Thinking Points

  • Fisco introduced 1 company report last week.
  • The company is an interesting one with an 80+% global share in pen tablets for creators and hobbyists.
  • Though revenues have been growing over the last 10 years, gross and operating margins have declined, raising a few concerns.

Fisco Roundup

Fisco only released one company report for the week ending June 22, 2018. It’s an interesting one about a company called Wacom (TSE: 6727). Perhaps if you are the artsy type that likes tech gadgets, you may have heard of the company or used its products before.

Wacom (TSE: 6727)

According to Fisco’s report, Wacom holds over 80% global share of pen tablets for creators and hobbyists. If you’re not sure what that is, don’t worry, it didn’t ring a bell for me either. Here’s a picture of a pen tablet:

Source: Amazon

Basically, it’s a drawing board for your computer. Though you can technically draw on your computer using a mouse, it typically doesn’t give you the precision that the more traditional pen and paper drawing does.

“The biggest feature of the pen tablet is that it is accurate and highly precise. Depending on the product, some are able to detect the pen pressure and the inclination of the pen and thereby express the touch of the pen on the tablet screen more delicately. Utilizing such features, the pen tablet is used for creating designs, illustrations, graphics, and other such works on a computer.”

The company has two segments: Branded Products and Technology Solutions. The easier way to describe it is that Wacom-branded products (like the one in the image above) are sold under the Branded Products segment and component sales (like OEM parts) are under the Technology Solutions segment. If you have a Samsung Galaxy Note, then you’ve used Wacom products before (they’re the supplier for the stylus).

The Fisco report contains a chart describing which products the revenues came from:

Source: Fisco

I’m not sure whether the translator forgot to translate the gray portion of the pie chart above, but it reads “for tablets (including laptops)”.

98% of Wacom’s production is done outside of Japan. At first this was surprising, however, Wacom is pretty much a fabless manufacturer. It has a small facility at its headquarters in Saitama Prefecture (near Tokyo).

A quick glance at historical financials doesn’t provide much in terms of excitement. Over the last 10 years, revenues have grown while gross and operating margins declined. Recent performance leaves much to be desired.

Even using the fiscal 2019 guidance of operating profit at 4,000 million yen ($36.4 million USD), EV/EBIT multiple is at 24x, which seems expensive.

Click here for Fisco’s full report on Wacom.

Wrap up

Wacom is certainly an interesting company to read about, especially since we don’t come across a company with an 80+% global share in anything very often. It’s hard to tell whether the declining margins are from increasing competition or a shift to a lower margin higher volume business. This is probably something to keep in mind while reading through Fisco’s report.

Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.