SPARX Japan Equity Long Short Fund on NHK Spring Co., Ltd.
Thesis
SPARX initiated a new position in NHK Spring, a global leader in automotive suspension springs that has also developed a dominant position in hard-disk-drive suspension components. Its Disk Drive Suspension segment now generates more than half of consolidated profits and has a global market share above 50%. The fund expects accelerating AI data-center investment to support medium- to long-term growth in high-capacity storage demand and improve the supply-demand environment for the DDS business. Capacity investments are beginning to contribute to revenue growth and profitability, while the HDD market is expanding faster than previously expected. The automotive components business also appears to have reached an earnings trough as the company exits low-margin overseas operations. SPARX believes improving fundamentals across both divisions support sustained earnings growth and justified initiating the position.
“Given the improving fundamentals across both businesses, the investment was initiated this month.”
Key risks
- Capacity expansion and growth investment have created margin-pressure concerns.
- The automotive components recovery depends on successful normalization after overseas adjustments and other North American sales headwinds.