EUR 850.00 For Business Accounts Only

Morningstar | Panasonic Implements Organizational Reform to Improve the Poor Operation; Cut FVE to JPY 1,500. See Updated Analyst Note from 01 Mar 2019

We revise our fair value estimate for Panasonic from JPY 1,850 to JPY 1,500 as we lower our five-year operating income forecasts. We are concerned that Panasonic materially lowered its guidance twice during this fiscal year, and its adjusted operating income guidance was lowered from JPY 460 billion at the beginning of this fiscal year to JPY 325 billion, which is 19% below the previous year’s number. As the revised numbers were much below our forecast, we attribute it not only to the economic slowdown but also to the poor operation, which is due to the distance between the management and business domains, the competitive landscape has not been properly reported by business domains and management was not able to grasp the downturn. We thus view that Panasonic’s mid-term margin expansion will be slower than anticipated, which is the reason to cut our fair value estimate. Meanwhile, we believe that the disappointing numbers are mostly priced in, and the downside of its shares is limited.

Panasonic cut its adjusted operating income guidance from JPY 410 billion to JPY 325 billion in January, which is mainly due to revisions on two segments: 1) JPY 49 billion cut on the Automotive and Industrial Systems, or AIS, segment; and 2) JPY 21.5 billion cut on the Appliance segment. As a result, operating margin of AIS segment will drop to 2.2% for fiscal 2019 from 3.8% in fiscal 2017. In other words, the 24% revenue growth for the segment over the past two years has not contributed to Panasonic’s profit growth because of the poor operation, which implies that the company focused too much on pursuing revenue growth. We forecast that the operating margin will recover to 3.9% in fiscal 2020, as this year’s number includes: 1) one-time impairment cost of infotainment system, and 2) operating loss associated with the swift ramp up of Gigafactory, but we changed our view that the margin expansion thereafter will be slower than we had anticipated.

On Feb. 28, Panasonic announced another organizational reform, increasing the number of business companies to seven from four, which is mainly focusing to improve the efficiency of the operation on the Appliance segment and the AIS segment, in our view. We therefore consider that management is moving in the right direction to address the problem mentioned above.