Morningstar | Increasing Restructuring Costs Does not Change our Long-Term View; Toshiba’s Shares Fairly Valued
While Toshiba cuts its operating income guidance for this fiscal year from JPY 60 billion JPY 20 billion, we will retain Toshiba’s fair value estimate of JPY 3,800, as the revision is mainly the result of a onetime factor, and so it does not change our long-term view. After the three years of crisis, owing to the accounting scandal in 2015 and the huge impairment loss of the nuclear plant business in 2016, we consider that Toshiba made steady progress to divest risky businesses, to restructure its business portfolio, and to improve its balance sheet. We therefore consider that Toshiba’s operating margin will bottom out and gradually improve for the next five years. However, we will retain our view that after the sale of the NAND flash memory business, Toshiba’s remaining businesses are less attractive with lower revenue growth and lower profitability. Overall, we believe Toshiba’s shares are currently fairly valued and we retain our no-moat rating."Toshiba Next Plan," a five-year plan revealed in November, targets to reach 6% operating margin by fiscal-year 2022 (financial year ending March 2022), which the company has not achieved at least for the past two decades. While we understand that Toshiba needs to justify the sale of its NAND flash business, that the company was forced to sell to avoid delisting from Tokyo Stock Exchange, we consider that its margin expansion plan is somewhat too optimistic. As we are concerned product mix improvement and supply chain reform will not proceed as Toshiba expects, we forecast that its operating margin will stay at 4.2% in fiscal 2022.
Toshiba’s operating income guidance of JPY 20 billion includes the restructuring cost of JPY 26 billion, and one-time expenses such as impairments and provisions of JPY 35 billion, as Toshiba intends to put as much expense as possible to complete the transformation within this fiscal year. We forecast that Toshiba’s operating income will jump to JPY 115 billion for the next fiscal year, but consider that most of its profit will be skewed to the second half because of the seasonality of its infrastructure business, and as we forecast weaker demand for semiconductors and storages in the first half.
Toshiba is engaged in the manufacture and sale of electronics and energy products. Along with its affiliates, Co. operates in six business segments: energy systems & solutions, infrastructure systems & solutions, retail & printing solutions, storage & electronic devices solutions, industrial ICT solutions, and others. Co. provides thermal power generation systems, nuclear power generation systems, water supply and sewerage systems, instrumentation and control systems, environmental systems, automatic railroad station equipment, transportation equipment, POS systems, small-signal devices, information technology ("IT") solution services, personal computers, tablets, televisions, and others.
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