Japan: Panasonic Corp, Shin Etsu Chemical and more

In today’s briefing:

  • Panasonic: 1Q Weaker Than Expected But Recovery Likely
  • Shin-Etsu: All Segments Seeing Declines; Earnings Rebound Could Take Longer

Panasonic: 1Q Weaker Than Expected But Recovery Likely

By Aqila Ali

Panasonic Corp (6752 JP)’s first quarter ended June 2020 revenue and OP declined by 26% and 93% YoY respectively (OPM of 0.3% vs 2.9% in 1Q FY03/20). Revenue was 7% below consensus while OP was 85% below consensus. Similarly, revenue was 9% and OP was 85% below our estimates.

Source: Company Disclosures, LSR

  • The decline in revenue was mainly due to COVID 19 and the impact of deconsolidation through business portfolio reforms in Housing, batteries, securities systems businesses (excluding the deconsolidation impact revenue would have declined by 21% YoY). The impact of COVID-19 was severe in the Automotive segment relative to the other segments.
  • The significant decline in OP even after recording one-time gains (without the gain, Panasonic would have generated a loss of JPY5.9bn vs, an adjusted OP of JPY3.8bn) was mainly due to the decline in revenue due to COVID-19.
    • Our main concern during 4Q FY03/20 results was the company’s Industry solution segment which was struggling due to China’s slowdown. However, the segment had relatively low exposure to COVID 19 declines. The segment’s decline was offset by the increased demand for its power storages and capacitors (given the rising need for information and communication infrastructure for working from home and distance learning trends that arose during the Pandemic).
    • The concern now is the Connected Solutions segment which is likely to take some time to recover given the recent decline in the airline industry.
    • The automotive segment which was affected the most initially, during the COVID-19 outbreak is now experiencing a recovery via growth in the EV industry.  Toyota’s involvement should help the segment retain some business through the year. Moreover, Panasonic also reported about continuing the expansion of the Gigafactory with Tesla, thus, if cylindrical battery production increases, as EV market recovers, the segment’s profitability is likely to improve.
    • The company provided FY03/21E guidance which is broadly in line with our expectations which we estimated upon 4QFY03/20 earnings release.
  • We felt the company was at a good entry point upon its 4QFY03/20 earnings ( Weak FY03/20 Places Toyota Battery Business as Hope for LT Recovery) having healthy growth prospects, though some downward risks did exist. The stock moved up almost 18% since then until yesterday’s close. Following the earnings release, the stock price declined by 13% (TOPIX declined by 2%). Panasonic now trades at 12.8x PE based on FY03/21E earnings. We believe the current decline to be temporary, and the investor should be patient with the stock for its long-term prospects.

We go through the details below.


Shin-Etsu: All Segments Seeing Declines; Earnings Rebound Could Take Longer

By Shifara Samsudeen, ACMA, CGMA

  • Shin-Etsu reported its 1QFY03/2021 results on Tuesday (28th July 2020) after market which saw both revenue and OP decline on a YoY basis. All the segments reported YoY drop in revenue and OP.
  • Shin-Etsu’s largest business, PVC/Chlor-Alkali business saw decline in revenue for a fourth consecutive quarter due to poor market conditions. The company expects price increases alongside improving market conditions to support a recovery in the segment towards the end of the year.
  • The company’s share price has rallied significantly since mid-March 2020 as the market expects the semiconductor silicon demand to rebound in 2021 leading to supply constraints.
  • Given the uncertainty in the markets caused by Covid-19 and the recent rally in the company’s share price, we remain cautious about further increase in the company’s share price in the short-term.

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