Alps Alpine Has A Lot To Prove To Rebuild Investor Sentiment

 

The performance of Alps Alpine (OTCPK:APELY) (6770.T) has been pretty awful since my last update, as the shares have been hit hard by both weakness in auto build-rates and weaker margin guidance from management. Establishing sustainable profitability, particularly in the higher-margin camera actuator business, has proven to be a challenge beyond management so far, and guidance for this current fiscal year doesn’t suggest an immediate improvement.

Buying beaten-up stocks means buying in when things still look pretty ugly, and that is the case here. While I do think auto build-rates will improve from here, whether or not Alps Alpine can develop the auto infotainment products needed to be a real player in future models is very much an open question, as is management’s ability to significantly improve auto electrical component margins from here. Likewise, it remains to be seen if Alps can reach some sort of equilibrium between market share and margins in the actuator business, or whether this will remain an unpredictable and volatile business.

Alps Alpine has not earned any benefit of the doubt, and my recommendation here is really based on “if you believe they can do X, then…”. Despite the disappointments of the last fiscal year, the company didn’t finish too far off my revenue and EBITDA assumptions, and future revenue growth of 2% to 4% with FCF margins around 3% can support a meaningfully higher share price than today’s price.

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Alps Alpine Has A Lot To Prove To Rebuild Investor Sentiment