PSA Chemicals: Shin-Etsu Chemical (4063) FY17 H1 Meeting - Strong Momentum Continues in Silicon Wafers, PVC and Soda
Shin-Etsu Chemical (4063) FY17 H1 Meeting - Strong Momentum Continues in Silicon Wafers, PVC and Soda
Key Points
- Shin-Etsu turned in another strong performance, growing FY17 H1 OP by 28.1% YoY to ¥156.3bil, a pace which makes both our full-year estimate (¥293.4bil) and consensus (¥296.5bil) appear potentially conservative. Shin-Etsu left its guidance at ¥268.0bil, but it was clear management was not contemplating any tangible risks – quite the contrary.
- Semiconductor silicon OP surged 59.8% YoY to ¥41.7bil. Tightness in 300mm wafers has increasingly spread to 200mm and smaller circumference wafer markets. Shin-Etsu noted that 200mm markets are so tight that price hikes there are catching up with those of 300mm wafers. This may be taken as positive for Sumco (3436), which is the largest 200mm wafer supplier. Management admits it is taking some steps already to increase capacity, but reiterates its intention to strive to keep markets orderly. Regarding Siltronic’s (WAF GY) recent comment that 300mm prices soon would be up 30% YoY, Shin-Etsu said that this figure may be disproportionately high, suggesting that Siltronic’s ASP started from a lower point.
- PVC & Chemicals Segment OP surged 34.1% YoY to ¥40.5bil on improved spreads in North America. Shin-Etsu guides for continued sequential improvement in earnings. This is even after taking the impact of Hurricane Harvey in August into consideration.
- Electronic & Functional Materials earnings did not grow as much as we expected; management explained that demand conditions were good but indicated a short-term increase in fixed costs, citing depreciation. As illustrated in the following table, Shin-Etsu reported higher sales and OP for each of its segments in Q2; OPM for the quarter reached 22.9%.
Shin-Etsu Chemical is mainly engaged in the manufacturing and sales of polyvinyl chloride and organic chemicals, silicon, functional chemicals, semiconductor silicon, electronic and functional materials, and others. Co.'s principal products include polyvinyl chloride, caustic soda products, methanol, chloromethane, silicon products, cellulose derivatives, silicon metal, poval (polyvinyl alcohol), synthetic pheromones, semiconductor silicon products, rare earth magnets, encapsulation materials, photoresists, photomask blanks, synthetic quartz products, epoxy molding compounds, pellicles, and resin processed products. Co. is also engaged in the export of plant equipment and others.
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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