Tokyo Electron Ltd. :TOELY-US: Earnings Analysis: Q2, 2018 By the Numbers : December 12, 2017

Tokyo Electron Ltd. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Tokyo Electron Ltd. – Advantest Corp. Sponsored ADR, Applied Materials, Inc., KLA-Tencor Corporation, Lam Research Corporation, Canon Inc. Sponsored ADR, ASML Holding NV ADR and ASM International N.V. ADR (ATEYY-US, AMAT-US, KLAC-US, LRCX-US, CAJ-US, ASML-US and ASMIY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2,528.61 million, Net Earnings of USD 445.33 million.
  • Gross margins widened from 39.74% to 42.15% compared to the same period last year, operating (EBITDA) margins now 26.19% from 20.65%.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 2528.61 2127.06 2295.05 1701.84 2000.33
Revenue Growth (%YOY) 26.41 55.12 61.19 30.08 31.41
Earnings (mil) 445.33 371.19 416.43 236.99 286.08
Earnings Growth (%YOY) 55.67 215.8 157.46 61.04 58.95
Net Margin (%) 17.61 17.45 18.14 13.93 14.3
EPS 0.68 0.56 0.63 0.36 0.43
Return on Equity (%) 7.35 6.38 7.64 4.38 5.16
Return on Assets (%) 20.17 17.37 20.58 11.93 14.62

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Market Share Versus Profits

Revenues History
Earnings History

TOELY-US’s change in revenue this period compared to the same period last year of 26.41% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that TOELY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 18.88% and earnings by 19.97% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 39.74% to 42.15% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 20.65% to 26.19% compared to the same period last year. For comparison, gross margins were 41.10% and EBITDA margins were 24.97% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

TOELY-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 176.93 days compared to 204.37 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 18.52% to 24.42% and (2) one-time items. The company’s pretax margins are now 23.94% compared to 18.67% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Tokyo Electron Ltd. engages in the development, manufacture, and sale of semiconductor production equipment, flat panel display and photovoltaic cell production equipment, electronic parts, and telecommunications equipment. Its operations are carried out through the following segments: Semiconductor Production Equipment (SPE), Flat Panel Display (FPD) Production Equipment, Photovoltaic (PV) Production Equipment, Electronic Components and Computer Networks, Others. The SPE segment provides the development, manufacture, service, and distribution of coaters/developers, plasma etch systems, thermal processing systems, single wafer deposition systems, cleaning systems, wafer probers, and other semiconductor production equipment. The FPD Production Equipment segment manufactures screens for personal computers, LCD TVs, and other electronic devices. The Electronic Components and Computer Networks segment manages the design, development, procurement, and distribution of semiconductor products centering on integrated circuits (IC), other electronic components, computer networks and software. The Others segment includes logistics, facilities management, and insurance businesses. The company was founded in November 11, 1963 and is headquartered in Tokyo, Japan.

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