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Musashi Seimitsu Industry 7220

武蔵精密工業
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39-5 Daizen, Ueta-Cho, Toyohashi-shi, Aichi
http://www.musashi.co.jp/
0532-25-8111
Summary
Musashi Seimitsu Industry is an auto parts manufacturer with a product lineup focused primarily on automotive gears.
Automobiles
Key dates
2022-01-24
Coverage initiation
Full Report
2022-05-11
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Executive summary

Business overview

Musashi Seimitsu Industry is an auto parts manufacturer with a product lineup focused primarily on automotive gears. The company recorded FY03/21 revenue of JPY204.7bn, about 51% of which was from the Honda Motor group (hereinafter Honda). The company also supplies gear products to domestic automakers such as Toyota and Suzuki and overseas automakers such as Ford and GM in the US, BYD in China, and Daimler in Germany. It also supplies parts to transmission manufacturers such as the Aisin group. In addition, Musashi Seimitsu produces gear products for motorcycles, with sales to Honda as well as to Kawasaki Heavy Industries, Hero, and TVS in India.

In FY03/21, the PT Business, which focuses mainly on powertrain gears, accounted for 69.3% of revenue, with the L&S Business, which centers on suspension products, accounting for 8.5%, and the Motorcycle Business, which focuses mainly on non-automotive gear products, accounting for 22.2%.

For transmission systems, the company makes differential assemblies that balance engine power to the left/right of the vehicle during operation, and speed reduction mechanisms also referred to as a Reducer Unit). These include planetary assemblies that lower output rotational speed in order to increase torque. Other mainstay products include components such as camshafts that regulate an engine’s intake and exhaust valves.

Using the technological and developmental abilities gained and fostered since its founding in 1938, the company has created a globally integrated production system for its mainstay gear products that includes not only their design and development, but also everything from steel forging to assembly operations. While a system built on the division of labor, i.e., having other companies manage heat treatment and other chemical process operations, is generally considered the norm in the precision machining components industry, the company’s integrated production system covering everything from forging to assembly allows it to achieve not only shorter delivery times, but lower costs on the back of reduced transportation expenses and enhanced productivity.

With the integrated production system contributing to lower costs and shorter delivery times, Honda makes use of the company’s differential assemblies in 100% of its vehicles, making these precision mechanical parts indispensable to the automaker. According to management, the company also has the largest global market share in motorcycle transmission gears.

While Europe’s weighting in the auto parts sector as a whole tends to be rather small, the company’s breakdown for revenue by region in FY03/21 was notably well balanced, with Japan accounting for 15.9% of total revenue, the Americas (North America and South America) accounting for 22.1%, Asia (including China) accounting for 36.2%, and Europe accounting for 25.7%. With performance in Europe struggling on the back of weak sales, the company set its sights on forming new business relationships with European automakers and in June 2016 acquired German firm Hay Holding GmbH, the largest forging and machining manufacturer in the region. Despite expectations that this would enhance the company’s presence in Europe, earnings deteriorated on a sharp increase in interest-bearing debt due to the large-scale M&A costing about JPY28.1bn and the European auto market subsequently falling into a slump. However, there are now signs that the company’s efforts to improve profitability in the region are beginning to show.

Honda, the company’s largest customer, is also its largest shareholder. Musashi Seimitsu Industry is an equity-method affiliate of Honda, with a 25.1% stake in FY03/21. While the company could be considered one of the “Honda affiliated” component manufacturers, its fourth president, Hiroshi Otsuka (grandson to the company’s founder and first president and son of the second president) has consistently run the company’s business. Under his leadership, the company has continued to chart a course independent from Honda, and in FY03/18 there were no members of the board of directors hailing from Honda, which stands in contrast to there being a majority of directors (nine at the time) from Honda on board in 2006 when Mr. Otsuka became the company’s president. Since taking office in May 2006. Mr. Otsuka has been simultaneously promoting the diversification and globalization of human resources and actively appointing women and non-Japanese nationals as executives. The ten-member board at present includes three women and two foreign nationals.

The global auto industry is going through a period of profound change that the chairperson of the Japan Automobile Manufacturers Association (JAMA) calls a once-in-a-century transformation. The massive growth in electric vehicles such as EVs, e-HEVs, HEVs, and FCVs has led to reduced demand for transmissions, and the company believes that camshaft sales are likely to soon be a thing of the past. That said, management notes that the total amount of sales expected to disappear would be equal to only about 7% of total revenue in FY03/21. On the other hand, the company expects demand for speed reduction mechanisms used in EVs to expand as the trend toward electrification progresses. In fact, deliveries of EV speed reduction mechanisms, which were almost non-existent in 2015, grew to about 900,000 units in 2020. Of course, while concerns over the commodification of EVs, i.e., an ongoing decline in EV market prices, are unlikely to be completely eliminated, upside factors for the company include the need for improved strength and precision in gears in line with the increased prevalence of EVs. The company believes that as the shift to electric vehicles progresses, enhanced gear volume and improved added value in EV products will contribute to enhanced revenue and an improved product mix, which will in turn will result in higher profits.

The company was founded in 1938 as a manufacturer of aircraft components. It later became a manufacturer of sewing machine parts, and is today a manufacturer of automotive parts. In anticipation of major changes in the future (the “new normal” era), the company is working to not only strengthen its existing businesses, but also to create new businesses that can become future earnings pillars. The company has four areas of focus: the e-mobile Unit business, the energy solutions business, the AI solutions business, and the plant bioscience business. In March 2021, Toyota Motor at its main plant installed an AI-based visual inspection machine developed by the company for use during the inspection process in production line. The machine uses an in-house developed AI to detect scratches and other visual defects in finished products (something that even today is largely done by humans). The company forecasts FY03/23 revenue in its AI solutions business of at least JPY1.0bn, up from about JPY100mn in FY03/21.

The company is currently focusing on creating new businesses based on its basic philosophy of achieving through innovation. As part of the process of creating new businesses, management established “Musashi Innovation Lab CLUE”, which has already produced results through the spinning-off of companies from internal startup efforts. While working to strengthen its auto parts business, where trends moving forward are increasingly difficult to predict, the company is focused on creating new businesses and fostering their growth so as to ensure an improved potential for growth moving forward.

Earnings trends

For FY03/22, the company reported revenue of JPY241.9bn (+18.2% YoY), operating profit of JPY8.4bn (+12.1% YoY), recurring profit of JPY9.4bn (+14.0% YoY), and net income attributable to owners of the parent of JPY5.4bn (-26.4% YoY). OPM narrowed 0.2pp YoY, despite increased revenue and profit on the back of higher sales in all regions, as a result of fluctuating production due to the semiconductor shortage, as well as higher logistics costs. As previously forecast, the company expects the annual DPS to be JPY45.0, with the payout ratio at 54.1%.

For FY03/23, the company forecasts revenue of JPY275.0bn (+13.7% YoY), operating profit of JPY10.0bn (+18.9% YoY), recurring profit of JPY9.5bn (+0.7% YoY), net income attributable to owners of the parent of JPY6.5bn (+19.7% YoY), and EPS of JPY99.6. These forecasts assume exchange rates of JPY120/USD and JPY135/EUR. The company plans to record record-high sales for the first time in four years, but expects OPM to surpass that of FY03/22 by only 0.1pp. The annual DPS is also expected to remain level YoY, at JPY45.0, with the payout ratio at 45.2%.

In April 2021, the company formulated and announced “Musashi 100th Year Vision” as its new long-term vision leading up to the centennial of its founding in 2038. Although the company did not announce a medium-term business plan with specific numerical targets, a revenue target of JPY300.0bn was set for FY03/24, the financial year three years after the announcement of the long-term vision (the FY03/22 full-year plan was for revenue of JPY230.0bn, and the company's historical record for revenue was JPY255.9bn in FY03/19). Although a profit target has not been provided, applying the company's current profit margin of 7% yields operating profit of JPY21.0bn, which would also be a record high (at present the record high is JPY16.5bn, achieved in FY03/08).

Strengths and weaknesses

Strengths

The company’s integrated production system enables lower costs and shorter delivery times, allowing it to differentiate itself and offer new value propositions to its customers. 

The company’s effective use of its existing equipment and facilities allows it to readily respond to the demands brought on by the electrification of automobiles. 

A long-serving president has put in place a solidly consistent long-term management vision. Accordingly, the company has laid the groundwork to simultaneously strengthen its core businesses and create new businesses.

Weaknesses

A real recovery in the European business has yet to manifest, and it appears it will be some time until that business will make a significant contribution to earnings. 

The substantial amount of capital expenditures needed to create an integrated production system suppresses earnings at the company for longer than at other auto parts manufacturers. 

A lag exists between rises in steel and other raw material costs and their reflection in selling prices. Accordingly, the adverse impact on near-term earnings can be severe. 

Key financial data

Income statementFY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Revenue148,820158,209164,397180,522237,910255,934236,355204,714241,896275,000
YoY18.1%6.3%3.9%9.8%31.8%7.6%-7.7%-13.4%18.2%13.7%
Gross profit21,85923,86827,79628,60737,77639,69432,69029,67932,034-
YoY78.8%9.2%16.5%2.9%32.1%5.1%-17.6%-9.2%7.9%-
Gross profit margin14.7%15.1%16.9%15.8%15.9%15.5%13.8%14.5%13.2%-
SG&A expenses13,29212,27914,39717,44022,00825,58625,40522,17123,621-
YoY17.7%-7.6%17.2%21.1%26.2%16.3%-0.7%-12.7%6.5%-
SG&A ratio8.9%7.8%8.8%9.7%9.3%10.0%10.7%10.8%9.8%-
Operating profit8,56711,58813,39811,16615,76714,1077,2857,5078,41310,000
YoY813.3%35.3%15.6%-16.7%41.2%-10.5%-48.4%3.0%12.1%18.9%
Operating profit margin5.8%7.3%8.1%6.2%6.6%5.5%3.1%3.7%3.5%3.6%
Recurring profit9,62311,87511,44910,32315,92914,7917,1138,2779,4359,500
YoY270.5%23.4%-3.6%-9.8%54.3%-7.1%-51.9%16.4%14.0%0.7%
Recurring profit margin6.5%7.5%7.0%5.7%6.7%5.8%3.0%4.0%3.9%3.5%
Net income6,8276,3796,8096,31510,3519,885-6,9027,3785,4296,500
YoY169.9%-6.6%6.7%-7.3%63.9%-4.5%---26.4%19.7%
Net margin4.6%4.0%4.1%3.5%4.4%3.9%-3.6%2.2%2.4%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000）62,40062,40062,40062,40062,44265,13565,18465,25865,288-
EPS (JPY)109.4102.8109.150.6165.9155.6-106.0113.183.299.6
EPS (fully diluted; JPY)106.393.499.746.3151.6-----
Dividend per share (JPY)22.024.025.026.066.042.031.535.045.045.0
Book value per share (JPY)983.01,154.51,071.11,147.41,330.41,405.31,096.21,305.01,541.3-
Balance sheet (JPYmn)
Cash and cash equivalents10,5869,53813,05930,60726,10627,15220,66524,14327,554
Total current assets55,24659,09358,800100,664103,678104,55589,075102,053122,180
Tangible fixed assets82,91194,19981,565108,116103,716102,50698,219102,249111,699
Intangible assets1,0031,3221,78028,01728,00525,6027,4236,4165,525
Investments and other assets16,00114,92413,00611,68312,37811,78612,61415,34820,556
Total assets155,162169,539155,152248,482247,778244,450207,333226,066259,960
Short-term debt21,44630,56920,55637,97923,42339,65551,14850,34254,667
Total current liabilities51,37855,39244,02971,98571,48474,75587,80089,86292,827
Long-term debt28,65324,85528,49874,67963,36249,17327,95827,15141,914
Total fixed liabilities32,77730,17633,17588,18475,94461,36137,02140,28954,863
Total liabilities84,15585,56977,204160,169147,428136,116124,821130,152147,690
Shareholders' equity61,32972,02966,82271,58283,05691,51071,43585,141100,588
Total net assets71,00683,96977,94788,312100,350108,33382,51195,914112,269
Total interest-bearing debt50,09955,42449,054112,65886,78588,82879,10677,49396,581
Cash flow statement(JPYmn)
Cash flows from operating activities18,96517,57022,96819,44526,81326,71426,35918,2595,805
Cash flows from investing activities-26,288-20,295-10,211-41,236-14,336-19,847-18,673-12,198-20,131
Cash flows from financing activities7,655337-7,58540,892-20,534-6,616-10,878-6,88614,758
Financial ratios
ROA (RP-based)6.7%7.3%7.1%5.1%6.4%6.0%3.1%3.8%3.9%
ROE12.0%9.6%9.8%9.1%13.4%11.3%-8.5%9.4%5.8%
Equity ratio39.5%42.5%43.1%28.8%33.5%37.4%34.5%37.7%38.7%
Source: Shared Research based on company materials
Notes: Figures may differ from company materials due to differences in rounding methods.

Earnings

Quarterly earnings

CumulativeFY03/21FY03/22FY03/22
(JPYmn) Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Revenue27,80382,328142,740204,71458,186113,545172,392241,896105.2%230,000
YoY-55.5%-33.5%-21.5%-13.4%109.3%37.9%20.8%18.2%12.4%
Gross profit-1,0237,38618,08829,6797,85414,14220,32832,034
YoY--55.2%-27.3%-9.2%-91.5%12.4%7.9%
Gross profit margin-3.7%9.0%12.7%14.5%13.5%12.5%11.8%13.2%
SG&A expenses4,77210,30415,77922,1716,17811,80817,18123,621
YoY-24.2%-17.3%-14.2%-12.7%29.5%14.6%8.9%6.5%
SG&A ratio17.2%12.5%11.1%10.8%10.6%10.4%10.0%9.8%
Operating profit-5,796-2,9182,3087,5071,6762,3333,1478,41393.5%9,000
YoY---64.5%3.0%--36.4%12.1%19.9%
Operating profit margin-20.8%-3.5%1.6%3.7%2.9%2.1%1.8%3.5%3.9%
Recurring profit-5,637-3,1262,4698,2771,6291,9363,2859,435119.4%7,900
YoY---62.8%16.4%--33.0%14.0%-4.6%
Recurring profit margin-20.3%-3.8%1.7%4.0%2.8%1.7%1.9%3.9%3.4%
Net income-3,135-1,4842,5447,3781,5621,2481,7065,42996.9%5,600
YoY---41.6%----32.9%-26.4%-24.1%
Net margin-11.3%-1.8%1.8%3.6%2.7%1.1%1.0%2.2%2.4%
QuarterlyFY03/21FY03/22
(JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4
Revenue27,80354,52560,41261,97458,18655,35958,84769,504
YoY-55.5%-11.3%4.2%13.7%109.3%1.5%-2.6%12.2%
Gross profit-1,0238,40910,70211,5917,8546,2886,18611,706
YoY-7.2%27.7%48.5%--25.2%-42.2%1.0%
Gross profit margin-3.7%15.4%17.7%18.7%13.5%11.4%10.5%16.8%
SG&A expenses4,7725,5325,4756,3926,1785,6305,3736,440
YoY-24.2%-10.4%-7.5%-8.9%29.5%1.8%-1.9%0.8%
SG&A ratio17.2%10.1%9.1%10.3%10.6%10.2%9.1%9.3%
Operating profit-5,7962,8785,2265,1991,6766578145,266
YoY-71.9%112.1%564.0%--77.2%-84.4%1.3%
Operating profit margin-20.8%5.3%8.7%8.4%2.9%1.2%1.4%7.6%
Recurring profit-5,6372,5115,5955,8081,6293071,3496,150
YoY-57.7%109.4%1,105.0%--87.8%-75.9%5.9%
Recurring profit margin-20.3%4.6%9.3%9.4%2.8%0.6%2.3%8.8%
Net income-3,1351,6514,0284,8341,562-3144583,723
YoY-117.2%143.2%----88.6%-23.0%
Net margin-11.3%3.0%6.7%7.8%2.7%-0.6%0.8%5.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
By segmentFY03/21FY03/22FY03/22
Cumulative(JPYmn) Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Revenue27,80382,328142,740204,71458,186113,545172,392241,896105.2%230,000
YoY-55.5%-33.5%-21.5%-13.4%109.3%37.9%20.8%18.2%12.4%
Japan5,29712,36622,32732,5438,37416,23325,11434,27790.9%37,700
YoY-39.7%-32.8%-16.3%-7.9%58.1%31.3%12.5%5.3%15.8%
% of total19.1%15.0%15.6%15.9%14.4%14.3%14.6%14.2%16.4%
Americas4,67419,11332,95345,29612,56824,71836,60951,352106.8%48,100
YoY-67.9%-33.4%-21.8%-19.0%168.9%29.3%11.1%13.4%6.2%
% of total16.8%23.2%23.1%22.1%21.6%21.8%21.2%21.2%20.9%
Asia4,68116,11528,69344,26212,22525,56439,57056,322112.9%49,900
YoY-69.9%-49.1%-38.6%-28.2%161.2%58.6%37.9%27.2%12.7%
% of total16.8%19.6%20.1%21.6%21.0%22.5%23.0%23.3%21.7%
China6,45814,31723,13029,9877,14514,27923,83633,160106.6%31,100
YoY9.3%18.9%19.6%36.3%10.6%-0.3%3.1%10.6%3.7%
% of total23.2%17.4%16.2%14.6%12.3%12.6%13.8%13.7%13.5%
Europe6,69020,41535,63452,62417,87232,74947,26066,783105.7%63,200
YoY-62.1%-38.3%-24.2%-14.3%167.1%60.4%32.6%26.9%20.1%
% of total24.1%24.8%25.0%25.7%30.7%28.8%27.4%27.6%27.5%
Operating profit-5,796-2,9182,3087,5071,6762,3333,1478,41393.5%9,000
YoY---64.5%3.0%--36.4%12.1%19.9%
Operating profit margin-20.8%-3.5%1.6%3.7%2.9%2.1%1.8%3.5%3.9%
Japan-1,982-1,980-4931,6006147571,1282,71682.3%3,300
YoY----42.7%---69.8%106.3%
Operating profit margin-37.4%-16.0%-2.2%4.9%7.3%4.7%4.5%7.9%8.8%
% of total32.9%63.6%-23.8%21.7%38.2%32.5%35.5%32.2%36.7%
Americas-1,1101409671,21528-47-19444449.3%900
YoY--80.3%-15.8%-31.0%----63.5%-25.9%
Operating profit margin-23.7%0.7%2.9%2.7%0.2%-0.2%-0.5%0.9%1.9%
% of total18.4%-4.5%46.6%16.5%1.7%-2.0%-6.1%5.3%10.0%
Asia-1,750-1,334492,5564601,7812,7784,726107.4%4,400
YoY---98.7%-40.7%--5,569.4%84.9%72.1%
Operating profit margin-37.4%-8.3%0.2%5.8%3.8%7.0%7.0%8.4%8.8%
% of total29.0%42.9%2.4%34.7%28.6%76.4%87.3%56.0%48.9%
China7241,9383,6164,3216101,1092,3073,323107.2%3,100
YoY59.8%74.1%64.3%149.5%-15.7%-42.8%-36.2%-23.1%-28.3%
Operating profit margin11.2%13.5%15.6%14.4%8.5%7.8%9.7%10.0%10.0%
% of total-12.0%-62.3%174.3%58.7%38.0%47.6%72.5%39.3%34.4%
Europe-1,908-1,875-2,065-2,326-107-1,269-2,837-2,764--2,700
YoY---------
Operating profit margin-28.5%-9.2%-5.8%-4.4%-0.6%-3.9%-6.0%-4.1%-4.3%
% of total31.7%60.3%-99.5%-31.6%-6.7%-54.4%-89.2%-32.7%-30.0%
Adjustment231193233140701-34-32-
By segmentFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Revenue27,80354,52560,41261,97458,18655,35958,84769,504
YoY-55.5%-11.3%4.2%13.7%109.3%1.5%-2.6%12.2%
Japan5,2977,0699,96110,2168,3747,8598,8819,163
YoY-39.7%-26.5%20.5%18.1%58.1%11.2%-10.8%-10.3%
% of total19.1%13.0%16.5%16.5%14.4%14.2%15.1%13.2%
Americas4,67414,43913,84012,34312,56812,15011,89114,743
YoY-67.9%2.0%3.0%-10.5%168.9%-15.9%-14.1%19.4%
% of total16.8%26.5%22.9%19.9%21.6%21.9%20.2%21.2%
Asia4,68111,43412,57815,56912,22513,33914,00616,752
YoY-69.9%-29.0%-16.4%4.1%161.2%16.7%11.4%7.6%
% of total16.8%21.0%20.8%25.1%21.0%24.1%23.8%24.1%
China6,4587,8598,8136,8577,1457,1349,5579,324
YoY9.3%28.0%20.8%157.4%10.6%-9.2%8.4%36.0%
% of total23.2%14.4%14.6%11.1%12.3%12.9%16.2%13.4%
Europe6,69013,72515,21916,99017,87214,87714,51119,523
YoY-62.1%-11.1%9.2%17.7%167.1%8.4%-4.7%14.9%
% of total24.1%25.2%25.2%27.4%30.7%26.9%24.7%28.1%
Operating profit-5,7962,8785,2265,1991,6766578145,266
YoY-71.9%112.1%564.0%--77.2%-84.4%1.3%
Operating profit margin-20.8%5.3%8.7%8.4%2.9%1.2%1.4%7.6%
Japan-1,98221,4872,0936141433711,588
YoY--99.7%74.5%172.5%-7,050.0%-75.1%-24.1%
Operating profit margin-37.4%0.0%14.9%20.5%7.3%1.8%4.2%17.3%
% of total32.9%0.1%28.7%39.6%38.2%19.7%43.7%30.2%
Americas-1,1101,25082724828-75-147638
YoY-343.3%89.2%-59.5%---157.3%
Operating profit margin-23.7%8.7%6.0%2.0%0.2%-0.6%-1.2%4.3%
% of total18.4%42.9%15.9%4.7%1.7%-10.3%-17.3%12.1%
Asia-1,7504161,3832,5074601,3219971,948
YoY--67.3%14.9%298.6%-217.5%-27.9%-22.3%
Operating profit margin-37.4%3.6%11.0%16.1%3.8%9.9%7.1%11.6%
% of total29.0%14.3%26.7%47.4%28.6%182.0%117.4%37.0%
China7241,2141,6787056104991,1981,016
YoY59.8%83.9%54.2%--15.7%-58.9%-28.6%44.1%
Operating profit margin11.2%15.4%19.0%10.3%8.5%7.0%12.5%10.9%
% of total-12.0%41.6%32.4%13.3%38.0%68.7%141.1%19.3%
Europe-1,90833-190-261-107-1,162-1,56873
YoY--------
Operating profit margin-28.5%0.2%-1.2%-1.5%-0.6%-7.8%-10.8%0.4%
% of total31.7%1.1%-3.7%-4.9%-6.7%-160.1%-184.7%1.4%
Adjustment231-3840-9370-69-352
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Exchange rateFY03/20FY03/21FY03/22
Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3
USD109.67108.67108.89108.95107.38106.32105.54105.94109.76110.10111.45
YoY0.1%-1.8%-2.2%-1.9%-2.1%-2.2%-3.1%-2.8%2.2%3.6%5.6%
BRL28.0027.3627.1126.1719.8219.6319.4919.4421.1521.0420.80
YoY-5.5%-5.7%-6.9%-10.3%-29.2%-28.3%-28.1%-25.7%6.7%7.2%6.7%
EUR122.87120.91121.12120.85118.74121.66122.61124.07132.44131.16130.96
YoY-7.1%-7.5%-7.3%-7.0%-3.4%0.6%1.2%2.7%11.5%7.8%6.8%
IDR0.00770.00770.00770.00770.00730.00730.00730.00740.00770.00770.0078
YoY-1.3%0.0%0.0%0.0%-5.2%-5.2%-5.2%-3.9%5.5%5.5%6.8%
INR1.591.571.561.551.431.441.431.441.501.501.51
YoY-2.5%-2.5%-3.1%-3.1%-10.1%-8.3%-8.3%-7.1%4.9%4.2%5.6%
CNY16.0115.6415.6215.5915.1115.2015.3915.6517.0617.0717.35
YoY-19.9%-6.0%-5.4%-5.5%-5.6%-2.8%-1.5%0.4%12.9%12.3%12.7%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/22 results (out May 10, 2022)

Full-year FY03/22 results summary

Full-year FY03/22 results were as follows

  • Revenue: JPY241.9bn (+18.2% YoY, versus previous company forecast of JPY230.0bn)
  • Operating profit: JPY8.4bn (+12.1% YoY, forecast of JPY9.0bn)
  • OPM: 3.5% (-0.2pp YoY, forecast of 3.9%)
  • Recurring profit: JPY9.4bn (+14.0% YoY, forecast of JPY7.9bn)
  • Net income attributable to owners of the parent: JPY5.4bn (-26.4% YoY, forecast of JPY5.6bn)

The company recorded EPS of JPY83.2 and plans to pay out a year-end dividend of JPY30.0 per share, expecting an annual DPS of JPY45.0 (versus DPS of JPY35.0 in FY03/21). Based on the company forecast, the payout ratio is expected to be 54.1% (30.9% in FY03/21).  

Backed by gains in all regional segments, revenue grew by 18.2% YoY and exceeded the company forecast (which called for revenue of JPY230.0bn). Operating profit rose by 12.1% YoY as a result of this increased revenue, and the lowering of costs by measures such as productivity improvements. 

Meanwhile, operating profit fell below the company forecast, due principally to fluctuating production as a result of the semiconductor shortage, higher logistics costs caused by insufficient supply of shipping containers, and inflation pushing up various costs. OPM also narrowed by 0.2pp YoY to 3.5%. Recurring profit finished above forecast, however, on the back of improved non-operating income (compared against the company forecast). The significant drop to net income attributable to the parent was the result of deterioration to extraordinary gains and losses because of the absence of extraordinary gains recorded in FY03/21, as well as posting a loss on the valuation of investment securities in FY03/22.  

Q4 FY03/22 (January–March) results summary

Q4 FY03/22 (January–March 2022) results were as follows

  • Revenue: JPY69.5bn (+12.2% YoY)
  • Operating profit: JPY5.3bn (+1.3% YoY)
  • Recurring profit: JPY6.2bn (+5.9% YoY)
  • Net income attributable to owners of the parent: JPY3.7bn (-23.0% YoY)

On a quarterly (three month) basis, revenue increased YoY for the first time since Q2 FY03/22, and operating profit increased YoY for the first time since Q1 FY03/22.  

  Shared Research will update details following the results briefing and interviews with the company.  

FY03/23 company forecasts

FY03/21FY03/22FY03/23
(JPYmn) 1H2HFY1H2HFY1H Est.2H Est.FY Est.
Revenue82,328122,386204,714113,545128,351241,896275,000
YoY-33.5%8.8%-13.4%37.9%4.9%18.2%13.7%
Gross profit7,38622,29329,67914,14217,89232,034-
YoY-55.2%37.7%-9.2%91.5%-19.7%7.9%-
Gross profit margin9.0%18.2%14.5%12.5%13.9%13.2%-
SG&A expenses10,30411,86722,17111,80811,81323,621-
YoY-17.3%-8.3%-12.7%14.6%-0.5%6.5%-
SG&A ratio12.5%9.7%10.8%10.4%9.2%9.8%-
Operating profit-2,91810,4257,5072,3336,0808,41310,000
YoY-221.1%3.0%--41.7%12.1%18.9%
Operating profit margin-3.5%8.5%3.7%2.1%4.7%3.5%3.6%
Recurring profit-3,12611,4038,2771,9367,4999,4359,500
YoY-261.5%16.4%--34.2%14.0%0.7%
Recurring profit margin-3.8%9.3%4.0%1.7%5.8%3.9%3.5%
Net income-1,4848,8627,3781,2484,1815,4296,500
YoY-----52.8%-26.4%19.7%
Net margin-1.8%7.2%3.6%1.1%3.3%2.2%2.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Forecast summary

The company announced a new forecast for FY03/23, outlined below.

  • Revenue: JPY275.0bn (+13.7% YoY)
  • Operating profit: JPY10.0bn (+18.9% YoY)
  • OPM: 3.6% (+0.1pp YoY)
  • Recurring profit: JPY9.5bn (+0.7% YoY)
  • Net income attributable to owners of the parent: JPY6.5bn (+19.7% YoY)

The company expects EPS of JPY99.6, and plans for an annual DPS of JPY45.0 (DPS of JPY45.0 was also forecast for FY03/22). Based on the company forecast, the payout ratio would amount to 45.2% (54.1% was forecast for FY03/22).

These forecasts are based on assumed exchange rates of JPY120/USD and JPY135/EUR. The expected revenue of JPY275.0bn (+13.7% YoY) would mean achieving a record high for the first time in four years, surpassing the FY03/19 result of JPY255.9bn. On the other hand, the company forecasts that OPM will only widen by 0.1pp YoY, despite the anticipated 18.9% YoY boost to operating profit. 

Shared Research will update details following the results briefing and interviews with the company.

Implementing organizational changes (announced February 14, 2022)

As part of its “Go Far Beyond” Musashi 100th Year Vision, the company implemented the following organizational changes with the aim of responding to changes in the environment and accelerating the transformation of its people, structure, and business.

With the goal of maximizing and better coordinating the company’s three strengths (selling ability, creating ability, and manufacturing capabilities) in order to realize its electrification strategy, the company created the Chief Core Business Officer (CBO) position, under which the sales and purchasing functions of the PT Business, L&S Business, and Motorcycle Business will be unified.  

In order to facility faster management decision-making in the mainstay business, the company divided the PT Division into the PT-Diff Division and the PT-GB Division.

Establish a new Chief Monozukuri Officer (CMO) position to help strengthen the company’s manufacturing capabilities and its ability to adapt to change. The company aims to strengthen its earnings structure and build a business more resilient to change by promoting the standardization of systems and the advancement of DX in manufacturing operations around the world.

The company aims to clarify the separation of its manufacturing base and its business base while further distinguishing areas in which it will promote integration and areas in which it will promote specialization. On a wider scope, management intends to bolster the company’s operating structure by strengthening its organizational capacity to respond to the electrification of automobiles.

Capital expenditures
Capital expendituresFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
Capital expenditures22,90724,31416,3249,29513,30312,79216,27617,36812,46920,000
YoY-6.1%-32.9%-43.1%43.1%-3.8%27.2%6.7%-28.2%60.4%
Japan2,7573,8161,9511,9532,1493,9502,9682,1701,915-
YoY-38.4%-48.9%0.1%10.0%83.8%-24.9%-26.9%-11.8%-
% of total12.0%15.7%12.0%21.0%16.2%30.9%18.2%12.5%15.4%-
Americas4,0827,1472,6073,2754,6962,4372,8294,5664,783-
YoY-75.1%-63.5%25.6%43.4%-48.1%16.1%61.4%4.8%-
% of total17.8%29.4%16.0%35.2%35.3%19.1%17.4%26.3%38.4%-
Asia15,91713,03111,2333,8113,8692,6794,0314,6331,843-
YoY--18.1%-13.8%-66.1%1.5%-30.8%50.5%14.9%-60.2%-
% of total69.5%53.6%68.8%41.0%29.1%20.9%24.8%26.7%14.8%-
China------3,9902,265593-
YoY--------43.2%-73.8%-
% of total------24.5%13.0%4.8%-
Europe1513205332562,5893,7262,4583,7343,335-
YoY-111.9%66.6%-52.0%911.3%43.9%-34.0%51.9%-10.7%-
% of total0.7%1.3%3.3%2.8%19.5%29.1%15.1%21.5%26.7%-
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
By segmentFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
Revenue125,993148,820158,209164,397180,522237,910255,934236,355204,714230,000
YoY0.6%18.1%6.3%3.9%9.8%31.8%7.6%-7.7%-13.4%12.4%
Japan35,35335,42131,15627,71727,22128,77833,69935,31632,54337,700
YoY-0.3%0.2%-12.0%-11.0%-1.8%5.7%17.1%4.8%-7.9%15.8%
% of total28.1%23.8%19.7%16.9%15.1%12.1%13.2%14.9%15.9%16.4%
Americas26,31030,56736,61946,92542,27452,11155,92255,92445,29648,100
YoY29.6%16.2%19.8%28.1%-9.9%23.3%7.3%0.0%-19.0%6.2%
% of total20.9%20.5%23.1%28.5%23.4%21.9%21.9%23.7%22.1%20.9%
Asia45,01662,77171,33373,77269,77963,70364,95561,67844,26249,900
YoY6.8%39.4%13.6%3.4%-5.4%-8.7%2.0%-5.0%-28.2%12.7%
% of total35.7%42.2%45.1%44.9%38.7%26.8%25.4%26.1%21.6%21.7%
China-----20,65223,59722,00329,98731,100
YoY------14.3%-6.8%36.3%3.7%
% of total-----8.7%9.2%9.3%14.6%13.5%
Europe5,1505,3056,0556,64534,26972,66577,75961,43352,62463,200
YoY-23.0%3.0%14.1%9.7%415.7%112.0%7.0%-21.0%-14.3%20.1%
% of total4.1%3.6%3.8%4.0%19.0%30.5%30.4%26.0%25.7%27.5%
South America14,16214,75513,0439,3366,977-----
YoY-31.2%4.2%-11.6%-28.4%-25.3%-----
% of total11.2%9.9%8.2%5.7%3.9%-----
Operating profit9388,56711,58813,39811,16615,76714,1077,2857,5079,000
YoY-91.0%813.3%35.3%15.6%-16.7%41.2%-10.5%-48.4%3.0%19.9%
Operating profit margin0.7%5.8%7.3%8.1%6.2%6.6%5.5%3.1%3.7%3.9%
Japan3,5862,7609272,5172,1382,1642,7332,7931,6003,300
YoY26.0%-23.0%-66.4%171.5%-15.1%1.2%26.3%2.2%-42.7%106.3%
Operating profit margin10.1%7.8%3.0%9.1%7.9%7.5%8.1%7.9%4.9%8.8%
% of total320.8%34.9%8.3%19.4%19.7%14.2%19.9%39.9%21.7%36.7%
Americas4391,1042,3412,9442,3712,0732,0171,7611,215900
YoY-151.5%112.0%25.8%-19.5%-12.6%-2.7%-12.7%-31.0%-25.9%
Operating profit margin1.7%3.6%6.4%6.3%5.6%4.0%3.6%3.1%2.7%1.9%
% of total39.3%14.0%20.9%22.7%21.8%13.6%14.7%25.2%16.5%10.0%
Asia-3,8353,2297,0487,7257,4276,2965,6004,3092,5564,400
YoY--118.3%9.6%-3.9%-15.2%-11.1%-23.1%-40.7%72.1%
Operating profit margin-8.5%5.1%9.9%10.5%10.6%9.9%8.6%7.0%5.8%8.8%
% of total-343.0%40.8%62.9%59.4%68.3%41.4%40.7%61.6%34.7%48.9%
China-----3,2103,0911,7324,3213,100
YoY-------3.7%-44.0%149.5%-28.3%
Operating profit margin-----15.5%13.1%7.9%14.4%10.0%
% of total-----21.1%22.5%24.8%58.7%34.4%
Europe421485887942-3331,461315-3,603-2,326-2,700
YoY-56.3%15.2%82.9%6.2%---78.4%---
Operating profit margin8.2%9.1%14.6%14.2%-1.0%2.0%0.4%-5.9%-4.4%-4.3%
% of total37.7%6.1%7.9%7.2%-3.1%9.6%2.3%-51.5%-31.6%-30.0%
South America5073279-1,132-725-----
YoY-79.4%-35.5%-97.2%-------
Operating profit margin3.6%2.2%0.1%-12.1%-10.4%-----
% of total45.3%4.1%0.1%-8.7%-6.7%-----
Adjustment-180659375401287560348291140-
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Exchange rateFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
USD---121.25108.72110.70111.07108.95105.94103.00
YoY-----10.3%1.8%0.3%-1.9%-2.8%-2.8%
BRL---36.2531.7035.0029.1726.1719.4420.00
YoY-----12.6%10.4%-16.7%-10.3%-25.7%2.9%
EUR---133.69120.63127.22130.01120.85124.07125.00
YoY-----9.8%5.5%2.2%-7.0%2.7%0.7%
IDR---0.00910.00820.00830.00770.00770.00740.0070
YoY-----9.9%1.2%-7.2%--3.9%-5.4%
INR---1.841.631.731.601.551.441.40
YoY-----11.4%6.1%-7.5%-3.1%-7.1%-2.8%
CNY---19.1916.4116.6316.5015.5915.6516.00
YoY-----14.5%1.3%-0.8%-5.5%0.4%2.2%
Source: Shared Research based on company data

Comparison of past initial forecasts and actual results

Results vs. Initial Est.FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
RevenueInitial Est.142,000160,000160,000146,000213,000249,000251,000-230,000
Act.148,820158,209164,397180,522237,910255,934236,355204,714241,896
Difference4.8%-1.1%2.7%23.6%11.7%2.8%-5.8%-5.2%
Operating profitInitial Est.8,00012,00011,70010,50013,00017,00014,500-16,000
Act.8,56711,58813,39811,16615,76714,1077,2857,5078,413
Difference7.1%-3.4%14.5%6.3%21.3%-17.0%-49.8%--47.4%
Recurring profitInitial Est.8,00011,50010,50010,00012,50016,20014,300-15,100
Act.9,62311,87511,44910,32315,92914,7917,1138,2779,435
Difference20.3%3.3%9.0%3.2%27.4%-8.7%-50.3%--37.5%
Net incomeInitial Est.5,0007,0006,8007,0007,80010,4009,100-10,200
Act.6,8276,3796,8096,31510,3519,885-6,9027,3785,429
Difference36.5%-8.9%0.1%-9.8%32.7%-5.0%---46.8%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Medium-term business plan

Musashi Seimitsu Industry does not at present have a medium-term business plan. The company in the past would formulate three-year medium-term targets and once that term was ended, create new three-year targets. The company does not establish a rolling 12-month forecast . During the period covered by the “Musashi Global Vision 2020” long-term vision launched in 2007, the company announced and implemented the three following three-year medium-term plans.

  • 10th medium-term plan (FY03/09–FY03/11)
  • 11th medium-term plan (FY03/12–FY03/14)
  • 12th medium-term plan (FY03/15–FY03/17) 

In its 13th medium-term plan (FY03/18–FY03/20), the company did not supply numerical targets for external consumption, offering only earnings forecasts for each subsequent year. Shared Research believes this was due to the presence of factors that would be difficult to incorporate into a three-year plan, including the sharp increase in new component orders as the electrification of automobiles accelerated and the mounting effects stemming from the acquisition and subsequent conversion to a subsidiary of Hay Holding GmbH (now Musashi Europe GmbH) in 2016.

As such, the Musashi Global Vision 2020 came to a close in the midst of the COVID-19 pandemic without the company having a three-year plan in place. On the other hand, the scale of the company expanded in the following ways during the 13 years in which management pursued the goals within its long-term vision.    

  • Revenue increased from JPY161.3bn to JPY236.4bn
  • The number of company locations increased from 21 in 10 countries to 35 in 14 countries
  • The number of employees increased from 9,000 to 16,000

These figures, taken from the company website, reflect changes over the 12-term period from FY03/08 to FY03/20. 

Musashi 100th Year Vision

Backed by this expansion, the company in April 2021 (when there was still no clear picture as to when the COVID-19 pandemic would be brought to heel) announced “Musashi 100th Year Vision” as its new long-term vision. The vision focuses on promoting a shared set of values in the years running up to 2038 based on the “Go Far Beyond! Break barriers and go on adventures!” slogan. The new vision also reiterates the Musashi Philosophy reaffirmed in the previous long-term vision under the “Our Origin,” “Our Purpose,” and “Our Way” themes, while at the same time expressing the company’s aim to “break the barriers of limitations and common thought and create new values that are not an extension of the present ones.”  

The three key themes in the Musashi Philosophy are outlined below. The company believes that by adhering to these themes, it will be able to become an “essential company” capable of contributing to the resolution of social issues by 2038, the 100th anniversary of its founding.

“Our Origin”

Company founder Yoshiharu Otsuka (the grandfather of the company’s fourth and current president Hiroshi Otsuka) has seen the rise and fall of many companies, but noted that “there are very few groups that are united by the spirit of Simplicity, Sturdiness, and Consistent Sincerity that no longer exist. We should never forget this fact.” This reflects the founding concept of the company and the corporate spirit that has been passed down from generation to generation. 

“Our Purpose”

The company’s mission is to contribute to “enriched Harmony between our lives and Earth, using our Passion for technology and Wisdom for innovation.” Here, “passion” refers to the company’s aim to continually evolve by using its enthusiasm for “Monozukuri” and technological capabilities to take on new challenges, while “wisdom” refers to its ability to use knowledge passed down and continually improved to create innovations. Finally, the company aims to contribute to a sustainable and prosperous world in which people live in “harmony” with the environment.

“Our Way”

The “Our Way” theme centers on “the values each of us hold in our hearts” and “moving into the future with exploration and exploitation of knowledge” concepts. As specific goals within the theme, the company focuses on the ideas of “Customer first,” “Integrity,” “Be unique, be creative,” “Try first, learn fast (challenge yourself),” “One Musashi (working together),” “Leadership and ownership (understanding your rights and obligations),” and “Smile and thanks” (remember to smile and be grateful).      

At the FY03/21 results briefing held in May 2021, the company announced a FY03/24 revenue target of JPY300.0bn. This target not only exceeds the past revenue high for the company, but represents management’s aim to increase revenue by JPY70.0bn in just two years (the company’s revenue forecast for FY03/22 is JPY230.0bn).

The company has provided no breakdown by region or business in its FY03/24 JPY300.0bn revenue target. However, Shared Research believes that it is relatively easy to forecast revenue over the next two to three years in the auto parts sector based on new orders received from the automakers and transmission manufacturers. With this in mind, we believe the outlook fairly certain, although we note that there remain some hard-to-predict variables, including sales volume for new and existing auto sales at Honda. While the company may not be disclosing a breakdown for expected revenue, largely due to the sensitive nature of product launch plans at Honda and other automakers to which it supplies components, Shared Research believes the company’s FY03/24 revenue target of JPY300.0bn to be quite achievable.

While providing a revenue target of JPY300.0bn, the company has not disclosed profit targets. That said, management at the results briefing indicated that the company had sufficient capacity to achieve OPM in FY03/22 of 7%. Applying a profit margin of 7% to the company’s JPY300.0bn revenue forecast would yield operating profit of JPY21.0bn, which well exceeds the past high of JPY16.5bn in FY03/08. Should OPM continue to improve and recover to 8%, where it stood in FY03/16, operating profit would reach JPY24.0bn. Finally, if OPM recovers to the double-digit level for the first time since FY03/11, operating profit based on this OPM could exceed JPY30.0bn.

Management cited three factors contributing to the enhanced likelihood of profits expanding over the medium term. First, cost reductions and improvements pursued to date have contributed to an enhanced cost structure at the company. Second, earnings are improving in previously unprofitable regions such as Europe. Third, the company’s product mix is improving on an increase in orders for electric vehicle components. The company expects these factors to continue to have an effect in FY03/22. Based on current conditions, Shared Research believes greater clarity in regard to FY03/24 performance will gradually be achieved as the company provides quarterly updates.       

Business

Business overview

Corporate and business summary

Musashi Seimitsu Industry is an auto parts manufacturer with a product lineup focused primarily on automotive gears. The company recorded FY03/21 revenue of JPY204.7bn which according to Shared Research’s calculation ranks 21st among the 59 major auto parts manufacturers. About 51% of the company’s revenue was to the Honda Motor group (hereinafter Honda). The company also conducts business with almost all the global automakers, including domestic automakers such as Toyota and Suzuki, overseas automakers such as Ford and GM in the US, BYD in China, and Daimler in Germany. The company supplies gear products to transmission manufacturers, including the Aisin group. In addition, the company produces gear products for motorcycles, with sales to Honda as well as to Kawasaki Heavy Industries, Suzuki, BMW, Triumph, Harley Davidson, Hero, and TVS.

Honda, which accounts for more than half the company’s revenue, is also its largest shareholder. Musashi Seimitsu Industry is a Honda equity-method affiliate, with the latter maintaining a 25.1% stake in the company as of the end of March 2021.

In FY03/21, the PT Business, which focuses mainly on powertrain gears and camshafts that regulate an engine’s intake and exhaust valves, accounted for 69.3% of revenue, with the L&S Business, which includes suspension products used to ensure that unevenness in the road is not transferred to the vehicle’s body, and ball joints, which link the tires to the suspension and are considered important for safety, accounting for 8.5%. The Motorcycle Business, which focusses mainly on motorcycle gear products and general-purpose engine components, accounted for 22.2% of revenue. The PT Business, accounting for roughly 70% of total revenue, is clearly the company’s mainstay business.

“Powertrain” is a general term for the power transmission system, which consists mainly of the engine, transmission, and clutch. The powertrain is generally considered the heart of the vehicle and can be one of the differentiating factors in terms of an automobile’s driving performance, fuel efficiency, environmental performance (including in terms of exhaust), and interior comfort. Aiming to improve the competitiveness of their vehicles, automakers have continued to focus on advancing their research and development of powertrains. As such, most of the powertrain and peripheral components are manufactured by the automakers themselves or by auto parts suppliers, including consolidated subsidiaries, with which they have already established strong and close relationships.

Musashi Seimitsu Industry manufactures and sells transmission-system differential mechanisms, including differential gears and differential assemblies that stabilize engine power to the left/right of the vehicle during operation, and speed reduction mechanisms, including planetary assemblies that lower output rotational speed in order to increase torque and match the speed of the vehicle to the speed of the engine or motor. Other mainstay products include components such as camshafts that regulate an engine’s intake and exhaust valves. With the integrated production system contributing to lighter and smaller products, lower costs, and shorter deliver times, the company’s differential assemblies (including gears) are installed in all Honda vehicles, making these precision mechanical parts indispensable to the automaker’s vehicles. According to management, the company also has the largest global market share in motorcycle transmission gears.

A breakdown of FY03/21 revenue of JPY204.7bn by region shows revenue to external customer reaching about JPY32.5bn in Japan (15.9% of total revenue), JPY45.3bn in the Americas, comprising North America and South America (22.1%), JPY44.3bn in Asia (21.6%), JPY30.0bn in China (14.6%), and JPY52.6bn in Europe (25.7%). While Asia including China accounted for the largest share (36.2%) of revenue, the breakdown for revenue by region at the company was notably well balanced.

Europe’s share of total revenue stood at roughly 4% through 2015, but improved following the company’s 2016 acquisition of Hay Holding GmbH (now Musashi Europe GmbH), Germany’s largest forging and machining manufacturer. The acquisition price for Hay Holding was substantial, at about JPY28.1bn, though it did improve the company’s presence in Europe. However, profitability in the European business continued to suffer after the acquisition, recording in FY03/20 operating losses of JPY3.6bn and impairment losses of roughly JPY13.5bn.

Special characteristics of the company’s business model

The product flow for the company’s automotive components starts with orders, then moves to the design and development stage, followed by prototype testing and then mass production. Sales are booked when the products are shipped. Basically, the first orders come with each new vehicle model. The company then engages in the design and development of the requested components in cooperation with either the automaker or the transmission manufacturer. As the relevant model enters mass production, so too do the company’s products, resulting in an increase in deliveries and sales. It generally takes two to three years from the start of development until mass production, though it can take an additional few years if the powertrain is being overhauled, depending on the model.

The powertrain consists of the transmission, which can include the company’s differential assembly products, and the engine, upon which the company’s camshafts may be mounted. Given the importance of the powertrain as the heart of the vehicle, the decisions regarding the use of the company’s products are made during the design and development stage. Once a vehicle is launched, no changes are made to the powertrain, including the transmission. As such, once the company’s gears and other products are adopted, they will continue to be used throughout the model cycle (usually five to six years). At the same time, it is important to note that components are not introduced at any time within the model cycle.

While an automobile’s model cycle is usually five to six years, the model cycle for the powertrain, including the installed transmission is generally 10–12 years. Accordingly, an upgraded powertrain can be used in two generations of a particular auto model, with the same being said for derivatives of that model.

One example of this would be the powertrain used in Honda’s Civic and derivative SUV and wagon models. This powertrain will be used again, albeit with minor spec changes and upgrades, when the Civic and its derivatives undergo full model changes (generally after five to six years). However, with the passing of another five to six years and another round of full model changes, the powertrain used may also be significantly upgraded, or in fact entirely new. This new powertrain like its predecessor, will likely be used through two Civic and derivative model cycles (10–12 years). The repetition of this cycle has become standard in the industry, largely as the development of powertrains requires a substantial level of capital expenditures and R&D spending on the part of the automakers, with the recovery period for this investment usually taking 10–12 years, or two auto model cycles. However, Shared Research believes that as electrification in the industry accelerates, there may be cases in which powertrains are only used for one model cycle (five to six years).

Accordingly, the initial order can be a critical time for the company. It is at this point that the company aggressively promotes the strengths of its products, including their low cost, lightweight nature, quality, and quick delivery times. Once the order is confirmed and design and development commence, cancelation of the order is no longer on the table.

Delivery prices are determined when the order is received or during the initial design and development stages. However, once mass production begins, price reviews are conducted each year, with the negotiations being conducted by the auto parts manufacture and the automaker mainly the purchasing department. At that time, the automaker may ask for a reduction in prices in the form of a request for cooperation in lowering costs. While the negotiations are often settled based on economic conditions at the time, including in regard to exchange rates, steel and other raw material prices, and the state of new car sales, delivery prices are generally reduced by 1%–3% annually. Delivery price is almost never lifted, though this can happen as a result of major specification changes (this is extremely rare) or as the result of a natural disaster. As an example of the latter, prices were lifted during the tumultuous period just after the Great East Japan Earthquake in 2011.

Of course, delivery prices can be quite different based on the product. Product prices can also differ based how they are delivered. As an example, differential gear prices are higher when they are delivered as part of an assembly than when they are delivered as a simple component, largely as the former involves an increased number of processes. This makes it extremely difficult for an outside observer to get a clear picture of delivery prices for each product. In addition, while the impact on earnings may be rather small for the company, there is also a price difference depending on whether a component is used in a new auto or used as a replacement part.

Profitability analysis

Auto parts manufacturers generally have very different profit margins for different products. Generally speaking, the profit margin for electronic and electrical components, as well as for small parts that benefit from mass production, such as springs and fasteners, averaged around 11% for the five years between FY03/16 and FY03/21. On the other hand, the profit margin on the same basis for pressed parts and interior materials produced in-house was about 3%. That being said, profit margins can also vary substantially among auto part companies that offer the same kinds of products. In addition, it should be remembered that some auto part companies have highly profitable divisions operating in non-automotive fields, including the construction machinery and electric appliances sectors. As such, Shared Research believes it important to maintain a certain sense of caution when comparing the profit margins of different auto parts manufacturers.

Keeping these peculiarities of the sector in mind, Musashi Seimitsu Industry’s OPM in FY03/21 reached 3.7%, exceeding the sector average of 2.3%. However, the company’s FY03/20 OPM was 3.1%, which was short of the 3.5% sector average. At the very least, it can be said that for these two years, profitability at the company was not particularly strong. Please note that the auto part sector average figures used here reflect the simple average of OPM at the 59 listed companies as calculated by Shared Research, and are not based on combined revenue and operating profit at those companies.

On the other hand, it should be noted that the last two fiscal years have been highly unusual in that performance was impacted by a variety of factors stemming from the pandemic, including the suspension of operations in Japan and overseas. Shared Research believes that the impact from these factors varied significantly from company to company.

The deterioration in earnings in FY03/13 served to depress the company’s 10-year OPM average. In FY03/13, the company’s business in Asia fell into the red, dropping from operating profit of JPY4.5bn in FY03/12 to an operating loss of JPY3.8bn, largely due to the lingering impact from flooding in Thailand two years previously and production difficulties during the subsequent recovery production period. However, Shared Research views this downturn as a one-off event, noting that no other Honda affiliate had a similar experience and that the company made a rapid recovery the following year. Correcting for this year results in the company’s ten-year average OPM rising to 6.1%, exceeding the sector average on the same basis of 5.1%.

Even when factoring in the transitory deterioration in earnings in FY03/13, the company’s OPM has been following a downward course (see Figure XX). Shared Research views the downtrend as particularly clear when compared to the OPM averages for the Honda affiliate auto parts manufacturers and the auto parts sector as a whole, which have remained at about 5%, except during the pandemic and just after the global financial crisis. While the company’s OPM sometimes topped the 10% level prior to FY03/11, it has struggled to best the 7% level in recent years.

Shared Research believes the general downtrend in profitability can be attributed to higher costs as the company expanded its global business, deteriorating profitability in the European business, and declining profitability in the Motorcycle Business. Please see the Overseas Development section of this report for more information regarding the first two of these factors. As for the third factor, the deteriorating profit margin in the Motorcycle Business appears largely the result of price competition from emergent local competitors in the compact (100cc–110cc displacement) vehicle market in Asia. We note that the company does not disclose profit margins by business segment.

Amid the ongoing deterioration in profitability, the company announced that it expected a recovery in OPM in FY03/22. More specifically, management targets OPM for the year of 7.0%. With its sector peers also targeting profit margin recoveries, the company is not alone in this respect, though Figure XX shows that it expects the recovery to be rather substantial. On the other hand, Honda does not expect a recovery in its profit margin, and in fact expects OPM to dip from 5.0% in FY03/21 to 4.3% in FY03/22. Shared Research is unsure at this point if Honda is being conservative or if the auto parts manufacturers are just putting forth bullish targets. That said, given current conditions, we expect attention moving forward to be on whether or not Musashi Seimitsu Industry’s targeted recovery in profitability proves sustainable.

Long-term trends in operating profit and OPM
FY03/01FY03/02FY03/03FY03/04FY03/05FY03/06FY03/07FY03/08FY03/09FY03/10
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Revenue64,53572,16088,24892,259107,246125,512144,329161,302145,499107,816
Operating profit6,0406,4779,9019,09012,3879,57711,69516,4828,5895,616
YoY-7.2%52.9%-8.2%36.3%-22.7%22.1%40.9%-47.9%-34.6%
Operating profit margin9.4%9.0%11.2%9.9%11.6%7.6%8.1%10.2%5.9%5.2%
FY03/11FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Revenue127,026125,205125,993148,820158,209164,397180,522237,910255,934236,355
Operating profit12,76710,3779388,56711,58813,39811,16615,76714,1077,285
YoY127.3%-18.7%-91.0%813.3%35.3%15.6%-16.7%41.2%-10.5%-48.4%
Operating profit margin10.1%8.3%0.7%5.8%7.3%8.1%6.2%6.6%5.5%3.1%
FY03/21FY03/22
(JPYmn) Act.Est.
Revenue204,714230,000
Operating profit7,50716,000
YoY3.0%113.1%
Operating profit margin3.7%7.0%
Source: Shared Research based on company materials
Musashi Seimitsu Industry’s profit margin compared to the auto parts sector average and the Honda affiliated auto parts manufacturer average
Source: Shared Research, based on company data
OPM at Musashi Seimitsu Industry and Honda
Source: Shared Research, based on company data.

Profit analysis by business segment

Segment earnings
By segmentFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.
Revenue125,993148,820158,209164,397180,522237,910255,934236,355204,714
YoY0.6%18.1%6.3%3.9%9.8%31.8%7.6%-7.7%-13.4%
Japan35,35335,42131,15627,71727,22128,77833,69935,31632,543
YoY-0.3%0.2%-12.0%-11.0%-1.8%5.7%17.1%4.8%-7.9%
% of total28.1%23.8%19.7%16.9%15.1%12.1%13.2%14.9%15.9%
Americas26,31030,56736,61946,92542,27452,11155,92255,92445,296
YoY29.6%16.2%19.8%28.1%-9.9%23.3%7.3%0.0%-19.0%
% of total20.9%20.5%23.1%28.5%23.4%21.9%21.9%23.7%22.1%
Asia45,01662,77171,33373,77269,77963,70364,95561,67844,262
YoY6.8%39.4%13.6%3.4%-5.4%-8.7%2.0%-5.0%-28.2%
% of total35.7%42.2%45.1%44.9%38.7%26.8%25.4%26.1%21.6%
China-----20,65223,59722,00329,987
YoY------14.3%-6.8%36.3%
% of total-----8.7%9.2%9.3%14.6%
Europe5,1505,3056,0556,64534,26972,66577,75961,43352,624
YoY-23.0%3.0%14.1%9.7%415.7%112.0%7.0%-21.0%-14.3%
% of total4.1%3.6%3.8%4.0%19.0%30.5%30.4%26.0%25.7%
South America14,16214,75513,0439,3366,977----
YoY-31.2%4.2%-11.6%-28.4%-25.3%----
% of total11.2%9.9%8.2%5.7%3.9%----
Operating profit9388,56711,58813,39811,16615,76714,1077,2857,507
YoY-91.0%813.3%35.3%15.6%-16.7%41.2%-10.5%-48.4%3.0%
Operating profit margin0.7%5.8%7.3%8.1%6.2%6.6%5.5%3.1%3.7%
Japan3,5862,7609272,5172,1382,1642,7332,7931,600
YoY26.0%-23.0%-66.4%171.5%-15.1%1.2%26.3%2.2%-42.7%
Operating profit margin10.1%7.8%3.0%9.1%7.9%7.5%8.1%7.9%4.9%
% of total320.8%34.9%8.3%19.4%19.7%14.2%19.9%39.9%21.7%
Americas4391,1042,3412,9442,3712,0732,0171,7611,215
YoY-151.5%112.0%25.8%-19.5%-12.6%-2.7%-12.7%-31.0%
Operating profit margin1.7%3.6%6.4%6.3%5.6%4.0%3.6%3.1%2.7%
% of total39.3%14.0%20.9%22.7%21.8%13.6%14.7%25.2%16.5%
Asia-3,8353,2297,0487,7257,4276,2965,6004,3092,556
YoY--118.3%9.6%-3.9%-15.2%-11.1%-23.1%-40.7%
Operating profit margin-8.5%5.1%9.9%10.5%10.6%9.9%8.6%7.0%5.8%
% of total-343.0%40.8%62.9%59.4%68.3%41.4%40.7%61.6%34.7%
China-----3,2103,0911,7324,321
YoY-------3.7%-44.0%149.5%
Operating profit margin-----15.5%13.1%7.9%14.4%
% of total-----21.1%22.5%24.8%58.7%
Europe421485887942-3331,461315-3,603-2,326
YoY-56.3%15.2%82.9%6.2%---78.4%--
Operating profit margin8.2%9.1%14.6%14.2%-1.0%2.0%0.4%-5.9%-4.4%
% of total37.7%6.1%7.9%7.2%-3.1%9.6%2.3%-51.5%-31.6%
South America5073279-1,132-725----
YoY-79.4%-35.5%-97.2%------
Operating profit margin3.6%2.2%0.1%-12.1%-10.4%----
% of total45.3%4.1%0.1%-8.7%-6.7%----
Adjustment-180659375401287560348291140
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Foreign exchange trends
Exchange rateFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Act.Act.Act.Act.Act.Act.Act.Act.Act.
USD---121.25108.72110.70111.07108.95105.94
YoY-----10.3%1.8%0.3%-1.9%-2.8%
BRL---36.2531.7035.0029.1726.1719.44
YoY-----12.6%10.4%-16.7%-10.3%-25.7%
EUR---133.69120.63127.22130.01120.85124.07
YoY-----9.8%5.5%2.2%-7.0%2.7%
IDR---0.00910.00820.00830.00770.00770.0074
YoY-----9.9%1.2%-7.2%--3.9%
INR---1.841.631.731.601.551.44
YoY-----11.4%6.1%-7.5%-3.1%-7.1%
CNY---19.1916.4116.6316.5015.5915.65
YoY-----14.5%1.3%-0.8%-5.5%0.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Production volume by segment
By segmentFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.
Production126,600148,932159,772164,414182,830239,483257,368232,989208,275
YoY0.4%17.6%7.3%2.9%11.2%31.0%7.5%-9.5%-10.6%
Japan34,99434,75930,81127,69027,73228,92333,98635,81333,251
YoY-2.1%-0.7%-11.4%-10.1%0.2%4.3%17.5%5.4%-7.2%
% of total27.6%23.3%19.3%16.8%15.2%12.1%13.2%15.4%16.0%
Americas26,64831,00837,63947,83541,83043,61956,42155,61847,124
YoY30.4%16.4%21.4%27.1%-12.6%4.3%29.3%-1.4%-15.3%
% of total21.0%20.8%23.6%29.1%22.9%18.2%21.9%23.9%22.6%
Asia45,51862,90072,62273,09670,17678,93165,72261,37044,499
YoY6.6%38.2%15.5%0.7%