Asahi Kasei (3407) FY17 Q1 – 1H Upward Revision Was Predictable
Key Points
- Asahi Kasei reported peak earnings once again in Q1. The company revised up H1 targets and will consider full-year guidance later. NP was supported by tax asset reversals and the unwinding of cross shareholdings, which we expect will continue.
- ¥7.5bn of the ¥8.5bn H1 OP upward revision was in Chemicals, where improved spreads in Q1 offset plant maintenance costs. Acrylonitrile spreads averaged US$750/t, boosted by plant troubles at competitors and low industrywide utilization rates due to plant maintenance. Asahi assumes a Q2 spread of US$530 and still lower spreads in H2. Synthetic rubber spreads also probably peaked in Q1.
- Housing orders have been trending below target. Apartment orders grew, but interest rates are not rising enough to generate growth in detached housing. Asahi’s investment in an Australian homebuilder represents a partial response to what is an unexciting structural outlook for Japanese housing, although expanding domestic market share should still be Asahi’s goal.
- Asahi raised H1 OP guidance for Critical Care by \0.5bn on strong sales in the US of defibrillators and firm sales of Zoll’s LifeVests.
- As with several other commodity chemical manufacturers which reported recently, good Q1 results appear to have already been discounted. Asahi’s shares finished up 0.27% with the 13:00 announcement. Valuations appear reasonable, but not extremely cheap. Assuming FY17 OP of \174bn, we estimate a PER of 14.7x and EV/OP of 11.6x. Some data below has been restated to reflect division transfers between segments.
Asahi Kasei is a holding company. Co., through its affiliates, operates in three principal business segments. Material segment manufactures and sells petrochemicals, synthetic rubber, performance materials, household products (plastic wrap and storage bags), cleaning agents, elastic polyurethane filament, and battery separators. Homes segment is engaged in the development, construction and sale of unit houses and apartment buildings; and the provision of construction materials. Health Care segment manufactures and sells pharmaceuticals, diagnostic reagents, and critical care devices. In addition, Co. is engaged in the electricity supply, engineering, and employment agency businesses.
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