We reinitiated Tokyo based Fujifilm Holdings Corporation ( FUJI ) with a Neutral recommendation, awaiting the significant recovery in the macroeconomic conditions.
After gaining the strong foothold in the domestic photographic film market, Fuji shifted to a business diversification strategy, together with strong geographical expansion. Fuji has been continuously developing innovative products and penetrated the overseas markets establishing sales bases across larger areas like the United States, Europe and Asia.This is expected to provide momentum to the stock.
Fuji’s effort in various structural reforms is another reason to Outperform. Recently, the company introduced ROA-based indicators to improve efficiency of its asset and capital utilization by reducing fixed assets and inventories. Management expects its ROA to more than double from 2.1% currently to approximately 5.0% in fiscal 2012. ROE is expected to be two times of 3.5% at the end of fiscal 2010. The restructuring programs would prove to be quite beneficial for the company in the long term considering the clear signs of recovery in each business segment.
However, Fuji is subject to foreign currency risks as majority of its income is generated from outside Japan. During fiscal year 2010, approximately 51% of its revenue came from international operations. Fuji also operates in an intense competitive industry where competitors either continuously launch new products or work to develop products incorporating new technologies. Besides, new marketing strategies also impact revenues to a large extent.
Fuji Photo has greater exposure to the low end of the digital camera market, where price discounting has been more pronounced that reduces its top line results. Lastly, the industry in which it operates is highly cyclical in nature, as the demand for its products dipped massively during the economic downturn. Although, there is a slight recovery in the macroeconomic conditions, it will take another year or two to show significant results.
Nevertheless, Fuji has been growing through acquisitions especially in medical imagine business. Recently, its Brazilian unit acquired NDT Comercial Ltd, a Sao Paulo-based provider of medical product sales services. Some of its acquisitions in 2009 were Graphischer Dienst Diemer & Koch GmbH, a Bielefeld-based provider of graphic design services and the remaining interest in Fujinon Toshiba ES Systems Co. Ltd., a marketer of medical equipment, from Toshiba Medical Systems Corp. Thus, its strategy to grow through acquisitions will bear its fruits in future.
After gaining the strong foothold in the domestic photographic film market, Fuji shifted to a business diversification strategy, together with strong geographical expansion. Fuji has been continuously developing innovative products and penetrated the overseas markets establishing sales bases across larger areas like the United States, Europe and Asia.This is expected to provide momentum to the stock.
Fuji’s effort in various structural reforms is another reason to Outperform. Recently, the company introduced ROA-based indicators to improve efficiency of its asset and capital utilization by reducing fixed assets and inventories. Management expects its ROA to more than double from 2.1% currently to approximately 5.0% in fiscal 2012. ROE is expected to be two times of 3.5% at the end of fiscal 2010. The restructuring programs would prove to be quite beneficial for the company in the long term considering the clear signs of recovery in each business segment.
However, Fuji is subject to foreign currency risks as majority of its income is generated from outside Japan. During fiscal year 2010, approximately 51% of its revenue came from international operations. Fuji also operates in an intense competitive industry where competitors either continuously launch new products or work to develop products incorporating new technologies. Besides, new marketing strategies also impact revenues to a large extent.
Fuji Photo has greater exposure to the low end of the digital camera market, where price discounting has been more pronounced that reduces its top line results. Lastly, the industry in which it operates is highly cyclical in nature, as the demand for its products dipped massively during the economic downturn. Although, there is a slight recovery in the macroeconomic conditions, it will take another year or two to show significant results.
Nevertheless, Fuji has been growing through acquisitions especially in medical imagine business. Recently, its Brazilian unit acquired NDT Comercial Ltd, a Sao Paulo-based provider of medical product sales services. Some of its acquisitions in 2009 were Graphischer Dienst Diemer & Koch GmbH, a Bielefeld-based provider of graphic design services and the remaining interest in Fujinon Toshiba ES Systems Co. Ltd., a marketer of medical equipment, from Toshiba Medical Systems Corp. Thus, its strategy to grow through acquisitions will bear its fruits in future.
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