditions have improved since and we are now even more focused
upon cultivating highly capable human resources.
 From the time I was a member of the corporate planning department, I had identified the lack of lateral connections
between staff of various positions within our Company as a weakness. We have four highly important plants in
Iwate, Fukushima and Tochigi Prefectures, but the connection between staff at these plants and our headquarters was
weak. Therefore, we established the “Committee of Management Strategy Proposal by Young Managerial Staff ”
comprised of managerial staff in their 30s, and an “Autonomous Research Committee” comprised of managers in
their 40s. These committees consider various topics and discuss how they would change our Company if they are
to become President. They report their findings and results to the managing directors at management strategy
meetings every year. This system is designed to raise the motivation of our staff and to stimulate our managing
directors serving as a great opportunity to cultivate human resources.
 And while 20% of our employees within Japan are female, the first female staff was selected to take on a managerial
position and a working team comprised of female workers was created in April 2015. By creating cross sectional
teams, we can motivate our employees and gain their various input on how to improve our Company.
 We are also implementing efforts to increase the internal collaboration between supervisory staff under 35 years of
age. Through these efforts, out staff seems to have gladly adopted increased communication between employees
working at different facilities, and we have noted a change in awareness and activities of employees. Furthermore,
we have seen specific measures to improve productivity between our plants. We expect to expand these efforts to
our overseas facilities.
<Issues and Responses>
◎ Improving Profitability
 The largest issue is to improve profitability. Effective use of management resources will be implemented to achieve
the goal of operating profit margin of 7% or more as defined in the 6th Midterm Business Plan. In doing so, the
shortening of the period from purchase of raw materials to recovery of accounts receivables for main products is the
single most important factor.
 Reforms in the frontline of our factories are important to achieve these goals. Based upon the long years of
experience in the frontline of manufacturing, I believe that there is still ample room to improve the work processes
of our factory staff.
 For example, you can tell that a worker is concentrating on work with a peace of mind when the brim of their cap is
facing downwards. But if the brim is facing another direction, it is likely that they are not focused on their work at
hand. This can lead to slow work processes and defective products, so the elimination of these types of issues is
important in improving the overall work flow.
 Moreover, global sourcing and innovative Japanese manufacturing capability need to be transferred to overseas
facilities and instilled in local staff to improve quality levels companywide and to reduce cost of sales.
◎ New Product Endeavors
 The dental implant business is an extremely important business for our future. While it is relevant in expanding our
non-automobile engine parts business, it also holds importance in our efforts to expand our marketing capabilities
for this and our other new businesses.
 Nippon Piston Ring has long conducted business primarily with automobile manufacturers. Given this history, we
need to continue to come up with innovation to expand our new products and businesses. To achieve this end, we
need to strengthen our marketing capabilities.
18


We have endeavored to improve our financial conditions during the past several years, and we are currently well
positioned to take advantage of our strengthened financials in our new endeavors.
While employees who have been transferred from the previous companies along with the acquisition of these
businesses are responsible for operations, we will conduct active efforts to share information on initiatives in these
businesses across the Company to inspire and raise awareness of existing staff from within Nippon Piston Ring to
take on new challenges themselves.
◎ Other Business
 Securing human resources is another important issue. The age distribution of our employees had become unbalanced
due to certain situations the Company faced in the past. To resolve this issue, we will continue to hire new graduate
employees under any circumstances.
 We need to secure staff who can work effectively in our overseas facilities within five to ten years’ time. At the same
time, we need to increase the technological expertise levels in our overseas facilities to similar levels as those in our
facilities in Japan. Given the current employment market, hiring of employees is a difficult task and we must resort
to various methods to gain access to workers.
 Another issue is the improvement of assembly technologies. While we have manufactured and sold products like
piston rings and valve seat inserts independently as single products, acquiring peripheral technologies is crucial for
the medical use materials realm including our dental implant business.
<Message to Investors>
 In the aftermath of the Lehman Shock, difficult market conditions had continued. However, we have been successful
in greatly improving our financial conditions during the past several years. We are now well positioned to grow our
businesses against the backdrop of an expansion of the global automobile market.
 While rapid growth may be difficult to envision, we expect to achieve stable earnings performance over the
medium- to long-term based upon the strong relationship of mutual trust with many automobile manufacturers built
upon our highly advanced technologies.
 While we will continue to promote various efforts to further strength our financial position and to increase our
competitive standing through aggressive investments, we have identified a target dividend payout ratio of 30% over
the near term, and will endeavor to return an appropriate level of profits to our shareholders.
6. Conclusions
Compared with the two publicly traded peer companies and the TOPIX Index, Nippon Piston Ring has underperformed
both TPR and the TOPIX Index during the past year and 10 years.
The Company recognizes the need to improve its profit margins to gain a higher valuation in the stock market and to see
a recovery of its price to book ratio to 1.0 times or greater. An understanding of these conditions is reflected in our
interview with President Akira Yamamoto.
The market is likely to remain focused upon the efforts of Nippon Piston Ring to achieve the fiscal year 2018 targets of
“¥55.0 billion or more in sales and operating profit margin of 7% or more” as identified in its sixth Midterm Business
Plan , which has just started.
19
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The
information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources
that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the
accuracy, completeness or validity of said information and/or opinions, nor do we bear any responsibility for the same. All rights pertaining to
this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment
decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2015, All Rights Reserved by Investment Bridge Co., Ltd.
20

Bridge Report Nippon Piston Ring (6461)

Transcription

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