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Japan's No. 3 car light maker aims high with French partner

Ichikoh and Valeo hope to re-energize alliance with ownership shake-up

Ichikoh Industries, Japan's third-largest auto lamp manufacturer, welcomes Heiko Sauer as its new president.

TOKYO -- Ichikoh Industries, Japan's third-largest auto lamp manufacturer, will welcome Heiko Sauer as its new president and COO in June. Sauer will be the second chief who comes from Ichikoh's French parent Valeo, after current president Ordoobadi Ali.

In January this year Ichikoh became a Valeo subsidiary as the French parts maker raised its ownership in the Japanese manufacturer from 32% to 55%. The two plan to fundamentally review their strategies and work together better to expand further in the global market. Next-generation technologies will be a main focus.

The partnership began in 2000 when Nissan Motor, then the largest shareholder of Ichikoh, handed over its stake in Ichikoh to Valeo. However, over the past 17 years, the partnership has not been especially fruitful, mainly because both manufacturers stuck to their own products and territories. 

"The company's profitability is weak while its competitiveness in development is limited," an Ichikoh executive said. "We're nothing more than the No. 3 parts maker."

Ichikoh lags far behind Koito Manufacturing, Japan's top car lamp maker, and the gap between the two is widening.

For the year through March 2016, Ichikoh group sales totaled 102 billion yen ($939 million), while Koito posted eightfold that of Ichikoh at 813 billion yen. Back in 1996 Koito's sales were 212 billion yen, about twice those of the 113 billion yen for Ichikoh.

Whether that can be chalked up to Ichikoh performing poorly or Koito doing well, one thing is for sure: Ichikoh has been slow to expand into overseas markets. Its overseas sales ratio is currently 23%, much lower than 62% for Koito.

After Nissan cut the strings, Ichikoh expanded its customer base to Toyota Motor and other automakers. Ichikoh and Valeo also worked together on joint procurement of parts. 

However, over the years the two have been heading in different directions, with Ichikoh focusing on Japan and Southeast Asian markets while Valeo expanded in the Americas. Disparate coverage has hampered them from making the most of the partnership, according to a source close to Ichikoh. 

Maximize synergies

By making a fresh start with the renewed partnership and new leader, the two makers are aiming to jointly increase their global presence. 

One idea is to review their product portfolio. Currently, Valeo and Ichikoh together control 20% of the global auto lamp market -- a range within striking distance of Koito's 24%. 

The focus of parts makers in the auto industry is shifting to safety, environmentally friendly components and autonomous driving. Self-driving vehicles are a hot topic for lamp makers as they expect growth by providing new lights that can, for example, warn pedestrians or oncoming vehicles of the presence of the car . 

The two companies seek to combine Ichikoh's headlights with Valeo's strengths in sensor and camera technologies to appeal to a broader customer base. They are also keen to jointly develop digital mirrors that are expected to replace conventional side and rearview mirrors. 

Ichikoh shares have ridden the Trump rally since November, enjoying a 60% rise over a five-month period to April 18. Considering that the shares of Koito and Stanley Electric, two top suppliers of car lamps in Japan, fell during the same period, Ichikoh appears to have gained credence in the market. 

However, regarding the price-earnings ratio, which gauges investors' expectations of future growth, Ichikoh remains weaker than its rivals. Ichikoh's P/E is 9, while Koito stands at 15 and Stanley Electric clocks in at 17. 

Ichikoh appears to be attracting value-focused investors, but the company must appeal to growth-focused investors, too. 

Bitter lessons learned from experience do not always lead to success. But Valeo and Ichikoh are attempting to correct past mistakes and move in a new direction that brings prosperity to both parties. 

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