Fujimi stock rating upgraded to neutral by Goldman Sachs

Goldman Sachs upgraded Fujimi Inc (5384:JP) to Neutral from Sell, raising its price target to JPY2,290.00, citing the stock's significant 38% underperformance since its prior downgrade. This decline has corrected Fujimi's valuation to a broadly fair FY3/26E P/E of 14x, despite persistent issues such as declining China CMP market share and low HBM application sales. However, Goldman anticipates large-scale investments will significantly temper future operating profit growth to a 4% CAGR through FY3/28, a notable slowdown from its historical 14% average.

Analysis

Goldman Sachs has upgraded Fujimi Inc. (5384:JP) to Neutral from Sell, a move driven primarily by valuation rather than a fundamental improvement in the company's outlook. The upgrade follows a significant 38% decline in Fujimi's share price since the bank's previous downgrade on May 14, 2024, a period during which the broader TOPIX index gained 2%. This underperformance has corrected what was considered a rich valuation, bringing the stock to a forward P/E of approximately 14x for FY3/26, a level Goldman Sachs now deems 'broadly fair' and slightly below its 10-year average. However, the underlying operational challenges persist, including weaker-than-expected topline growth stemming from declining market share for its CMP products in China and low sales exposure to high-growth HBM memory applications. Looking ahead, Goldman Sachs projects that large-scale investments will suppress Fujimi's operating profit growth to a compound annual growth rate (CAGR) of just 4% from FY3/25 to FY3/28, a stark deceleration from the 14% average annual growth recorded over the past five years.

Key Decisions for Investors

• Given the upgrade to Neutral is based on valuation correction rather than fundamental improvement, investors with short positions may consider this an opportune moment to cover their positions, as the primary downward catalyst has likely played out.
• Potential long investors should exercise caution, as the Neutral rating and forecasted 4% operating profit CAGR signal a lack of near-term catalysts and a significantly weaker growth trajectory compared to its historical 14% average.
• Investors should closely monitor Fujimi's future earnings reports for any signs of stabilization in its China CMP market share or strategic initiatives to increase its low exposure to the HBM market, as these are the key headwinds currently limiting its performance.