EUR 850.00 For Business Accounts Only

Morningstar | While Lower Margin Disappoints the Market, Rechargeable Batteries will Recover in 2H. See Updated Analyst Note from 04 Nov 2018

While Panasonic retained its operating income guidance for this fiscal year of JPY 425 billion, it materially lowered its profit guidance from four major business segments by JPY 49 billion, which is below our forecast. The appliances segment cut down its revenue and profit guidance because of the intense competition of air conditioners and flat panel televisions, and the eco solutions segment dropped numbers owing to the slowdown on the domestic housing market, which were both in line with our expectations. Meanwhile, we consider that the revision on automotive and industrial systems segment will disappoint the market, as while the company raised the revenue guidance, it lowered the profit guidance, which suggests that Panasonic’s margin expansion plan for this fiscal year was too optimistic. We plan to trim our earnings forecasts and fair value estimates after visiting the company in early November. However, we retain our view that Panasonic will eventually improve the profitability of rechargeable batteries, which is not fully priced in to the current share price.

Panasonic’s September quarter operating income was JPY 95 billion, which was below our forecast of JPY 110 billion, and previous year’s number of JPY 113 billion. Thanks to the ramp up of Tesla Model 3 production, we estimate that revenue of rechargeable batteries increased more than 40% from the previous year, but on the other hand, operating loss of the energy segment worsened to JPY 7.3 billion from JPY 0.4 billion of the previous year, because of the larger initial production cost and lower production yield. While Panasonic’s plan to achieve 8% operating margin for the energy segment on the second half looks somewhat challenging, we view that the company will eventually reach the target in a few quarters delay.