Meiden Sha: Abolishes Anti-Takeover Measures, FY3/27 Guidance Leans Conservative

Overview

This research report comprises minutes from Goldman Sachs' "Beyond the Cycle" seminar, recording Meiden Sha executives' latest statements on corporate governance, business segment outlooks, and capital expenditure plans. The core conclusion is that while the company has provided FY3/27 guidance exceeding expectations, Goldman Sachs still considers its assumptions regarding overseas power project margins and semiconductor equipment components overly conservative. Meanwhile, the abolition of anti-takeover measures and the impairment of the Chinese EV business are seen as positive signals of management-driven transformation. Overall, the meeting content was positive, but given that current valuations already reflect some optimistic expectations, the institution maintains a Neutral rating.

Core views

Regarding corporate governance and EV business cleanup, Meiden Sha's board formally decided to abolish anti-takeover measures based on shareholder interests, which the market views as a significant step toward improving governance structure. In the EV motor/inverter business, the company recorded an impairment loss for a Chinese subsidiary, primarily due to low utilization rates at one production line. Management judges that this business bottomed out in FY3/26; with new models from key OEM customers launching in the second half of FY3/27 and relevant orders already secured, performance is expected to gradually improve. Currently, the break-even point for the EV business is approximately JPY 40 billion in sales, with break-even expected in FY3/27. The power infrastructure business exhibits a characteristic of "volume growth with stable profits," yet margin guidance implies conservative expectations. The FY3/27 operating margin guidance for this segment was lowered from 12.4% to 10.6%, mainly dragged down by a large batch order in Singapore (revenue growth without profit growth) and rising raw material prices. However, Goldman Sachs believes this margin assumption may be too low; specifically, if the actual margin of the Singapore project exceeds expectations, it would constitute significant upside risk. In the US market, the company has established technical barriers with its SF6-free gas-insulated vacuum circuit breakers and the world's first 200kV/145kV products; sales are expected to double in FY3/27 after the new VCB production line becomes operational. In the Indian market, profit contributions will materially materialize as deliveries for high-speed rail substations commence. The mobility and electrical components business shows clear structural divergence. Although the battery electric vehicle (BEV) market is weak, hybrid electric vehicle (HEV) demand supports the fundamentals of motors and inverters. More noteworthy is the vacuum capacitor business for semiconductor production equipment (SPE); in addition to core customer Daihen's orders recovering since FY3/26Q4, the company is gaining share from competitor Comet Group among US customers like Lam Research and AMAT, with the sales proportion from non-Tokyo Electron customers continuously rising. Furthermore, while the field service engineering business guidance for FY3/27 declined due to labor shortages and safety controls, considering that last year also started conservatively yet ultimately exceeded expectations, and given the room for increasing order unit prices, actual performance is highly likely to be robust. Regarding capital expenditure and risk response, the FY3/27 CAPEX budget increased to JPY 32 billion (up from JPY 18 billion last year), focusing on the relocation and upgrade of the Singapore factory, renovation of transformer production lines in Japan (approx. JPY 16 billion), and capacity expansion at the Numazu VI factory. In response to resin and coating procurement risks triggered by Middle East tensions, the company is advancing supply chain diversification and has reserved a buffer for slight margin declines caused by rising input costs.

Analysis framework

The institution adopted a typical "Meeting Minutes Verification + Segment Breakdown" analysis framework. First, by comparing management's verbal statements with written guidance, it identified potential expectation gaps behind "conservative assumptions" (such as Singapore project margins and SPE customer expansion progress). Second, it broke down revenue and profit drivers by business segment (Power Infrastructure, Mobility, Field Services), distinguishing between cyclical factors (e.g., EV model换代) and structural factors (e.g., technology substitution, customer diversification). Finally, it combined capital expenditure plans to verify the credibility of medium-to-long-term growth logic. This approach helps penetrate surface financial data to capture signals of management's true operational rhythm and strategic focus shifts.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  Valuation based on the correlation between EV/EBITDA multiples and CROCI

  In Goldman Sachs' analytical system, using P/E alone can be distorted for capital-intensive or transforming industrial manufacturers. Therefore, Enterprise Value multiple (EV/EBITDA) is used as the core valuation anchor, linked to Cash Return on Capital Invested (CROCI) to reflect the company's true profitability and capital allocation efficiency after excluding the impact of depreciation and amortization. This report applies a 9.0x EV/EBITDA (base year FY3/28) to derive the target price.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Judging the profit resilience of midstream manufacturers by analyzing upstream raw material procurement risks and downstream customer demand changes

  The research report not only focuses on the company's own operations but also deeply analyzes how changes upstream (resin/coating supply risks due to Middle East tensions) and downstream (automaker investment willingness, data center power demand) transmit to the company's gross margin. This whole-industry-chain perspective helps investors understand why certain businesses (such as long-lead-time power equipment) face lagging cost risks, while others (such as SPE capacitors) can enjoy the benefits of reduced customer concentration.

Asset mapping & comparison

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

• Meiden Sha (6508.T)

  Beneficiary: Corporate governance improvement + Expectation gap under conservative guidance + Multi-business structural growth points

  Strengths

  Leading SF6-free circuit breaker technology in the US market; Breakthrough in SPE vacuum capacitor customer diversification; HEV motors hedging BEV downside risk; Abolition of anti-takeover measures enhancing governance premium

  Weaknesses

  EV business still relies on new model volume to stabilize profitability; Field services constrained by labor shortages making rapid expansion difficult; Long-lead-time power equipment faces risks of lagging cost pass-through

  Comparison

  Compared to comprehensive giants like Mitsubishi Electric, Meiden Sha has greater focus and elasticity in niche high-voltage switches and SPE capacitors; Compared to pure EV component manufacturers, its power infrastructure base provides stronger counter-cyclical capabilities

  Risks

  Continued deterioration of Singapore project margins; EV new model orders falling short of expectations; Slower-than-expected recovery in the SPE market; Significant JPY appreciation eroding overseas profits

Key data

• FY3/27 CAPEX BudgetJPY 32 billionSignificant increase from JPY 18 billion in FY3/26, primarily for Singapore factory upgrades and Japanese transformer line renovations
• Power Infrastructure OPM Guidance10.6%FY3/27 guidance value, lower than FY3/26's 12.4%; institution believes it contains conservative elements
• EV Business Break-even SalesApprox. JPY 40 billionBased on assumptions of 60% utilization at China Tier 2 and 80% at Nagoya
• US VCB Sales Growth ExpectationApprox. DoubleFY3/27 expectation, benefiting from new production line launch and VI sales growth
• FY3/26 Operating Profit Beat+JPY 3.1 billionPrimarily driven by the profit leverage effect from increased sales revenue

Impact & implications

For Meiden Sha, abolishing anti-takeover measures eliminates the long-standing governance discount that suppressed valuation, clearing obstacles for potential strategic partnerships or enhanced shareholder returns in the future. The conservative guidance for FY3/27 effectively reserves a safety cushion for subsequent earnings upgrades; especially in overseas power projects and SPE components, any better-than-expected progress could become a stock price catalyst. For the industry, the company's launch of environmentally friendly high-voltage circuit breakers in the US market sets a technical benchmark, potentially accelerating the entire transmission and distribution industry's transition to SF6-free solutions. In the EV sector, the strategy of transitioning from pure electric to hybrid validates the survival resilience of traditional Tier 1 suppliers amidst the electrification wave, demonstrating the ability to cover multiple powertrain routes through platform capabilities rather than betting on a single technology path.

Risks

• Profitability improvement in the power infrastructure business falls short of expectations, or volume/price growth is lower than expected
• Labor shortages in the field service engineering business hinder the conversion of order backlog into revenue/profit
• Fluctuations in electric vehicle production or sales of models equipped with the company's motors/inverters fall short of expectations
• Recovery speed of the semiconductor production equipment market is slower than expected, dragging down the vacuum capacitor business
• Significant fluctuations in the JPY exchange rate adversely affect overall company profitability

What to watch

• Whether the actual operating margin of Singapore power infrastructure projects exceeds guidance assumptions
• Whether US VCB production line sales in FY3/27 achieve the expected doubling
• Sustainability of order growth for SPE vacuum capacitors from non-Tokyo Electron customers such as Lam Research and AMAT
• Whether the EV motor/inverter business achieves break-even as scheduled in FY3/27
• The magnitude of order unit price increases and improvements in labor supply for the field service engineering business