Chemicals (29 June)
Total Page：16
File Type：pdf, Size：1020Kb
29 June 2015 Asia Pacific/Japan Equity Research Major Chemicals (Chemicals/Textiles (Japan)) / MARKET WEIGHT Chemicals Research Analysts COMPANY UPDATE Masami Sawato 81 3 4550 9729 [email protected] Corporate Day: Kuraray, Asahi Kasei, Tosoh, Shin-Etsu Chemical, JSR, Zeon, Ube Industries, Hitachi Chemical, Nippon Kayaku ■ Kuraray (3405, NEUTRAL TP ¥1,650): We forecast 1H FY3/16 OP of ¥29.5bn, beating guidance (¥29.0bn) by ¥0.5bn (the Quick consensus is ¥30.4bn). The company indicated that areas such as Poval products, including optical-use Poval film, isoprene, and methyl methacrylate have been outperforming, while glass laminating solutions (vinyl acetate-related) have been falling short of guidance. Based on firm 1Q shipments, the company expects shipment volume of optical-use Poval film to increase by around 7% YoY for the full year. We think Kuraray will likely leave full-year guidance unchanged. The company indicated that the impact of coated polarizing film among optical-use Poval film will be modest in the near term. ■ Asahi Kasei (3407, NEUTRAL, TP ¥1,200): We forecast 1Q OP of ¥32.0bn, equivalent to 45.4% of 1H guidance (¥70.5bn; Nikkei 1Q forecast ¥32.0bn; Quick consensus ¥32.1bn). The company indicated that profits have been tracking above guidance considering factors including that housing profits are concentrated in 2Q. At the chemicals segment, the company expects higher styrene monomer (SM) margins and functional resin outperformance to offset acrylonitrile (AN) margins, which have been tracking below its assumptions. We understand fibers, electronics, and pharmaceuticals & healthcare have also been firm. Housing orders are firm, but it expects a YoY decline in earnings due mainly to increases in materials and construction costs. We expect 1Q results to beat guidance but think the company will likely retain 1H OP guidance. ■ Tosoh (4042, NEUTRAL, TP ¥730): We forecast 1Q OP of ¥11bn, equivalent to 39.3% of 1H guidance (¥28bn). The company indicated that this is in line with guidance given that 1H profits have previously tended to be concentrated in 2Q. The company said functional products have been beating guidance due to higher margins resulting from the weaker yen, but that chlor-alkali has been missing targets due to lower margins on urethane feedstocks. The company expects urethane feedstock supply-demand to worsen in 2H as BASF is due to bring more capacity (400,000t/year) on line in July. We estimate urethane feedstock demand in Asia was around 2.7mn tonnes in 2014. We expect demand to increase by around 200,000t/year. A 400,000t/year increase in capacity is therefore likely to have a major impact, in our view. We think the company will likely retain 1H OP guidance at 1Q results. <Continued onto next page> DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 29 June 2015 ■ Shin-Etsu Chemical (4063, NEUTRAL, TP ¥8,400): We forecast 1Q OP of ¥49.5bn, up 1.9% YoY from ¥48.6bn in 1Q the previous year. The Quick consensus is for ¥49.2bn. The company expects OP to decline YoY in the PVC and chemicals segment due to input procurement issues at Shintech in the US. Although we expect consolidated OP to rise YoY in 1Q owing to earnings growth in semiconductor silicon and brisk results from the electronic and functional materials segment to compensate. The issues at Shintech have been largely resolved as of June, and it expects earnings to recover in 2Q. In semiconductor silicon, we expect production cuts in logic chips starting from July to bring a halt to price rise negotiations in 2Q. These are likely to resume around the end of the year. We expect the company to announce new full- year guidance along with 1Q results and estimate this will be limited to about ¥195bn (+5.2% YoY). The I/B/E/S consensus is ¥212.6bn. Management’s basic policy on shareholder returns is to maintain a stable dividend, but it said it is still considering the amount and has not announced a dividend estimate. It is not considering share buybacks. ■ JSR (4185, NEUTRAL, TP ¥2,250): We forecast 1Q OP of ¥7.5bn, 46.9% progress toward 1H company guidance of ¥16bn. We understand management planned for OP of just under ¥8bn in 1Q, but the result has been somewhat weaker, due mainly to elastomers. Market prices for feedstock butadiene, an indicator for synesthetic rubber price trends, are recovering, but did not actually produce a rise in synthetic rubber prices in 1Q, which we understand left profitability below company expectations. Domestic tire production is also weak, which also left synesthetic rubber shipment volume short of target. S-SBR for eco-tires grew a brisk 30% YoY, but this was insufficient to cover the shortfall in commodity rubber. The semiconductor materials segment was also weaker due to the transition from 20nm to 16nm processes at major Taiwanese buyers of ArF immersion resist, sales of which were quite strong last year. We understand sales of LCD materials are going according to plan. For 2Q, while we forecast a synthetic rubber profitability recovery, a potential market correction in semiconductor materials is still a concern. We expect management to reiterate its current 1H OP guidance when it announces 1Q results. ■ Zeon (4205, NEUTRAL, TP ¥1,140): We forecast 1Q OP of ¥7bn, equivalent to 46.7% of 1H guidance (¥15bn). The company indicated that this is broadly in line with its expectations as Zeon's initial guidance called for OP to be concentrated in 2Q. Elastomer volume has been weak due to sluggish synthetic rubber prices in Apr–May. However, as synthetic rubber feedstock butadiene, a synthetic rubber price indicator, is currently priced above $1,400/t, which is higher than the company assumption ($1,100/t), the company expects margins to improve in 2Q. Optical film was impacted by inventory corrections for TV film in Apr–May, but among films for small to midsize devices, shipments of film for smartphones has remained firm. It expects shipments for new-model TVs to increase from 2Q. We look for performance in line with guidance in 1Q, but outperformance in 2Q due partly to higher shipments of optical film and profitability gains in synthetic rubber. However, we think the company will likely retain 1H OP guidance at 1Q results. ■ Ube Industries (4208, NEUTRAL, TP ¥250): We forecast 1Q OP of ¥6bn, equivalent to 42.9% of 1H guidance (¥14bn). Ube Industries' 1Q profits tend to be low as profits are usually concentrated in 2Q due to scheduled maintenance and seasonality. However, this year the company assumes substantial progress toward guidance in 1Q due to a YoY decline of around ¥5bn in scheduled maintenance costs at the chemicals segment in the first quarter. Factoring this in, we think 1Q results will be broadly in line with guidance. At the chemicals segment, it expects margins on caprolactam, used for nylon production, to beat guidance. At the electronic materials business, although electrolytes have been missing guidance, shipments of automotive separators to China have been firm. The company expects full-fledged shipments of coated separators Chemicals 2 29 June 2015 from 2H. However, we understand pharmaceuticals have been tracking below guidance. We think the company will likely retain 1H OP guidance at 1Q results. ■ Hitachi Chemical (4217, OUTPERFORM, TP ¥3,200): We forecast 1Q OP of ¥11bn, equivalent to 45.8% of 1H guidance (¥24bn). As its initial guidance called for OP to be concentrated in 2Q, the company indicated that this is broadly in line with its expectations. We understand functional materials have been tracking slightly below guidance, but advanced components & systems have been beating expectations. Sales in Apr–May were up 11% YoY, beating 1H guidance calling for a 10% increase. Sales of functional materials were up only slightly YoY in Apr–May (1H guidance +5%), but sales of advanced components & systems rose 20% (15%). Powdered metals moved into profit on a monthly basis, and the company indicated that it has continued to improve margins. At the storage battery devices segment, sales of industrial batteries doubled YoY in May due to a contribution from the consolidation of Taiwanese battery maker CSB. Overall, sales rose 51% YoY. The company expects storage battery devices sales to increase heading into 2H. We think the company will likely retain 1H OP guidance at 1Q results. ■ Nippon Kayaku (4272, OUTPERFORM, TP ¥1,840): We expect the company to report 1Q OP of ¥6.0bn, 50.4% of its 1H OP target (¥11.9bn). Considering that management expected realization of 1H OP to be weighted toward 2Q, this 1Q result would indicate the company is on course to slightly beat its 1H targets. We think the good result has been realized by pharmaceutical segment profits holding even with the previous year level while safety systems turned in a strong performance. In the pharmaceuticals segment, we understand sales of the company’s generic injectable and orally administered agents both increased about 5% YoY. Meanwhile, number of hospitals adopting the company’s Remicade biosimilar expanded to 170. Nonetheless, 1Q sales evidently amounted to only about ¥0.2bn, indicating it will take longer to achieve a significant increase in sales.