Fujifilm Penetrates Middle East - Analyst Blog

Fujifilm Holdings Corporation (FUJIY) has established a new subsidiary in Dubai, UAE, to be christened FUJIFILM Middle East FZE. The subsidiary is expected to begin operation from October 1, 2010.

Fujifilm has penetrated overseas markets and established sales bases in larger areas like the United States, Europe and Asia, which are expected to provide greater momentum to the stock.

Meanwhile, Fujifilm has been continuously developing innovative products that use photographic film-related technologies in the medical (X-ray diagnosis), printing, electronic, imaging and magnetic materials field. New FinePix X100, a high-grade digital compact camera featuring an APS-C CMOS sensor, a Fujinon 23mm fixed focal length lens and a developed Hybrid Viewfinder, is scheduled for launch by early calendar 2011.

Fujifilm’s strong business and expansion strategy into wider markets with innovative products including its various structural reforms are expected to outperform its operating results in future in comparison to its competitors. Fujifilm’s direct competitors are Canon Inc. (CAJ), Sony Corp. (SNE), and Eastman Kodak Company (EK).

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 around 7.0% at the end of fiscal 2010. The restructuring programs would prove to be quite beneficial for the company in the long term considering clear signs of recovery in its business segments.

Fuji has also initiated cost and expense reduction exercises to improve profitability. During fiscal 2010, the company recorded a 12% decrease in total costs and expenses. New and high-quality products at much lower costs will power earnings in future.

Thus, for fiscal 2011, management is expecting a 9% increase in revenues and anticipates the company to report net income of $667 million turning around from a loss of $413.2 million in fiscal 2010. We maintain our Outperform recommendation on the ADR, which retains its Zacks #2 Rank (short term “Buy” rating).