Pentax Has Big Gain
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Shares of Pentax the Japanese maker of cameras and medical equipment, had their biggest gain in almost four months after the company raised its annual profit estimate.

Pentax the Japanese maker of cameras and medical equipment, had their biggest gain in almost four months after the company raised its annual profit estimate as its digital camera inventory decreased and demand rebounded for parts used in DVD players.

The shares rose 5.8 percent to 402 yen, the biggest advance since March 31 2005. As of late yesterday Thursday, The stock had risen as much as 6.6 percent.

Pentax which is distributed in Australia by CR Kennedy is the the maker of Optio digital cameras, plans to increase sales by about 40 percent over five years by shifting focus to medical and optical gear, and decreasing reliance on its money-losing photographic business.

“We want to balance our portfolio by making the imaging systems, medical gear and optical device businesses each make up about a third of sales,” President Fumio Urano said in an interview. Pentax’s sales may reach about 190 billion yen ($1.7 billion) by 2010, compared with 133.6 billion yen for the year ended March 31, according to Bloomberg calculations.

Declining prices for digital cameras are squeezing profits at companies such as Pentax, Olympus Corp. and Fuji Photo Film Co. Pentax, which in May said prices for the devices fell by almost a quarter last year, will move some workers at its photographic unit to the medical and lens businesses, Urano said. “The optical component unit has the most potential to grow, given that Pentax has the expertise for lens-making as an established camera maker,” said Takahiro Mori, a Nomura Securities Co. analyst who has a “reduce” rating on Pentax stock. “It’s uncertain if they can maintain the camera business at where it is now.”

Digital camera sales, which made up 47 percent, or 63 billion yen, of Pentax’s sales last business year, will probably be little changed by 2010, he said.

The company’s shares, which have declined more than a third in the past year, rose 1.1 percent to 380 yen as of the 3 p.m. close on the Tokyo Stock Exchange.

Shifting Workers

The Tokyo-based company, which is cutting 300 jobs in the next two years, is shifting about 100 employees, including sales staff and engineers, to other businesses such as micro-lenses used in CD and DVD players and endoscopes, Urano said.

“For medical equipment, we plan to expand sales on possible acquisitions, maybe in the endoscope business,” said Urano, without providing details. “We aim to expand our optical components business, including DVD/CD-compatible lenses, by making more models that can be sold outside the company.”

In the year ended March 31, revenue from optical devices was 29.5 billion yen, and medical gear sales totaled 31.3 billion yen, each making up about a quarter of the company’s total sales.

Operating profit, or sales minus the cost of goods sold and administrative expenses, at Pentax’s imaging systems unit, which includes cameras and lenses, plunged 95 percent to 120 million yen in the 12 months ended March 31 from a year earlier, the company said in May.

As demand for compact digital cameras slows, makers such as Pentax and Canon Inc. are increasing production of single-lens reflex digital cameras, which are geared toward professionals or hobbyists, to bolster profits.

“We’ll shift focus to more profitable single-lens reflex digital cameras, to offset price declines in compact types,” Urano said. The company plans to introduce new models three times a year starting in 2005 from twice a year earlier, he said.
Pentax said yesterday net income will probably rise 35 percent to 1.35 billion yen ($12 million) in the year ending March 31. That compares with a May estimate of 1 billion yen and 3.53 billion yen a year earlier. Pentax raised its sales target 1.2 percent to 139.6 billion yen.

“The stock had been undervalued, so the positive earnings result may bring it up to as high as the 460 yen it had in April,” said Mitsushige Akino, who oversees $190 million at Ichiyoshi Investment Management in Tokyo. “But a recovery in digital cameras alone won’t be a factor that will pull up the stock.”

Pentax aims to reduce inventory and costs as price declines and increased competition push its digital camera unit into a loss. The company, which plans to cut 300 jobs in the next two years, cut its digital camera inventory by 13 percent to 3.5 billion yen in the three months ended June.

The company also raised its estimate for operating profit, or sales minus the cost of goods sold and administrative expenses, to 5 billion yen from 4.5 billion yen. It raised its first-half operating profit estimate to 800 million yen from 300 million yen.

“We didn’t revise our full-year estimates for Pentax given that the company now expects to generate 4.2 billion yen of operating profit in the second half, compared with 800 million yen in the first half,” said Hisashi Moriyama, an analyst at JPMorgan & Chase Co. in Tokyo, who rates Pentax shares as `underweight.’