Sumitomo Chemical (4005) FY17 Q1 Results – Justification to Raise....
Key Points
- Sumitomo achieved 58% of its FY17 H1 OP, 62% of RP and 79% of NP targets in Q1, exhibiting good reasons for an upward earnings revision, but left guidance unchanged. Petrochemicals, Energy & Functional Materials and Pharmaceuticals are well ahead of target.
- Subsidiary Sumitomo Dainippon Pharma (SDP, 4506) explained on July 28th that even though in-licensing and R&D costs would rise, it was raising FY17 OP guidance from ¥55bn to ¥65bn, based on higher sales of Latuda and the divestiture of Ciclesonide. As we explained in our report of May 4, Sumitomo Chemical – Headed Back Toward Peak Profits, while there is a clear risk to Sumitomo Chemical’s earnings from SDP’s patent cliff, the impact is less daunting after considering the minority shareholding impact.
- Agrochemicals are behind plan, but this is not a surprise as the market already viewed Sumitomo’s expectations for feed additive methionine prices hikes as optimistic. Sumitomo still expects prices to rise, and anticipates growing sales in Q2 of insecticides and herbicides. IT-Related Chemicals should gain momentum from Q2 from polarizers and touch films for new OLED smartphones.
- Equity holding income declined YoY in Q1, as illustrated below, but Petro Rabigh’s Q2 was probably very strong.
- Sumitomo will adopt IFRS accounting in FY18. It indicates that FY17 NP guidance would be unchanged under IFRS, but OP would rise to ¥200bn. This would lower FY17 E EV/OP from 10.7x to 8.7x.
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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