Nihon Kohden（6849.JP）Await rebound in market credibility

Investment Rating - The report maintains a Buy rating for Nihon Kohden with a revised 12-month price target of ¥2,180, down from ¥3,000 [5]. Core Viewpoints - The report indicates a need for a rebound in market credibility due to weak Q1 results, leading to a conservative outlook on sales estimates for Japan and China [1][2]. - Despite the challenges, demand for CT/MRI scans in Japan remains positive, and hospitals' capital expenditures are reportedly on track [1]. - The report suggests that the current stock price reflects an operating profit (OP) margin of 7-8%, which is below the forecasted 10.9% for FY3/26, indicating potential upside [1][11]. Summary by Sections Sales and Profit Estimates - The estimated sales compound annual growth rate (CAGR) for Japan has been lowered from 2.8% to 0.8% due to uncertainties surrounding hospital capital expenditures and government reforms [2]. - In China, a negative impact of approximately ¥2 billion per year is anticipated from the government's anti-corruption measures [2]. - EPS estimates have been revised downwards for FY3/25 from ¥102 to ¥82, for FY3/26 from ¥133 to ¥106, and for FY3/27 from ¥162 to ¥132 [2]. Market Dynamics - The shift in medical fee revisions from April to June has delayed capital expenditure decisions by hospitals, with reductions in administrative fees causing further delays [3]. - Stricter standards for calculating premiums for hospitals providing comprehensive care may positively impact demand, but a major rebound is not expected until H1 FY3/25 [3]. Valuation Metrics - The price target of ¥2,180 is based on a FY3/26 EPS estimate of ¥107 and a price-to-earnings ratio (PER) of 20.2X, reflecting a 10% discount to pre-pandemic averages [4]. - The stock currently trades at a PER of 20X, which is below the average of 21X during the FY3/23-24 period, indicating that the market may be overly pessimistic [4]. Competitive Landscape - Nihon Kohden's domestic business is expected to achieve an OP margin of 18% in FY3/27, slightly higher than competitor Fukuda Denshi's 19% margin in FY3/24, due to a higher proportion of profitable in-house products [10][11]. - The company has initiated a comprehensive program to revamp its earnings structure, which is crucial for improving profitability [10].