Japan Markets ViewSKY Perfect JSAT Holdings (9412) Continues to Enjoy Tailwind in Its Core Space Business

 

[QUICK Market Eyes] Space has been the focus of much interest recently. During the trading hours of March 13, it was reported that the small rocket KAIROS, launched by space startup Space One, exploded in mid-air seconds after liftoff. On March 17, Japan’s new H3 flagship rocket is scheduled for its second launch. This will be the first attempt since March 2023, about a year after the first launch failed.

 

The “Basic Plan on Space Policy” formulated by the Cabinet Office in May 2023 positioned the space industry as a growth industry in the Japanese economy. The government aims to double the combined market size of space equipment and space solutions to JPY8 tn in the early 2030s, up from JPY4 tn in 2020. Competition in space exploration is intensifying among countries. China’s Communist Party leadership announced at the 2024 National People’s Congress (NPC) that it would strengthen its space program to accelerate the construction of a “science and technology powerhouse.” The launch of Chang’e-6, an unmanned lunar probe, is scheduled in May.

 

In the U.S., the National Aeronautics and Space Administration (NASA) is promoting the “Artemis” lunar exploration program. According to Jiji Press on March 12, the U.S. Department of Defense’s budget request for FY 2025 identified the modernization of nuclear forces, strengthening deterrence against China, and space security as top priorities.

 

On the Tokyo stock market, attention is also growing for space-related stocks such as Institute for Q-shu Pioneers of Space (iQPS) (5595, Growth), which develops and manufactures earth observation satellites, and ispace (9348, Growth), which engages in lunar development.

 

An individual stock to watch is SKY Perfect JSAT Holdings (SKY Perfect JSAT), which is expanding its performance with the satellite communications business as its mainstay. The company is engaged in the media business of SKY PerfecTV!, a multi-channel pay-TV satellite broadcasting service, and the space business, including satellite communications services. While the media business is sluggish due to intensifying competition, the space business generates about 90% of the company’s operating income. (Company forecast for the fiscal year ending March 31, 2024)

 

Source: “Financial Results for 3Q of the Fiscal Year Ending March 31, 2024” disclosed by SKY Perfect JSAT

 

Sky Perfect JSAT’s space business is currently experiencing a tailwind. The revenue structure can be divided into three categories.

 

One is the Domestic Satellite Business Field, providing communication lines for disaster countermeasures and security. SKY Perfect JSAT provides communication and cell phone backhaul lines to government agencies, municipalities, and public infrastructure companies. The company has a monopoly share in the Japanese market with high profitability. Continued revenue growth is expected due to the transfer of government projects to the private sector and beefing up security.

 

The second, the Global & Mobile Field, provides satellite lines for ships and aircraft. Despite intense competition, there is significant room for expansion due to the spread of Wi-Fi services on ships and aircraft and the diffusion of high-capacity communications such as video. Besides, in the Media Business, the company offers satellite communication services to operators of SKY PerfecTV!.

 

SKY Perfect JSAT is also steadily developing new businesses. The company is also investing in the aforementioned iQPS and working together to promote the use of small SAR satellites that image the earth’s surface using microwaves. In January, the company established Orbital Lasers to develop a business for removing space debris (space trash), such as discarded satellites, using lasers through joint research with RIKEN. It also plans to collect ground surface information using satellite lidar (LiDAR). In February, SKY Perfect JSAT upwardly revised its forecast for the current fiscal year ending March 31, 2024. Revenue is expected to increase by 0.3% YoY to JPY121.5 bn, and operating income by 12% YoY to JPY25.0 bn. In addition to growth in the Global & Mobile Field of the space business and the Domestic Satellite Business, cost reductions have also contributed to the increase.

 

In a report dated February 15, Ichiyoshi Research Institute analyst Yasuyoshi Mimura indicated that “medium- to long-term growth” is possible by expanding space and new business areas. He noted that the space debris removal business may expand amid the growing global space development. Furthermore, he raised the target price for the space business from JPY1,000 to JPY1,100, again emphasizing his top-ranked “A” investment decision, as he expects the business to continue to increase revenues through expanded use of satellites.

 

SKY Perfect JSAT designated the five years from FY 2022 as an investment period for improving basic profitability. The company also declared that it would return JPY40 bn to its shareholders, in addition to stable dividends, through share buybacks. The stock price has remained steady at a record-high level. However, it is not overvalued, with an expected price-to-earnings (P/E) ratio of 16 and a price-to-book (P/B) ratio of 1.01. Expectations are high for a continuous rise in the stock price.

 

 

(Reported on March 14)

 

 

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