[Stock Analysis] Kaga Electronics: The Best Company in Japan's High-Growth Electronics Industry?

Diving deep into Kaga Electronics: uncovering its historical track record, current stock price, and future growth potential

TL;DR

As investors look for opportunities in the high-growth electronics industry, one company that should not be overlooked is Kaga Electronics. With a proven track record of success and an ambitious growth strategy in place, this Japanese company is well-positioned to capitalize on the shifting global economic landscape and rising demand for electronic components.

Founded in 1967, Kaga Electronics has built a reputation as a leading independent trading company in the Electronics manufacturing services (EMS) industry. The company has a diverse range of products and services, including electronic components, circuit board mounting, and electronic manufacturing services. Over the years, Kaga Electronics has strategically acquired other companies to expand its offerings and customer base and has grown its sources of sales approximately 215 billion yen.

One of the key drivers of Kaga Electronics' success has been its ability to adapt to changing market conditions. As global supply chains have been disrupted by the COVID-19 pandemic, the company has been able to secure sales volumes via global marketing and take advantage of its unique strength as an independent trading company. This has led to record high net sales and operating income in the fiscal year ending March 31, 2022 and a growth of 34% net sales in the first half of the fiscal year ending March 31, 2023.

But the company's growth potential doesn't stop there. With the ongoing trade tensions between China and the US and the weak yen, many companies are looking to move their manufacturing operations out of China and back to Japan. This presents a significant opportunity for Kaga Electronics, as it is well-positioned to benefit from this trend with its strong relationships with suppliers and customers in the industry.

Additionally, the company has ambitious plans for the future. The Medium-term management plan 2024 aims to achieve an increase in net sales by 600 billion yen and additional sales growth through new M&As, reaching a total of 750 billion yen. This combined with its strong financial performance, with a return on equity of 15.7% in the fiscal year ending March 31, 2022, makes Kaga Electronics an attractive investment opportunity for those looking to tap into the growth potential of Japan's high-growth electronics industry.

However, Kaga Electronics also face some serious headwinds. Customer have overstocked their inventories after the Covid-19 supply chain strains, and coupled with a likely recession, a lot of orders in the industry are being scaled down or put on hold entirely. So far this has not affected the company markedly, but there is a high risk it will in the near future. On top of that, recent uncertainties regarding the Japanese yen can make investments and acquisitions, one of the company’s main growth engines, less attractive.

Company overview

Kaga Electronics offers a wide range of products including semiconductors, passive components, and connectors. This segment is the company's largest, accounting for the majority of its net sales. The circuit board mounting segment provides printed circuit board assembly services to customers in a variety of industries, including automotive, industrial, and medical. The electronic manufacturing services segment offers a full range of services including design, procurement, manufacturing, and testing.

In terms of competitors, Kaga Electronics faces stiff competition from other independent trading companies as well as large electronics manufacturers such as Panasonic, Toshiba, and Hitachi. The company has so far managed to differentiate itself through its strong relationships with suppliers and customers (averaging over 5 years), removing inefficiencies (increased profit margins for 5 years in a row) as well as its ability to adapt to changing market conditions.

Kaga Electronics' main products include electronic components such as semiconductors, passive components, and connectors. The company also provides circuit board assembly services and electronic manufacturing services to customers in a variety of industries:

Table of Content

0. Konichi-Value Score

1. Profitability

2. Opportunities & Risks

3. Financial soundness

4. Stock-price vs Fair value

5. Dividend

6. Conclusion

7. Where to Buy the Stock

0. Konichi-Value Score