We maintain our Neutral rating on Fujifilm Holdings Corporation (FUJIY).
We believe that Fuji’s relentless focus on technological innovation in response to growing market needs coupled with its strong sales promotion is anticipated to lay a solid foundation for the company’s future.
Moreover, we presume that the company’s proactive investments in priority business fields of significant potential will continue to outpace the market, positioning Fujifilm as a sustained and profitable business with large market share. The company’s structural reform programs, which are anticipated to effectively counter rising operating costs and expenses, appear encouraging and beneficial in the long term.
However, risks remain as Fuji operates in a highly competitive industry, wherein competitors like Canon Inc. (CAJ), and Sony Corporation (SNE) continue to develop, market as well as launch advanced digital products. In such a competitive environment, Fuji’s low end digital camera market may affect its top-line results due to price discounting.
Moreover, the worldwide transition to hi-tech digital expertise and the overcapacity in the film industry are expected to impose pressure on the company’s traditional businesses.
The company is also exposed to a global economic slowdown. Sluggish growth in the US and a slowdown in Europe continue to put serious pressure on Fujifilm’s revenues. Adding to its woes, the Great East Japan earthquake and floods in Thailand can potentially jeopardize Fuji’s domestic demand.
Yet again, economic recovery in Asia as well as in the emerging nations remains on track, strengthening the company’s demand across these regions. Beyond the domestic photographic film market, Fuji has diversified itself overseas and in the emerging regions, establishing sales bases in the United States and Europe. This diversification strategy, in response to growing market needs, is anticipated to bolster the company’s financial results over the forthcoming quarters.
Such diversification strategy is, however, not free from plights. Since a significant portion of the company’s income is generated outside Japan, the company falls prey to the exchange rate fluctuation. Moreover, rising raw material prices viz. silver and aluminum, also led to a high cost of production impacting margins.
No matter, how strong the troubles appear to be, we still believe that the company owns a host of talent, a cost-effective business structure, the latest technology, brand equity and growing product portfolio will generate sustainable, profitable growth for the coming years, thereby adding significant value for shareholders.
Fujifilm is a leading global producer of photographic imaging products. The company develops, manufactures, and markets traditional and digital imaging products. Fujifilm has a Zacks #2 Rank, implying a short-term (1-3 months) Buy rating.
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