Asahi, established in 1976 and based out of Japan, during its initial days utilized its advanced ultra-stainless steel wire rope technology in the industrial equipment field. But gradually, the company expanded its business into the medical field, which accounts for about 96% of total revenue in FY24. The main product in the medical device category- PCI Guide Wires – accounts for 47.4% of total FY24 revenue. The significance of the product could be further gauged by the 52% global market share it holds. The Group, with over 10,000 employees, has major markets across China, Europe, the U.S., and Japan.
Augmenting presence in the device domain
As per a KPMG report, the global medical devices industry is poised to reach sales of USD800bn by 2030, growing at a CAGR of 5.2% over the FY15-30 period. Accordingly, Asahi is looking to bolster its sales from the segment, where it already has a strong presence. The Group has a decent foothold in the cardiovascular field, which accounted for around 69% of revenues in 1QFY25, while the non-cardiovascular domain made up for around 15% of total sales. To achieve the strategic objectives of the current Medium-Term Management Plan and register consolidated net sales of over JPY110bn in FY26, the management plans to deepen and expand its products into non- -cardiovascular fields such as the peripheral vascular system, neurovascular system, abdominal vascular system, and digestive system. Asahi further plans to leverage its expertise in core technology and the medical device field to develop new next-generation smart treatments like navigation systems and remote treatment.
Positive performance from the Medical Division
The company demonstrated a solid CAGR of 13.5% over the period FY19-24 to reach revenues of JPY108bn. However, operating income grew at a lower rate, reflecting a CAGR of 8% to reach JPY22.1bn, impacted by margin contraction of over 600 basis points (bps) to 20.5% in FY24. On the other hand, Asahi’s peer, Olympus Corporation, witnessed a slower pace of top-line growth, growing it at a CAGR of 3.3% over the same period to JPY936bn. However, operating income grew at an impressive pace of CAGR 13.5% to JPY114bn, aided by over 450 bps expansion in margins to 12.2%. Another peer, Nihon Kohden Corporation, also reflected similar trends in performance over the period FY18-23, witnessing a 4.4% CAGR in revenues to JPY222bn. The operating income increased 5.4% to JPY19.6bn, with over 42 bps increase in operating margin to 8.8%.
Asahi reported an increase of 8.6% YoY in net sales to JPY31.2bn in 1QFY25, driven by the strong domestic and international performance of the Medical Division, which grew 10.2% YoY to JPY28.2bn Sales in the Medical Division were also aided by continued growth in market share across all regions and positive impact of forex. Domestically sales gained traction owing to steady performance in the cardiovascular field, while sales from overseas markets increased in both the cardiovascular and non-cardiovascular fields. Net sales from the Device Division were impacted by a decline in sales of medical components and offset by a flat sales trajectory in industrial components. As a result, net sales from the segment decreased 4.6% YoY to JPY3bn. Overall, gross profit increased at a faster pace, growing 15.6% YoY to JPY21.5bn, led by gross margin improvements. Consequently, the net income of the company increased 11.7% YoY to JPY6.8bn.
Bullish analysts' sentiments
The company is currently trading at a higher P/E valuation compared to its peers - Olympus and Nihon. Asahi’s P/E currently stands at 35.1x, compared to 23x for Olympus and 27x for Nihon. EV/EBITDA valuation approach also reflects a similar picture with Asahi’s multiple at 18x, compared to 11.3x and 12.2x for Olympus and Nihon respectively. The company’s stock delivered negative returns of around 16% in the past one year. However, the stock enjoys a mean consensus of a ‘Buy’ rating from 10 analysts, out of a total of 16 analysts covering the company with an average target price of JPY3,346, indicating a potential upside of around 32% from the current levels. Moreover, the stock has consistently surpassed quarterly revenue estimates in the past four quarters, supporting the bullish sentiments of the analysts on the stock’s possible upward trajectory.
Overall, the company presents a compelling case for investment, backed by a positive fundamental trajectory, strong traction in the medical division business, and a bullish view from analysts. However, the company is exposed to a few risks including healthcare reforms, sales concentration, increase in raw material prices, and reliance on overseas production. Notwithstanding the inherent risks, Asahi appears to be poised to leverage its domain expertise in the medical devices field, progressing its cardiovascular, non-cardiovascular, and OEM product portfolio in the medium term.