Sumitomo Chemical (4005) FY 16 Results Conference Call Feedback – Guides for Peak Earnings in FY17
Sumitomo’s FY16 results were pre-announced and so held few surprises. FY17 OP guidance for ¥165.0bn is well above consensus of ¥153bn, although market assumptions were probably already a bit higher. Our OP estimate of ¥157.8 appears too low now as well, although our NP estimate is in line with Sumitomo’s guidance. We will review our estimates after further discussions with management.
As we explained in our report of May 4th, Sumitomo Chemical – Headed Back Toward Peak Profits, FY16 was a difficult year because of the stronger yen and higher pension costs. OP declined 18.3%. If Sumitomo achieves its FY17 guidance, the company will, in fact, realize peak earnings.
Key Points
- IT-Related Chemicals should see a strong rebound, supported by growing volumes of OLED touch sensors and OLED polarizers.
- Sumitomo anticipates a 10% recovery in the price of livestock feed additive methionine, after a 30% decline in FY16. Herbicide sales should also recover in North and South America.
- In Energy, LiB separator shipments are likely to more than double as production ramps up for the Tesla (TSLA US) Model 3.
- The company is guiding for a flat dividend of ¥14 per share for FY17, but intends to review this if earnings visibility improves. We estimate a dividend of ¥18.
- We view valuations as relatively attractive. Based on our FY17 earnings, we estimate a PER of 9.9x, EV/OP of 10.2x and PBR of 1.2x. Sumitomo estimates its FY17 ROE at 11.8% vs ours of 12.2%
- A table showing the company’s segment trend and guidance is included in the file.
Sumitomo Chemical is a chemical manufacturing company. Co.'s business is comprised of 5 sectors: Petrochemicals & Plastics Sector, Energy & Functional Materials Sector, IT-related Chemicals Sector, Health & Crop Sciences Sector, Pharmaceuticals Sector and Others. Co. is engaged in the manufacture and sale of inorganic and organic chemicals, synthetic fiber materials, metal acrylate, alumina and aluminum products, petrochemical, synthetic resin and rubber products, optical goods, color filters, materials for semiconductors, electronic materials, agrochemicals, fertilizers, agricultural materials, pesticide, dietary additives, pharmaceuticals and radioactive diagnostic products.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
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