EUR 850.00 For Business Accounts Only

Morningstar | Cut Panasonic’s FVE to JPY 1,850 because of weak Appliances, but battery will drive its share in 2H

Panasonic is a global electronics conglomerate with hundreds of subsidiaries that manufacture and sell items ranging from automotive products to solar panels. However, its core consumer electronics markets have come under assault as competitors with comparable technologies at lower price points have successfully muscled into Panasonic’s markets, reducing the industry’s profits.Panasonic has repeated a cycle of large restructuring and inefficient investment. As a result of maturation of both the Japanese economy and consumer electronic products, Panasonic has faced the pressure of lower profitability in its core business. Panasonic has implemented a huge restructuring several times, approximately for every 15 years, and recovered its profitability each time. On the other hand, we doubt Panasonic’s capability on strategic investment, as the company failed to address the changing environment in the global consumer electronics industry and consequently did not generate sufficient return from past investments. In fact, Panasonic’s revenue has been unchanged at around JPY 7 trillion-8 trillion, and its operating margin has ranged between 1% and 5% for more than two decades.We acknowledge that Panasonic made a swift recovery from the crisis in 2012, as a result of restructuring led by president Kazuhiro Tsuga, reducing the number of business units from 88 to 37 and exiting many unprofitable businesses, cutting costs, impairing fixed assets, and more important, shifting the focus area from consumer electronics to business-to-business. However, we believe Panasonic still does not have an economic moat, as it remains too diversified and holds limited market share in most of its products. Panasonic has some competitive businesses, such as automotive rechargeable batteries and in-flight entertainment systems, but we view these businesses as still too small, and we are therefore uncertain whether the company can overcome the negative cycle and achieve future growth.