On Thursday, Jefferies analyst Ken Oiwa upgraded TechnoPro Holdings stock from Hold to Buy and increased the price target to JPY3,600 from the previous JPY3,000. This adjustment reflects a more optimistic outlook for the company's financial performance in the future.
Oiwa noted that TechnoPro has faced challenges with a rising leave ratio and turnover among its engineers. This has been attributed to the competitive hiring environment within the IT services sector, where companies have been able to attract engineers by offering higher wages. For example, Nomura Research Institute (NRI) offers an annual salary of JPY12.72 million compared to TechnoPro's JPY6.35 million.
Despite these challenges, Jefferies sees signs of improvement for TechnoPro. The firm has observed a growth in the unit price of contracts, which increased by 2.4% year-over-year compared to the previous quarter's 1.3% rise. This increase is expected to continue, based on forecasts.
The strategy that is contributing to this positive shift involves TechnoPro moving towards more consulting services, a method they refer to as 'built-in control'. This approach is expected to lead the company into solutions-based group outsourcing, which could potentially yield higher profit margins and improve employee retention rates.
The new price target of JPY3,600 implies a valuation of 18.3 times the forecasted FY6/25 earnings per share (EPS) of JPY196.5. The upgrade to a Buy rating and the raised price target suggest that Jefferies anticipates a stronger financial performance from TechnoPro moving forward.
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