Nihon Trim Leads Topix in 2013 on Gene Testing, Purified Water

Jan 14, 2014 1:47 am ET

Jan. 14 (Bloomberg) -- Nihon Trim Co., the biggest gainer in 2013 on Japan’s Topix index, said its shares surged on investor bets its U.S. genetic testing business will boost earnings and as demand rises for purified water.

The sevenfold advance last year accompanied its U.S. unit’s drug intolerance testing kits winning approval for Medicare coverage in New York state, according to Norio Tahara, head of corporate planning at the 32-year-old company. The stock also climbed on a 40 percent jump in profit per share as water purifiers found their way into four of every 10 Japanese households, he said.

Nihon Trim led a 51 percent advance for the Topix, the 1,761-member gauge’s biggest annual gain since 1999, as Prime Minister Shinzo Abe spurred unprecedented stimulus measures to boost the world’s third-biggest economy. The company’s water- treatment systems gained in popularity after the worst nuclear disaster since Chernobyl spurred a scare about Japan’s tap water, while investors and the company said advances in the genetic-testing business drove the shares higher.

“Our business in genetics has finally started to stand on its own feet, and we think this was one of the main reasons our shares surged,” Tahara said in an interview in Tokyo last month. “Our water purification business had record profits last year, is going well this year and is expected to continue its advance next year.”

Earnings Increase

Earnings at the Osaka-based company were 179.31 yen ($1.74) per share for the year through March 2013, an increase of 40 percent from the previous year, according to data compiled by Bloomberg. Profit per share is expected to jump 52 percent in the 12 months through March this year, analyst estimates compiled by Bloomberg show. TrimGen Corp., the company’s U.S. genetic testing arm, posted positive earnings last fiscal year for the first time since its establishment in 1999, Tahara said.

The profit and share-price gains are poised to continue as the market for Nihon Trim’s products expands, Tahara said.

Investors are keen on TrimGen, whose genetic testing kits including for anti-stroke drug Warfarin were approved for Medicare coverage in South Carolina in July 2010 and in New York in October last year. More states are expected to follow, Tahara said. TrimGen opened a new office in Osaka in October and plans to list its stock in Japan “in the near future,” he said.

Growth Expectations

“The purification business provides stable profits, but expectations for growth in gene testing were the real reason shares surged last year,” Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo, said in a phone interview Jan. 8. His firm started purchasing Nihon Trim shares about three years ago and is still a holder, Akino said. “Investors are buying the dream. It’s not based on reality yet. The key will be how much they grow sales at the U.S. unit.”

Nihon Trim is also Japan’s largest provider of water purifiers with medical benefits, according to Tahara. Its products reduce oxidization, a major cause of cell aging, and are good for the digestive system, he said. This type is owned by only 5 percent of households in Japan even though 40 percent have purifiers, Tahara said.

Two of five analysts covering Nihon Trim recommend buying, with two saying hold and one sell, according to data compiled by Bloomberg. Daiwa Securities Co., which has a buy rating on the shares, set a target price of 10,090 yen on Dec. 20, compared with the company’s closing price of 8,120 yen at the end of last year.

2013 Rally

Shares in the firm gained 599 percent in 2013 following a 31 percent jump in 2012. They had fallen for each of the previous seven years.

History shows sustaining an index-leading advance has proven difficult. The biggest annual gainers on the Topix fell the next year three of the past four times, data compiled by Bloomberg show.

“Since the shares rose on expectations rather than reality, they could very easily see major damage if the genetic testing business doesn’t grow with time,” Ichiyoshi Asset’s Akino said. “But I don’t see any reasons why this would happen in the first six months of this year.”

--Yuko Takeo and Satoshi Kawano. Editors: Tom Redmond, Sarah McDonald