On Friday, Morgan Stanley resumed coverage on Alps Alpine Co Ltd. (6770:JP) (OTC: APELF), issuing an Underweight rating with a price target of JPY1,350.00. The decision follows a period where the company experienced a decline in sales and operational profit (OP), particularly in the smartphone camera actuator segment.
Alps Alpine reported a significant net loss of JPY29.8 billion, largely due to an impairment of fixed assets amounting to JPY39.2 billion. This impairment played a substantial role in the company's financial performance, as sales of smartphone camera actuators decreased, leading to a JPY13.8 billion year-over-year drop in OP to JPY19.7 billion.
The analysis by Morgan Stanley suggests that fiscal year 2024 (F3/24) will represent the lowest point for Alps Alpine's operational profit. The firm forecasts an OP of JPY23.1 billion for F3/25, which is slightly above the company's guidance of JPY23.0 billion but below the FactSet consensus of JPY25.2 billion. The projections extend to F3/26 with an expected OP of JPY28.7 billion and F3/27 with an OP of JPY30.2 billion, both falling short of market consensus.
Despite anticipated improvements, Morgan Stanley's outlook remains cautious. The forecasted return on equity (ROE) of 4.5% for F3/27 is below their assumed cost of capital at 6.5%. The price target of JPY1,350 is based on 14.8 times the diluted F3/26 estimated earnings per share (EPS) of JPY90.9 and 0.65 times the diluted end-F3/25 estimated book value per share (BPS) of JPY2,089.
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