Shin-Etsu Chemical Leading Its Peers For Good Reasons

Large chemical companies with mid-teens operating margins aren't very common, but Japan's Shin-Etsu (OTCPK:SHECY) has managed it for some time and that has helped the stock outperform both the Nikkei and the S&P 500 over the last five years. With leading positions in PVC, silicones, and multiple markets serving the semiconductor space, I believe Shin-Etsu is looking at a relatively favorable revenue and margin outlook for at least the next few years.

With both the Tokyo-traded shares and the ADRs up around 70% over the last year, a lot of the positives about this company are in the stock. That said, the shares don't look particularly expensive on a DCF basis and improving conditions in the wafer market could drive some near-term upside. I'd rather see a better entry price, but Shin-Etsu's all-around quality argues for a spot on a watch list, and I wouldn't be in a rush to sell if I owned the shares.

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Shin-Etsu Chemical Leading Its Peers For Good Reasons

Seeking Alpha: Hoya Continues To Execute Very Well, But Growth Looks Tied To M&A

Publicly-traded Japanese companies are not often lauded for their strong, shareholder-friendly operating excellence, but Hoya Corp (OTCPK:HOCPY) certainly deserves a lot of credit in that regard. Not only does Hoya have a good record of generating ROIC despite serving cyclical (and in some cases, declining) tech markets, the company has done a good job of maximizing the potential of its electronics operations while building up its healthcare/medical operations.

The lingering question for Hoya Corp is what drives the next leg of growth. Extreme ultraviolet could be an underappreciated driver for the photomask business, but lenses and endoscopes are more likely to be long-term mid-single digit growers from this point. Management has ample cash with which to execute growth-oriented M&A, but a very commendable level of price discipline could lead to a longer wait for a meaningful deal.

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Hoya Continues To Execute Very Well, But Growth Looks Tied To M&A

Seeking Alpha: Hoya Corp Managing For Growth *And* Margins

Japan's Hoya Corp. (OTCPK:HOCPY) is what I think a lot of American investors wish more Japanese companies were like. Hoya focuses on markets where it has strong share (instead of operating numerous sub-scale businesses), continually looks to drive out costs and improve margins, and is comparatively eager to consider M&A and the return of capital to shareholders. It also happens to operate solid businesses, with the company's legacy electronics and imaging businesses producing good cash flow and the health care and medical businesses offering better long-term growth.

Where Hoya is more like typical Japanese equities is in valuation. Japanese equities frequently trade with lower implied discount rates, which can make it hard to find attractively-priced companies by DCF methodologies. I liked Hoya six months ago despite some reservations about valuation, and the shares have risen another 12% since then (about 16% for the Tokyo-listed 7741.T shares). Hoya doesn't look undervalued, but the company has an opportunity to make value-building acquisitions today and I'd at least consider keeping this name on a watch list.

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Hoya Corp Managing For Growth *And* Margins

The Motley Fool: Is There Opportunity in the Eye-Care Sector?

Imperfect vision is a common problem around the world. It's the basis for large businesses at Essilor (NASDAQOTH: ESLOY  ) , Hoya, and Luxottica (NYSE: LUX  ) , as well as contact-lens manufacturers like Johnson & Johnson (NYSE: JNJ  ) , Novartis, Cooper (NYSE: COO  ) , and Valeant (NYSE: VRX  ) . Not only is providing vision care products a profitable business in its own right, which often supports double-digit returns on capital, it is a business where customers typically have to buy the product over and over again throughout their life. Add in above-average growth prospects from emerging markets and it is not too difficult to see why these businesses generally carry robust valuations.

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Is There Opportunity in the Eye-Care Sector?

Seeking Alpha: Hoya's Prospects Brightened By Life Care

As the computer and display-weighted technology businesses stabilize and the life care/health care businesses grow, Hoya's (OTCPK:HOCPY) prospects have improved. Sell-side analysts still seem to have relatively restrained revenue growth expectations, despite double-digit growth in life care today, significant untapped potential in emerging markets, and both a balance sheet and cash flow profile that could support acquisitions to drive further growth.

Valuation is a little more complicated. With the shares up almost 70% over the past year (the Tokyo-listed shares, that is), the valuation is not quite so compelling but I wouldn't say the shares are overvalued. Consistently solid returns on capital would argue for an attractive discount rate, and the sell-side may well be underestimating the company's ability to grow both sales and profits.

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Hoya's Prospects Brightened By Life Care

Seeking Alpha: Is The Growth Story Over For Hoya Corp.?

As a very loose rule of thumb, when I see a company with a solid history of returns on capital, good market share, and a clean balance sheet trading for mid-single digit multiples to EBITDA, I take a closer look. In the case of Hoya Corporation (HOCPY.PK), the debate is pretty simple - will this company ever really grow again or not? Nobody really seems to doubt that the company's traditional technology businesses have likely peaked (at least from a growth perspective), but there's ample doubt as to whether the company can (or will) reallocate its assets and build itself into a growth story once again.

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Is The Growth Story Over For Hoya Corp.?