Asia Pacific/Japan Equity Research Electronic Components & Connectors (Electric Components (Japan)) Rating UNDERPERFORM Price (14 Mar 17, ) 456 Target price ( ) (from 270) 260 Change to TP (%) -43 Market cap ( bn) 74 (US$.6) Enterprise value ( bn) 71 Number of shares (mn) 162.3 Free float (%) 75.0 52-week price range 534 261 Target price is for 12 months. Research Analysts Akinori Kanemoto 81 3 4550 7363 akinori.kanemoto@credit-suisse.com Share price performance 7 0 0 6 0 0 5 0 0 4 0 0 3 0 0 2 0 0 Price (LHS) Takuma Tsuji 81 3 4550 9815 takuma.tsuji@credit-suisse.com Reb ased Rel (RHS) Ju l - 1 5 Ja n - 1 6 Ju l - 1 6 Ja n - 1 7 The price relative chart measures performance against the TOPIX which closed at 1,574.90 on 14-Mar-2017 On 14-Mar-2017 the spot exchange rate was 114.73/US$1 Performance 1M 3M 12M Absolute (%) 15.3 45.3-16.0 Relative (%) 14.2 43.5-30.5 Wacom (6727) DECREASE TARGET PRICE Looks overvalued following impairment/restructuring estimates Action: We revise our forecasts for Wacom, trim our target price from 270 to 260 (potential return 43%) and reiterate our UNDERPERFORM rating. We commend the company s change in business strategy away from targeting high growth and reforms to its cost structure. However, earnings are weak, even after taking into account the benefits (SG&A cut 1bn in FY3/18) of restructuring and removal of impaired assets. We focus on whether it can further reduce costs. Investment overview: The stock has risen sharply over the past three months and now trades at a P/B of 3x FY3/18E (peak since expectations fell for S Pen for the Galaxy Note, plus above one standard deviation), apparently pricing in strong improvement in the company s fundamentals. However we think it is too early to factor the upside. We approve of management s moves to enhance the cost structure and revise its unrealistic growth strategy, which had aimed for CAGR in excess of the 7% historic trend for brand products (the medium-term plan announced in April 2015 targets sales of 93.0bn in FY3/17, but we forecast a shortfall to 70.6bn). The prevailing share price cannot be justified by cleaning house through impairment charges and structural reforms. Rather, Wacom needs to thoroughly reduce SG&A expenses and improve efficiency, in our view. We are interested in management s initiatives for consumer products, which have low value-added, and business solutions, which are facing tougher competition. In the brand products business, we forecast FY3/18 sales growth of 9% (excluding forex factors), owing in part to new products, but we expect growth to slow to 3% in FY3/19. In the technology solutions business, we look for sales to hold steady YoY through FY3/18, as sales for the Galaxy Note 7 have risen close to the initial company s target, including via an inventory pick-up. Risks: Risks include stronger-than-expected sales from new products in the brand products business, yen depreciation, and cost cuts. We are especially focused on whether Wacom can aggressively cut SG&A expenses. Valuation: Our 260 TP is the product of our FY3/18 BPS estimate ( 163) and a P/B of 1.6x, the lowest for the past 10 years (excluding the immediate aftermath of the Lehman Brothers bankruptcy). We previously calculated our TP using a P/B of 1.6x our FY3/17 BPS estimate ( 166). Financial and valuation metrics Year 3/16A 3/17E 3/18E 3/19E Sales ( bn) 77.6 70.6 76.9 79.4 Operating profit ( bn) 3.7 (0.4) 3.2 3.8 Recurring profit ( bn) 3.8 (0.3) 3.2 3.9 Net income ( bn) 2.3 (5.6) 2.1 2.5 EPS ( ) 14.0 (34.4) 12.7 15.3 IBES Consensus EPS ( ) n.a. (9.3) 26.3 33.2 EPS growth (%) (32.6) n.m. n.m. 20.6 P/E (x) 34.0 (13.2) 35.8 29.7 Dividend yield (%) 3.8 1.3 1.3 2.6 EV/EBITDA (x) 12.4 33.1 12.0 10.4 P/B (x) 2.5 2.9 2.8 2.7 ROE(%) 7.1 (19.9) 8.0 9.3 Net debt/equity (%) Net cash Net cash Net cash Net cash Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Wacom (6727) Price (14 Mar 2017): 456 (upside: -43%); Rating: UNDERPERFORM; Target Price: (from 270) 260; Analyst: Akinori Kanemoto Income statement ( bn) 3/16A 3/17E 3/18E 3/19E Sales 77.6 70.6 76.9 79.4 EBITDA 5.7 2.2 6.0 7.0 Operating profit 3.7 (0.4) 3.2 3.8 Recurring profit 3.8 (0.3) 3.2 3.9 Extraordinary gain & loss (0.2) (4.9) 0.0 0.0 Profit before tax 3.6 (5.1) 3.2 3.9 Net income 2.3 (5.6) 2.1 2.5 Cash flow ( bn) 3/16A 3/17E 3/18E 3/19E Operating cash flow 1.5 (5.7) 3.2 5.1 Depreciation & Amortization 2.0 2.6 2.9 3.2 Investing cash flow (7.1) 0.6 (3.4) (3.4) Capex (4.9) (3.7) (3.6) (3.6) Free cash flow (5.6) (5.1) (0.2) 1.7 Financing cash flow 0.3 8.2 (1.0) (2.0) Issuance (retirement) of stock (1.1) 0.0 0.0 0.0 Dividends paid (3.0) (1.0) (1.0) (2.0) Net change in cash (5.2) 3.1 (1.1) (0.3) Balance sheet ( bn) 3/16A 3/17E 3/18E 3/19E Cash & cash equivalents 14.4 17.4 16.3 16.1 Current receivable 10.1 11.2 12.2 12.6 Inventories 10.1 11.0 12.4 12.8 Other current assets 3.4 3.4 3.4 3.4 Current assets 37.9 43.0 44.3 44.8 Property, plant & equipment 4.5 5.6 6.4 6.8 Investments 1.0 1.0 1.0 1.0 Intangibles 8.1 3.8 3.6 3.4 Other non-current assets 0.0 0.0 0.0 0.0 Total assets 51.6 53.5 55.3 56.0 Payables 6.1 5.5 6.2 6.3 Short term debt 4.0 4.0 4.0 4.0 Other current liabilities 6.4 6.4 6.4 6.4 Current liabilities 16.5 15.8 16.5 16.7 Long term debt 2.0 10.0 10.0 10.0 Other non-current liabilities 2.0 2.0 2.0 2.0 Total liabilities 20.5 27.8 28.5 28.7 Shareholders' equity 31.1 25.7 26.8 27.3 Minority interests - - - - Source: Company data, Thomson Reuters, Credit Suisse estimates Key ratios 3/16A 3/17E 3/18E 3/19E Growth (%) Sales 4.0 (9.0) 9.0 3.2 Operating profit (40.3) n.m. n.m. 20.8 EPS (32.6) n.m. n.m. 20.6 Margins (%) Gross margin 39.6 40.6 38.6 38.8 EBITDA margin 7.3 3.0 7.9 8.8 OP margin 4.7 (0.6) 4.1 4.8 DuPont analysis ROE (%) 7.1 (19.9) 8.0 9.3 Net profit margin (%) 3.0 (8.0) 2.7 3.2 Sales/Assets 1.5 1.3 1.4 1.4 Assets/Equity 1.7 2.1 2.1 2.1 Credit ratios (%) Equity ratio 60.3 48.0 48.4 48.7 Net D/E ratio Net cash Net cash Net cash Net cash Per share data ( ) Number of shares (mn) 164.5 163.8 163.8 163.8 EPS 14.0 (34.4) 12.7 15.3 BPS 189.1 156.6 163.4 166.7 DPS 18.0 6.0 6.0 12.0 Dividend payout ratio (%) 128.2 (17.4) 47.1 78.2 Valuation (x) 3/16A 3/17E 3/18E 3/19E P/E 34.0 (13.2) 35.8 29.7 P/B 2.5 2.9 2.8 2.7 EV/EBITDA 12.4 33.1 12.0 10.4 Dividend yield (%) 3.8 1.3 1.3 2.6 FCF yield (%) (4.3) (12.6) (0.5) 2.0 Wacom (6727) 2
A look at Wacom s guidance over the past five years (Figure 1) reveals that sales in the brand segment in particular have repeatedly fallen far short of high initial targets. Furthermore, despite the sales shortfall, SG&A expenses have exceeded expectations, indicating flawed cost controls. A key focal point is likely to be the achievability of FY3/18 guidance issued at the FY3/17 results announcement, given management s new call for a shift away from the previous expansion strategy (the new medium-term plan is slated for release in spring 2018). Figure 2 shows Wacom s sales, SG&A costs and SG&A ratio. Owing in part to the situation above, the SG&A ratio has risen consistently from FY3/14 through FY3/17 (from 27% to 41%; SG&A costs up from 21.3bn to 29.0bn; using our FY3/17 estimates). We also estimate that depreciation costs grew from 1.8bn in FY3/14 to 2.6bn in FY3/17 due to IT infrastructure spending on global backbone systems, while development costs surged sharply (from 2.9bn to 4.6bn), as did brand-related promotional spending. Wacom announced changes to its global backbone system installation plan on 14 March, along with a transition to a more profit-focused system centering on the optimization of its global organization. However, the initiatives are expected to yield annual SG&A cost savings of only 1bn. The degree to which Wacom reorganizes its product development pipeline, controls development costs, and reduces marketing expenses will likely hinge on management s commitment. We forecast SG&A costs of 29.0bn in FY3/17 (SG&A ratio 41%), 26.5bn in FY3/18 (34%), and 27bn in FY3/19 (34%). Wacom (6727) 3
Figure 1: Company guidance transition (last five years) mn FY3/13 FY3/14 FY3/15 FY3/16 FY3/17 /$ Initial Guidance 75 90 100 110 110 /$ Actual 82.23 100 110.03 120.16 -- /$ Guidance revised down in 2016/8/5 -- -- -- -- 104.86 /$ Guidance revised down in 2016/11/9 -- -- -- -- 104.7 /$ Guidance revised down in 2017/2/8 -- -- -- -- 108.87 /EUR Initial Guidance 100 115 135 130 125 /EUR Actual 107.57 134.01 138.68 132.36 -- /EUR Guidance revised down in 2016/8/5 -- -- -- -- 116.63 /EUR Guidance revised down in 2016/11/9 -- -- -- -- 116.71 /EUR Guidance revised down in 2017/2/8 -- -- -- -- 11954 Consolidated total Sales Initial Guidance 50,400 88,000 92,000 84,000 82,000 Sales Actual 61,068 78,615 74,557 77,568 -- Sales Guidance in 2016/8/5 -- -- -- -- 77,900 Sales Guidance in 2016/11/9 -- -- -- -- 70,300 Sales Guidance in 2017/2/8 -- -- -- -- 71,500 OP Initial Guidance 5,600 11,380 10,500 5,500 4,200 OP Actual 7,915 8,663 6,143 3,664 -- OP Guidance in 2016/8/5 -- -- -- -- 2,400 OP Guidance in 2016/11/9 -- -- -- -- (500) OP Guidance in 2017/2/8 -- -- -- -- (500) Brand business Sales Initial Guidance 31,800 40,100 49,200 50,300 56,200 Sales Actual 29,406 38,960 43,625 48,931 -- Sales Guidance in 2016/8/5 -- -- -- -- 53,200 Sales Guidance in 2016/11/9 -- -- -- -- 48,400 Sales Guidance in 2017/2/8 -- -- -- -- 45,700 OP Initial Guidance NA 6,640 7,320 9,280 11,400 OP Actual 4,895 5,214 5,965 8,036 -- OP Guidance in 2016/8/5 -- -- -- -- 9,660 OP Guidance in 2016/11/9 -- -- -- -- 7,300 OP Guidance in 2017/3/14 -- -- -- -- 6,500 Technology Solution business Sales Initial Guidance 18,000 47,200 42,100 33,000 25,100 Sales Actual 31,056 39,002 30,277 27,974 -- Sales Guidance in 2016/8/5 -- -- -- -- 23,900 Sales Guidance in 2016/11/9 -- -- -- -- 21,200 Sales Guidance in 2017/2/8 -- -- -- -- 25,100 OP Initial Guidance NA 7,600 7,200 4,570 1,600 OP Actual 5,554 6,667 4,642 3,130 -- OP Guidance in 2016/8/5 -- -- -- -- 1,390 OP Guidance in 2016/11/9 -- -- -- -- 900 OP Guidance in 2017/2/8 -- -- -- -- 2,000 Source: Company data, Credit Suisse Wacom (6727) 4
Figure 2: Sales, SG&A, SG&A ratio forecasts: SG&A ratio finally coming down mn 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 39873 40238 40603 2012/3 2013/3 2014/3 2015/3 2016/3E 2017/3E 2018/3E 2019/3E Sales SG&A SG&A Ratio 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: Company data, Credit Suisse estimates Figure 3: Brand business: seven-year average top-line growth is 7% (excluding FX impact) 16% 14% 12% 10% 8% 6% 4% 2% 0% 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3E 2018/3E 2019/3E Source: Company data, Credit Suisse estimates Figure 4: 12-month forward consensus P/B 6.00 5.00 4.00 3.00 2.00 1.00 0.00 07/3 07/10 08/5 08/12 09/7 10/2 10/9 11/4 11/11 12/6 13/1 13/8 14/3 14/10 15/5 15/12 16/7 17/2 12 mo forward consensus P/B +/-σ Source: Thomson Reuters Datastream, Credit Suisse Wacom (6727) 5
Figure 5: Earnings summary Wacom Sales Operating profits Recurring Profits Net profits EPS BPS DPS Capex Dep R&D 6727 mn YoY mn YoY Margin mn YoY mn YoY mn mn mn 2013/3 61,068 50.0% 7,915 94.6% 13.0% 7,559 94.3% 4,770 118.7% 29.8 182.5 11.3 1,845 1,160 2,382 2014/3 78,615 28.7% 8,663 9.5% 11.0% 8,282 9.6% 5,249 10.0% 31.5 197.0 17.5 3,464 1,812 2,863 2015/3 74,557-5.2% 6,143-29.1% 8.2% 6,065-26.8% 3,473-33.8% 20.8 203.2 18.0 4,082 1,970 3,180 2016/3 77,568 4.0% 3,664-40.3% 4.7% 3,777-37.7% 2,310-33.5% 14.0 189.1 18.0 4,862 2,004 4,342 2017/3 CSE 70,600-9.0% -424 - -0.6% -272 - -5,639 - -34.4 153.6 6.0 3,680 2,576 4,576 CSE Old 71,614-7.7% 1,264-65.5% 1.8% 1,261-66.6% 828-64.2% 5.1 168.7 12.0 4,038 2,784 4,612 CoE 16/5 82,000 5.7% 4,200 14.6% 5.1% 4,140 9.6% 3,000 29.9% 18.2-18.0 4,000 3,200 4,700 CoE 16/8 77,900 0.4% 2,400-34.5% 3.1% 2,300-39.1% 1,620-29.9% 9.9-12.0 4,000 2,800 4,600 CoE 16/11 70,300-9.4% -500 - -0.7% -650 - -1,500 - -9.2-6.0 3,800 2,600 4,600 CoE 17/3 71,500-7.8% -500 - -0.7% -650 - -5,600 - -34.5-6.0 3,800 2,600 4,600 IBES 71,000-8.5% -500 - -0.7% -500 - -1,500 - -9.3 - - - - - 2018/3 CSE 76,945 9.0% 3,166-4.1% 3,206-2,084-12.7 160.3 6.0 3,600 2,876 4,600 CSE Old 75,309 5.2% 2,327 84.1% 3.1% 2,367 87.7% 1,539 85.9% 9.4 166.1 12.0 4,000 3,084 4,800 IBES 74,000 4.2% 4,000-5.4% 4,000-2,800-17.6 - - - - - 2019/3 CSE 79,442 3.2% 3,826 20.8% 4.8% 3,866 20.6% 2,513 20.6% 15.3 163.6 12.0 3,600 3,176 4,600 CSE Old 78,150 3.8% 3,007 29.2% 3.8% 3,047 28.7% 1,981 28.7% 12.1 166.1 12.0 4,000 3,384 4,800 2016/3 1Q 15,142 10.8% 29-63.2% 0.2% 26-81.4% -235 - -1.4 182-1,128 436 1,019 2Q 23,815 29.8% 2,053 17.6% 8.6% 2,098 29.6% 1,522 44.7% 9.3 188-1,619 532 1,014 3Q 21,935-12.1% 2,751-28.7% 12.5% 2,768-25.5% 1,798-12.4% 10.9 198-787 488 874 4Q 16,676-5.2% -1169 - -7.0% -1116 - -776 - -4.7 189-1,328 548 1,435 2017/3 1Q 13,261-12.4% -1,447 - -10.9% -1,481 - -1,147 - -7.0 154-838 621 1,062 2Q 20,536-13.8% 549-73.3% 2.7% 460-78.1% -79 - -0.5 150-863 619 1,203 3Q 20,943-4.5% 1,524-44.6% 7.3% 1,789-35.4% 1,127-37.3% 6.9 165.8-879 643 911 4Q CSE 15,860-4.9% -1,050 - -6.6% -1,040 - -5,540 - -33.8 - - 1,100 693 1,400 Source: Company data, Credit Suisse estimates, I/B/E/S Figure 6: Brand business: Sales growth forecasts (local currency basis; Asia Oceania: USD basis) mn,, % 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3E 2018/3E 2019/3E YoY (local currency) weighted average 9% 14% 2% 13% 6% 9% 1% 9% 4% Japan -4% 12% -1% 16% -6% 12% -8% 4% 1% Creative Pen Tablet -19% -5% -1% -14% 0% 0% Creative Mobile 1703% 31% 37% 4% 10% 3% Creative Display 83% -13% 20% -4% 10% 2% Consumer 33% 65% -15% -18% -10% -10% Business Solution 10% -23% 22% -8% 0% 0% US 7% 6% -2% 11% 1% 3% -4% 8% 2% Creative Pen Tablet -6% -3% -5% 8% 3% 3% Creative Mobile 613% 27% -11% -8% 10% 2% Creative Display 25% 2% 22% -15% 20% 2% Consumer -3% 0% 12% -30% -20% -10% Business Solution -3% 14% -18% 17% 10% 10% Germany 8% 21% 10% 5% 11% 7% 2% 5% 1% Creative Pen Tablet -9% -3% 14% 3% 3% 3% Creative Mobile 105% 20% 5% 3% 10% 2% Creative Display 33% 7% 10% 28% 20% 2% Consumer -43% -36% 72% -36% -20% -10% Business Solution 56% 77% -17% -17% -10% -10% Asia/Oceania 29% 16% -6% 26% 15% 18% 9% 15% 10% Creative Pen Tablet 16% 12% 13% 14% 15% 15% Creative Mobile 422% 40% 32% -39% 10% 2% Creative Display 25% 20% 35% 23% 20% 2% Consumer 6% -27% 95% -30% -20% -10% Business Solution 50% 29% -15% 2% 0% 0% Source: Company data, Credit Suisse estimates Wacom (6727) 6
Figure 7: Sales & OP forecasts (annual) mn 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2017/3 2018/3 2019/3 2017/3 2017/3 2017/3 2017/3 2017/3 CSE CSE CSE CSE CSE CSE CoE CoE CoE CoE CoE New New New Old Old Old 2016/5 2016/8 2016/11 2017/2 2017/3 Sales 40,705 61,068 78,615 74,557 77,568 70,600 76,945 79,442 71,614 75,309 78,150 82,000 77,900 70,300 71,500 71,500 yoy % chg. 23% 50% 29% -5% 4% -9% 9% 3% -8% 5% 4% 6% 0% -9% -8% -8% seq % chg. - - - - - - - - - - - - - - - - Gross profits 17,896 24,235 29,931 30,050 30,736 28,643 29,666 30,826 27,482 29,527 30,707 - - - - - as of sales 44% 40% 38% 40% 40% 41% 39% 39% 38% 39% 39% - - - - - SG&A expense 13,828 16,320 21,268 23,908 27,072 29,067 26,500 27,000 26,218 27,200 27,700 - - - - - as of sales 34% 27% 27% 32% 35% 41% 34% 34% 37% 36% 35% - - - - - Operating profits 4,068 7,915 8,663 6,143 3,664-424 3,166 3,826 1,264 2,327 3,007 4,200 2,400-500 -500-500 yoy % chg. 24% 95% 9% -29% -40% -112% -846% 21% -66% 84% 29% 15% -35% - - - as of sales 10.0% 13.0% 11.0% 8.2% 4.7% -0.6% 4.1% 4.8% 1.8% 3.1% 3.8% 5.1% 3.1% -0.7% -0.7% -0.7% Recurring profits 3,891 7,559 8,282 6,065 3,777-272 3,206 3,866 1,261 2,367 3,047 4,140 2,300-650 -650-650 yoy % chg. 15% 94% 10% -27% -38% -107% -1279% 21% -67% 88% 29% 10% -39% - - - Net profits 2,181 4,770 5,249 3,473 2,310-5,639 2,084 2,513 828 1,539 1,981 3,000 1,620-1,500-1,500-5,600 yoy % chg. 10% 119% 10% -34% -34% -344% -137% 21% -64% 86% 29% 30% -30% - - - R&D 1,842 2,382 2,863 3,180 4,342 4,576 4,600 4,600 4,612 4,800 4,800 4,700 4,600 4,600 4,600 4,600 Capex 1,381 1,845 3,464 4,082 4,862 3,680 3,600 3,600 4,038 4,000 4,000 4,000 4,000 3,800 3,800 3,800 Depreciation 1,068 1,160 1,812 1,970 2,004 2,576 2,876 3,176 2,784 3,084 3,384 3,200 2,800 2,600 2,600 2,600 Brand products 28,507 29,406 38,960 43,625 48,931 45,041 50,803 52,726 47,381 50,974 53,299 56,200 53,200 48,400 45,700 45,700 yoy % chg. 8% 3% 32% 12% 12% -8% 13% 4% -3% 8% 5% 15% 9% -1% -7% -7% Creative- tablet - 18,379 20,664 21,981 24,148 23,342 25,961 27,737 22,560 23,680 24,571 25,700 23,800 23,100 22,700 22,700 yoy % chg. - - 12% 6% 10% -3% 11% 7% -7% 5% 4% 6% -1% -4% -6% -6% Creative- mobile - 534 2,871 3,909 4,453 3,688 4,202 4,297 3,980 4,222 4,423 5,900 5,800 5,400 4,800 4,800 yoy % chg. - - 438% 36% 14% -17% 14% 2% -11% 6% 5% 32% 30% 21% 8% 8% Creative- display - 6,050 9,799 10,590 13,223 12,538 15,422 15,730 13,638 15,393 16,000 14,700 14,600 13,300 12,600 12,600 yoy % chg. - - 62% 8% 25% -5% 23% 2% 3% 13% 4% 11% 10% 1% -5% -5% Consumer - 1,825 1,691 1,554 2,149 1,352 1,143 1,028 1,976 2,067 2,184 3,300 2,500 1,600 1,500 1,500 yoy % chg. - - -7% -8% 38% -37% -15% -10% -8% 5% 6% 54% 16% -26% -30% -30% Business Solution - 2,618 3,935 5,591 4,958 4,121 4,076 3,934 5,226 5,611 6,121 6,600 6,500 5,000 4,100 4,100 yoy % chg. - - 50% 42% -11% -17% -1% -3% 5% 7% 9% 33% 31% 1% -17% -17% Japan 6,016 5,950 6,925 6,477 7,252 6,691 6,992 7,057 7,523 7,765 7,931 8,380 8,510 7,780 7,020 7,020 yoy % chg. 12% -1% 16% -6% 12% -8% 4% 1% 4% 3% 2% 16% 17% 7% -3% -3% US 9,006 9,295 12,494 13,913 15,631 13,650 15,639 16,022 14,111 15,234 15,564 17,410 16,010 14,400 14,210 14,210 yoy % chg. -2% 3% 34% 11% 12% -13% 15% 2% -10% 8% 2% 11% 2% -8% -9% -9% yoy % chg. In L/C 6% -2% 11% 1% 3% -4% 8% 2% 4% 10% 2% 22% 17% 6% 0% 0% Germany 8,899 9,630 12,668 14,532 14,845 13,646 14,790 14,871 14,405 15,296 15,954 17,170 16,190 14,680 13,800 13,800 yoy % chg. 9% 8% 32% 15% 2% -8% 8% 1% -3% 6% 4% 16% 9% -1% -7% -7% yoy % chg. In L/C 21% 10% 5% 11% 7% 2% 5% 1% 11% 8% 4% 22% 24% 12% 3% 3% Others 4,586 4,531 6,873 8,703 11,203 11,054 13,383 14,776 11,343 12,679 13,849 13,240 12,490 11,540 10,670 10,670 yoy % chg. 28% -1% 52% 27% 29% -1% 21% 10% 1% 12% 9% 18% 11% 3% -5% -5% yoy % chg. In L/C 16% -6% 26% 15% 18% 9% 15% 10% 16% 14% 9% 29% 28% 18% 5% 5% Technology Solution 11,683 31,056 39,002 30,277 27,974 24,927 25,442 26,016 23,513 23,635 24,151 25,100 23,900 21,200 25,100 25,100 Pen for Smartphone - 17,666 22,190 18,331 16,353 13,022 13,280 13,280 13,131 12,709 12,709 13,200 13,000 10,500 12,900 12,900 Pen for Tablet - 8,317 11,096 8,542 9,532 10,829 10,782 11,356 9,155 9,690 10,206 9,800 8,600 9,300 10,600 10,600 Pen for Notebook PC - 5,000 5,716 3,404 2,089 1,076 1,380 1,380 1,227 1,236 1,236 2,100 2,300 1,400 1,600 1,600 Pen for Touch - 73 - - - - - - - - - - - - Others 515 606 653 655 663 631 700 700 720 700 700 700 800 700 700 700 Total 40,705 61,068 78,615 74,557 77,568 70,600 76,945 79,442 71,614 75,309 78,150 82,000 77,900 70,300 71,500 71,500 yoy % chg. 23% 50% 29% -5% 4% -9% 9% 3% -8% 5% 4% 6% 0% -9% -8% -8% seq % chg. - - - - - - - - - - - - - - - - Operating profits by segment Brand products 5,125 4,895 5,214 5,965 8,036 6,438 9,630 10,180 7,360 8,140 8,720 11,400 9,660 7,300 6,500 6,500 OPM 18.0% 16.6% 13.4% 13.7% 16.4% 14.3% 19.0% 19.3% 15.5% 16.0% 16.4% 20.3% 18.2% 15.1% 14.2% 14.2% Technology Solution 1,091 5,554 6,667 4,642 3,130 2,285 2,136 2,246 2,342 2,587 2,687 1,600 1,390 900 2,000 2,000 OPM 9.3% 17.9% 17.1% 15.3% 11.2% 9.2% 8.4% 8.6% 10.0% 10.9% 11.1% 6.4% 5.8% 4.2% 8.0% 8.0% Others 70 102 123 55 36 (17) 140 140 67 140 140 50 190 100 0 0 OPM 13.6% 16.9% 18.8% 8.4% 5.4% -2.7% 20.0% 20.0% 9.3% 20.0% 20.0% 38.9% 427.8% -688.2% -100.0% -100.0% Corporate/Elimination (2,217) (2,637) (3,341) (4,519) (7,538) (9,130) (8,740) (8,740) (8,505) (8,540) (8,540) (8,850) (8,840) (8,800) (9,000) (9,000) Total 4,068 7,915 8,663 6,143 3,664-424 3,166 3,826 1,264 2,327 3,007 4,200 2,400-500 -500-500 OPM 10.0% 13.0% 11.0% 8.2% 4.7% -0.6% 4.1% 4.8% 1.8% 3.1% 3.8% 14.6% 3.1% -0.7% -0.7% -0.7% Source: Company data, Credit Suisse estimates Wacom (6727) 7
Figure 8: Sales & OP forecasts (semi-annual & quarterly) 2015/3 2016/3 2017/3 2017/3 2016/3 2017/3 mn 1H 2H 1H 2H 1H 2H 2H 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4Q Actual CSE CoE Actual Actual Actual CSE CoE 2017/3 2017/3 Sales 32,011 42,546 38,956 38,612 33,797 36,803 37,703 15,142 23,815 21,935 16,676 13,261 20,536 20,943 15,860 16,760 yoy % chg. -7% -4% 22% -9% -13% -5% -2% 11% 30% -12% -5% -12% -14% -5% -5% 1% seq % chg. -28% 33% -8% -1% -12% 9% 12% -14% 57% -8% -24% -20% 55% 2% -23% -20% Gross profits 13,081 16,969 15,057 15,679 13,240 15,403-6,280 8,777 9,326 6,353 5,271 7,969 8,702 6,700 - as of sales 41% 40% 39% 41% 39% 42% - 41% 37% 43% 38% 40% 39% 42% 42% - SG&A expense 11,254 12,653 12,974 14,098 14,138 14,929-6,251 6,723 6,575 7,522 6,718 7,420 7,178 7,750 - as of sales 35% 30% 33% 37% 42% 41% - 41% 28% 30% 45% 51% 36% 34% 49% - Operating profits 1,826 4,316 2,083 1,582-898 474 398 29 2,053 2,751-1,169-1,447 549 1,524-1,050-1,126 yoy % chg. -40% -23% 14% -63% - -70% -75% -63% 18% -29% -356% - -73% -45% -10% - as of sales 5.7% 10.1% 5.3% 4.1% -2.7% 1.3% 1.1% 0.2% 8.6% 12.5% -7.0% -10.9% 2.7% 7.3% -6.6% -6.7% Recurring profits 1,761 4,304 2,098 1,678-1,021 749 371 26 2,072 2,795-1,116-1,481 460 1,789-1,040-1,418 yoy % chg. -41% -19% 19% -61% - -55% -78% -81% 28% -25% -289% - -78% -36% -7% - Net profits 1,147 2,326 1,261 1,048-1,226-4,413-4,374-235 1,496 1,824-776 -1,147-79 1,127-5,540-5,501 yoy % chg. -41% -29% 10% -55% - - - -347% 42% -11% -383% - - -38% 614% - R&D 1,494 1,686 2,033 2,309 2,265 2,311 2,335 1,019 1,014 874 1,435 1,062 1,203 911 1,400 1,424 Capex 1,790 2,292 2,747 2,115 1,701 1,979 2,099 1,128 1,619 787 1,328 838 863 879 1,100 1,220 Depreciation 809 809 809 809 1,240 1,336 1,360 436 532 488 548 621 619 643 693 717 Brand products 19,502 24,123 22,853 26,078 19,327 25,714 26,373 10,760 12,093 14,723 11,355 9,263 10,064 13,677 12,037 12,696 yoy % chg. 17% 8% 17% 8% -15% -1% 1% 24% 12% 8% 8% -14% -17% -7% 6% 12% Creative- tablet 9,473 12,508 11,172 12,976 9,794 13,548 12,906 5,060 6,112 7,380 5,596 4,555 5,239 7,280 6,268 5,626 yoy % chg. 2% 10% 18% 4% -12% 4% -1% 21% 16% 1% 8% -10% -14% -1% 12% 1% Creative- mobile 1,769 2,140 2,571 1,882 1,224 2,464 3,576 1,377 1,194 1,063 819 753 471 1,422 1,042 2,154 yoy % chg. 354% -14% 45% -12% -52% 31% 90% 55% 36% -2% -22% -45% -61% 34% 27% 163% Creative- display 4,812 5,778 6,112 7,111 5,858 6,680 6,742 2,804 3,308 3,693 3,418 2,696 3,162 3,416 3,264 3,326 yoy % chg. 2% 14% 27% 23% -4% -6% -5% 25% 29% 23% 23% -4% -4% -8% -4% -3% Consumer 663 891 677 1,472 465 887 1,035 283 394 1,169 303 233 232 569 318 466 yoy % chg. 5% -16% 2% 65% -31% -40% -30% 39% -14% 133% -22% -18% -41% -51% 5% 54% Business Solution 2,785 2,806 2,321 2,637 1,986 2,135 2,114 1,236 1,085 1,418 1,219 1,026 960 990 1,145 1,124 yoy % chg. 66% 24% -17% -6% -14% -19% -20% 5% -32% -17% 10% -17% -12% -30% -6% -8% Japan 2,808 3,669 3,268 3,984 3,598 3,093 3,422 1,538 1,730 1,830 2,154 1,395 2,203 1,696 2,052 1,726 yoy % chg. -12% -2% 16% 9% 10% -22% -14% 18% 15% 5% 11% -9% 27% -7% -5% -20% US 6,297 7,616 7,388 8,243 5,422 8,228 8,788 3,739 3,649 4,927 3,316 2,774 2,648 4,682 3,546 4,106 yoy % chg. 17% 7% 17% 8% -27% 0% 7% 21% 13% 12% 3% -26% -27% -5% 7% 24% yoy % chg. In L/C 12% -7% -1% 7% -16% 15% 13% 2% -3% 5% 7% -17% -17% 5% 7% 7% Germany 6,204 8,328 6,474 8,371 5,368 8,278 8,432 2,717 3,757 5,069 3,302 2,321 3,047 4,677 3,601 3,755 yoy % chg. 26% 7% 4% 1% -17% -1% 1% 9% 1% 1% 0% -15% -19% -8% 9% 14% yoy % chg. In L/C 18% 7% 7% 7% -6% 13% 9% 13% 3% 8% 6% -6% -8% 4% 13% 13% Others 4,193 4,510 5,723 5,480 5,595 5,459 5,075 2,766 2,957 2,897 2,583 2,773 2,822 2,622 2,838 2,453 yoy % chg. 32% 22% 36% 22% -2% 0% -7% 52% 25% 18% 26% 0% -5% -9% 10% -5% yoy % chg. In L/C 26% 6% 16% 20% 12% 14% -2% 28% 6% 11% 30% 13% 10% 0% 10% 10% Technology Solution 12,165 18,112 15,788 12,186 14,142 10,785 10,958 4,241 11,547 7,059 5,127 3,828 10,314 7,112 3,673 3,846 Pen for Smartphone 6,312 12,019 9,419 6,934 8,435 4,587 4,465 1,118 8,301 4,574 2,360 1,255 7,180 3,820 767 645 Pen for Tablet 3,926 4,616 5,150 4,382 5,162 5,667 5,438 2,540 2,610 2,042 2,340 2,273 2,889 3,106 2,561 2,332 Pen for Notebook PC 1,927 1,477 1,219 870 545 531 1,055 583 636 443 427 300 245 186 345 869 Pen for Touch - - - - - - - - - - - - - - - Others 344 311 315 348 328 303 372 141 175 153 194 170 158 154 150 218 Total 32,011 42,546 38,956 38,612 33,797 36,803 37,703 15,142 23,815 21,935 16,676 13,261 20,536 20,943 15,860 16,760 yoy % chg. -7% -4% 22% -9% -13% -5% -2% 11% 30% -12% -5% -12% -14% -5% -5% 1% seq % chg. -28% 33% -8% -1% -12% 9% 0.115572-14% 57% -8% -24% -20% 55% 2% -23% -20% Operating profits by segment Brand products 2,505 3,460 3,642 4,394 2,051 4,387 4,449 1,651 1,991 3,609 785 987 1,064 3,121 1,266 1,328 OPM 12.8% 14.3% 15.9% 16.8% 10.6% 17.1% 16.9% 15.3% 16.5% 24.5% 6.9% 10.7% 10.6% 22.8% 10.5% 10.5% Technology Solution 1,250 3,392 2,114 1,016 1,788 497 212 216 1,898 1,004 12 (96) 1,884 713 (216) (501) OPM 10.3% 18.7% 13.4% 8.3% 12.6% 4.6% 1.9% 5.1% 16.4% 14.2% 0.2% -2.5% 18.3% 10.0% -5.9% -13.0% Others 69 (14) 34 2 (13) (4) 13 3 31 7 (5) 7 (20) (24) 20 37 OPM 20.1% -4.5% 10.8% 0.6% -4.0% -1.3% 3.5% 2.5% 17.5% 4.6% -2.6% 4.0% -12.5% -15.6% 13.3% 16.9% Corporate/Elimination (1,998) (2,521) (3,707) (3,830) (4,724) (4,406) (4,276) (1,842) (1,865) (1,869) (1,961) (2,345) (2,379) (2,286) (2,120) (1,990) Total 1,826 4,316 2,083 1,582-898 474 398 29 2,053 2,751-1,169-1,447 549 1,524-1,050-1,126 OPM 5.7% 10.1% 5.3% 4.1% -2.7% 1.3% 1.1% 0.2% 8.6% 12.5% -7.0% -10.9% 2.7% 7.3% -6.6% -6.7% Source: Company data, Credit Suisse estimates Wacom (6727) 8
Companies Mentioned (Price as of 14-Mar-2017) Wacom (6727.T, 456, UNDERPERFORM, TP 260) Disclosure Appendix Analyst Certification Akinori Kanemoto and Takuma Tsuji each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Wacom (6727.T) 6727.T Closing Price Target Price Date ( ) ( ) Rating 26-May-14 548 460 U 09-Jul-14 575 450 09-Oct-14 440 380 23-Jan-15 487 450 17-Apr-15 601 570 N 17-Jun-15 475 400 U 18-Jan-16 480 390 25-Apr-16 480 380 15-Aug-16 342 270 * Asterisk signifies initiation or assumption of coverage. 700 600 500 400 300 200 U N D ERPERFO RM N EU T RA L Target Price Closing Price 6727.T 01- Jan- 2015 01- Jan- 2016 01- Jan- 2017 The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Wacom (6727) 9
Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (60% banking clients) Underperform/Sell* 14% (52% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Important Global Disclosures Credit Suisse s research reports are made available to clients through our proprietary research portal on CS PLUS. 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Given our 12-month expected total return and comparison with our coverage universe, we reiterate our UNDERPERFORM rating. Risk: Upside risks to our 260 target price and UNDERPERFORM rating for Wacom include better than expected sales from new own-brand products, yen weakening, and successful cost-cutting. Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectarchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=289803&v=x51u0wiaqsobwq6wqdkdr0y1. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.creditsuisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited...Akinori Kanemoto ; Takuma Tsuji To the extent this is a report authored in whole or in part by a non-u.s. analyst and is made available in the U.S., the following are important disclosures regarding any non-u.s. analyst contributors: The non-u.s. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-u.s. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited...Akinori Kanemoto ; Takuma Tsuji Wacom (6727) 10
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683. Wacom (6727) 11
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