A company selling film rolls shall have been extinct because we no longer use cameras with rolls. Did Fujifilm continue to succeed by transforming itself into a digital camera company? Read on.
Fujifilm transformed into a variety of business fields:
- Healthcare
- Materials
- Business Innovation
- Imaging
Business brief
Fujifilm Holdings Corp. (TSE:4901, Financial), a Tokyo-based company, develops, manufactures, sells and services imaging, health care, materials and business innovation solutions worldwide.
The company's current business portfolio was built through the evolution of innovation with cutting-edge, proprietary and advanced technologies for the photographic film industry. They intend to develop a portfolio allowing them to continue innovating even if their business environment changes.
According to the Q3 FY2022 report, the company reported revenue of 2,094.3 billion yen, a 12.5% increase YoY, and a high operating income of ¥202.6 billion, a 8.7% increase YoY. These increases were due to the growth of health care and electronic materials.
Target 2030
The company established long-term objectives for 2030 in four areas: the environment, health, daily life and work style, supply chain and governance. The company has a fantastic 2030 Sustainable Value Plan, addressing climate change and recycling natural resources, including water. It has set a goal of "reducing water usage of the entire Fujifilm Group by 30% compared to FY2013 levels" and is working to conserve water resources within its manufacturing plants through efficient water use and wastewater treatment.
Furthermore, in April 2021, the company developed a specific action plan to accelerate its business growth, primarily in health care and advanced materials, to meet the goals outlined in its sustainable value plan for 2030.
Glorious leadership
Teiichi Goto has been the president and CEO of Fujifilm since June 2021. This legendary figure joined Fujifilm in 1983 and held various positions within the company.
Revenue and margin sprawling high
The revenue and operating income for Q3 FY22 reached a record high of 744.4 billion yen and 81.8 billion yen, respectively.
The rise in revenue was due to the brisk sales of instant photo systems ‘INSTAX’ and new digital camera products in the quarter, even though surging energy and raw material costs impacted the profits.
The health care margin has been impacted by absence of the Covid-19 vaccine subsidy income. The materials revenue is in sync with the increasing demand for semiconductors and so is the operating income. The office and business solutions have boosted the performance of the Business Innovation segment over the year.
Divisional competitors
Fujifilm has quite a few names to compete with regarding the business services and imaging market. And some from the list are Canon (TSE:7751, Financial), Ricoh (TSE:7752, Financial), Xerox (XRX, Financial) and Konica Minolta (TSE:4902, Financial). Xerox is best known for their multi-function, all-in-one printers. Canon is famous for their versatile office equipment that can be used in any size office or home. The front-runner in commercial copy and print services is Ricoh. Konica Minolta is one of the high-quality commercial copier brand.
In the health care business race, some of the names are GE Healthcare Technologies (GEHC, Financial), Koninklijke Philips N.V. (XAMS:PHIA, Financial) and Siemens Healthineers (XTER:SHL, Financial). GE Healthcare provides medical technology, pharmaceutical diagnostics and digital solutions. Philips is the leader in diagnostic imaging, image-guided therapy, patient monitoring and health informatics. Siemens Healthineers on the other hand, manufactures and provides clinical diagnostics and therapeutic systems.
Fujifilm beats the competition in the business services and imaging market. It has a market capitalization of $19.6 billion. Whereas, Canon, Ricoh, Xerox and Konica Minolta are in the range between $2 billion and $5 billion. But in the health care business, Siemens Healthineers wins the race with $58.9 billion market cap followed by GE Healthcare with $34.6 billion.
The chart shows revenue growth is more in the business services and imaging companies. Ricoh had a revenue growth rate of 26.4% in its last financial year. Xerox revenue grew by 18.6% and Canon by 16.4%. The revenues for Fujifilm and Siemens Healthineers rose by 11.2% and 11.7% respectively. On the other hand, GE Healthcare and Philips had low revenue growth.
Path to 2030: The growth trajectory
In December 2022, Fujifilm entered into an asset purchase agreement to acquire the global digital pathology business of Inspirata's digital pathology business. And it would be Fujifilm's global entry into the highly underpenetrated digital pathology market. In contrast, 80% of the U.S. and Europe still run on analog. They plan to add digital pathology products to capitalize on the market, which is expected to reach $640 million by 2025. That, in turn, will help them achieve their target revenue of ¥1 trillion by FY 2030.
Another segment, the Life Sciences business has invested in a new manufacturing facility for cell culture media. This cell culture media market is growing at an annual rate of 10%. With the help of Group resources and the cell culture media, Fujifilm plans to accelerate culture media sales of ¥100 billion in FY 2030.
Furthermore, its Electronic Material segment plans to establish a new manufacturing structure in Japan, Taiwan and South Korea. Currently, Fujifilm holds an 80% share of the global market for color filter materials for image sensors. And with the growth investments, they plan to achieve revenue of ¥400 billion by FY 2030 and evolve into a semiconductor material manufacturer offering all solutions.
Valuations
As per data provided by GuruFocus, Fujifilm's PE Ratio of 12.34 stands above the Japan Tech Industry average of 11.1x. Its book value per share for the quarter that ended in Dec. 2022 was 6,718.77 yen, compared to its market price of 6,416.00 yen. As of Feb. 17, 2023, Fujifilm's dividend yield is 1.78%.
Fujifilm's ROE ranked better than 54% of 2751 companies in the Industrial Products industry; it shows how well a company uses investment funds to generate earnings growth.
Fujifilm's enterprise value-to-Ebitda ratio stands at 7.16, while its EV-to-revenue ratio yields 1.05, ranked better than 54% of 489 companies in the Conglomerates industry. These are lower than industry averages, which stand at 7.85 for EV-to-Ebitda and 1.20 for EV-to-revenue.
The company's recent trend in ROIC is encouraging, rising from a lowly 3.09% in Dec 2013 to 5.89% in Dec 2022. Although the absolute level remains relatively low, it does indicate that the company is improving its capital allocation to more profitable investments.
Overall, valuations look reasonable because the company has better ratios than the industry on EV-to-EBITDA and EV-to-revenue. Also, it has a rise in its ROIC levels. Plus, the company pays dividend.
Our take
Fujifilm, a giant firm with a solid track record, is on the verge of entering a high growth trajectory in the coming years. As discussed above, the company’s primary focus areas for growth are medical systems, life sciences and electronic materials. While the company will incur capex to make these segments future growth engines, it will also benefit from their sales and profitability.
To support these growth aspirations, Fujifilm has a strong balance sheet. The company’s debt, in Q3 2022, stood at 477 billion yen, whereas cash and equivalents, at 318 billion yen, covered almost 67% of the debt. Also, the company’s debt-to-equity ratio at 0.23 (as per GuruFocus) has been hovering around that mark in the past, showing that the company focuses on maintaining its balance sheet stability and flexibility.
To top it off, Fujifilm has consistently had positive free cash flows in the past 10 years. With growth plans in sight, it might face brief periods of tight cash flows but will also improve the company’s profitability, leading to a better cash position in the future.
Overall, while the company has above-average valuations, it deserves so based on its high growth trajectory, sturdy balance sheet and good cash flow management.
Disclaimer/Disclosure
We do not have a short or long position in the shares of Fujifilm, either through stock ownership, options, or other derivatives. We wrote this article to express our opinions and are not receiving compensation from any individual or entity for it.
It would be best if you did not treat any opinion expressed in this article as a specific inducement to make a particular investment or follow a particular strategy but only as an expression of our opinion. This is not investment advice. Before you invest in anything you read in our articles or those of other people offering investment advice online, research to verify the soundness of what you have read. Please consult your investment advisor before making any decisions.
