BofA raises JEOL price objective and reiterates Buy

Overview

This report is BofA's company research and rating/price objective revision report on JEOL. The report reiterates its BUY rating and raises the price objective from ¥7,700 to ¥8,900, believing that growth momentum is strengthening across the company's core product portfolio, particularly MBMW, multi-beam mask writers, direct-write lithography systems, and in-line metrology tools for semiconductor production lines.

Core views

The core view is that JEOL is likely to re-enter a phase of earnings growth. Growth pillars include MBMW demand driven by advanced-node investment by major foundries; sales of DFB laser-related direct-write lithography systems supported by expanding data center optical transceiver demand; and market share gains in the Scientific & Metrology Instruments business through increased contributions from private-sector customers. The report also forecasts a compound annual growth rate of approximately 13% for consolidated operating profit over FY3/27-30.

Analysis framework

The analytical framework centers on upward earnings revisions and SOTP valuation. BofA raises FY3/28-30 operating profit forecasts by 5-8% and applies an FY3/28 EV/EBITDA multiple of 11.0x to the Industrial Equipment business and 9.0x to the Scientific & Metrology Instruments business in its SOTP valuation, while reducing the conglomerate discount to 5%, resulting in a ¥8,900 price objective.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  The report values business segments including Industrial Equipment and Scientific & Metrology Instruments separately, then deducts a conglomerate discount to reflect differences in growth and comparable-company valuations across the businesses.

• Valuation methodsEV/EBITDA

  Enterprise value/earnings before interest, taxes, depreciation, and amortization multiple

  The Industrial Equipment business is valued at 11.0x FY3/28 EV/EBITDA, up from 10.0x previously; the Scientific & Metrology Instruments business is valued at 9.0x.

• Earnings ForecastOperating profit forecast revision

  FY3/28-30 operating profit upgrade

  The report raises FY3/28-30 operating profit forecasts by 5-8% following higher sales assumptions for direct-write lithography systems.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• JEOL (6951.T)

  Research subject

  Strengths

  MBMW market share exceeds 80%; benefits from advanced-node investment by leading foundries, DFB laser demand, and ramp-up of new semiconductor metrology products.

  Weaknesses

  After six MBMW units are scheduled to be shipped in the current fiscal year, the order backlog is expected to decline to approximately 10 units, and the timing of the next round of orders remains to be verified.

  Comparison

  The report compares the Industrial Equipment business's valuation with EUV-related semiconductor equipment companies and believes the current discount relative to EUV-exposed peers has widened.

  Risks

  Export restrictions, tariffs, delays in capital expenditures by major foundries, declining MBMW share, and reduced multiple-exposure requirements due to High-NA technology could all weigh on performance.

Key data

• RatingBUYBofA reiterates its Buy rating.
• Price objective¥8,900The previous price objective was ¥7,700.
• Current price¥7,309Price disclosed in the report.
• Implied upsideApproximately 21.8%Calculated based on the ¥8,900 price objective and ¥7,309 current price.
• FY3/27 1Q operating profit forecast¥1.7bnAbove the consensus estimate of ¥1.3bn; the first quarter is typically seasonally weak.
• FY3/28 operating profit forecast increase7%As disclosed in Exhibit 1, driven by an upward revision to direct-write lithography system sales due to strong DFB laser demand.
• FY3/27-30 operating profit CAGR13%The report's forecast for consolidated operating profit compound growth.
• FY3/28 implied P/E16.6xBased on the ¥8,900 price objective.
• Industrial Equipment EV/EBITDA multiple11.0xRaised from 10.0x previously and representing a 50% discount to EUV-related peers.
• Conglomerate discount5%Reduced from 10% following completion of the medical equipment business divestiture in May.

Impact & implications

The report's investment implications for JEOL are positive: if EUV-related advanced-node capital expenditures, data center optical transceiver demand, and adoption of new in-line metrology products continue to advance, the company has room for both earnings and valuation re-rating. However, near-term catalysts also depend on the timing and visibility of the recovery in MBMW orders.

Risks

• Stricter US tariffs and export restrictions.
• Declining market share in the multi-beam mask writer market.
• Delays in capital expenditures by major foundries.
• Fewer exposures required after High-NA technology expands single-exposure patterning applications.
• Termination of the alliance with IMS in multi-beam mask writers.
• Slowing R&D investment demand from major customers of Scientific & Metrology Instruments.

What to watch

• The timing and visibility of the recovery in the next round of MBMW orders.
• MBMW-301's contribution to earnings and progress in the subsequent development of MBMW-401/501.
• Capital expenditure trends for EUV and sub-2nm advanced nodes.
• The contribution of data center optical transceiver demand to DFB laser and direct-write lithography system sales.
• Customer adoption and market share gains for new in-line metrology products on semiconductor production lines.
• Whether the conglomerate discount continues to narrow following the medical equipment business divestiture.