Sekisui Chemical (4204) FY16 Results: Good Shareholders' Return, but Low Growth Guidance
Sekisui Chemical shares declined 2% following its 1:30 announcement. The company announced higher dividends for both FY16 and FY17 and share buybacks (up to ¥16bn for 1.67% of shares, plus retirement of 10m shares), but as we saw with Nissan Chemical (4021) at Q3, buybacks will not necessarily support share prices when investors expect higher earnings growth. FY17 OP guidance of ¥102bn trails consensus of ¥104bn. We will review our estimates after further examination.
Opinions over the single-digit growth guidance may be split. On one hand, the ¥113/US$ assumption could be viewed as moderately optimistic. On the other hand, the R&D budget of ¥38.0bn compares to ¥34.2bn in FY16, as Sekisui invests in lithium-ion batteries and other growth-oriented projects.
Key Points
- FY17e represents the 9th consecutive year of OP growth. Earnings growth is posited for all three segments (see the Figure overleaf).
- Within High Performance Plastics, new auto window film capacity will start up in Mexico in H2. Sekisui did not include the ¥20bn Polymatech Japan acquisition in the plan, and provided no further details beyond its April 25th release.
- Sekisui targets housing order growth of 8% in units (10% YoY in H2) and 6% in value. The lower ASP assumption stems from a new strategy to target the volume-zone area of ¥20m-priced houses, compared to Sekisui’s usual range of ¥25m to ¥30m. With its 70th Anniversary this year, several new models are to be announced imminently – by Golden Week. Management apparently expects interest rates to remain near current levels during FY17.
Sekisui Chemical is mainly engaged in the housing and environment related business. Co. is engaged in the manufacture, construction and sale of housing, the sale of land for subdivision, the provision of reform services, as well as the construction and sale of interior items, exterior items and real estate; and the provision of chloride pipes, valves, bathroom units, synthetic wood, adiabator, intermediate films for laminated glass, semiconductor materials, optical films, inspection chemicals, adhesives and plastic containers. Co. is also involved in the manufacture and sale of film type lithium-ion batteries and other products.
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