Teijin (3401) Results Meeting Comment – Back to the Recovery, After Challenging Conditions in FY16
Teijin’s share price held steady after the 11:30 announcement (May 9th), closing up 0.5%. FY16 OP and FY17 OP guidance were both moderately below consensus estimates, but the market appeared satisfied with guidance for OP growth of 9.7%. Our revised FY17 estimates are provided in the file attached. Teijin continues to explain that forward-looking investments are delaying earnings growth as the company emerges from its extended period of restructuring. These costs (¥10.6bn in FY16 and ¥7.3bn in FY17e) include payment for drug in-licensing and costs for advancing clinical trials.
Teijin is reorganizing its segments in FY17, and so we show only historical data in the figure overleaf. Management estimates OP for its new Materials segment of ¥31.2bn in FY16 and ¥35.0bn in FY17, for Healthcare ¥24.9bn and ¥28.0bn, and for Others ¥5.2bn and ¥5.0bn.
Key Points
- EPS and dividends in the figure above are skewed by the 5:1 reverse stock split in October 2016.
- FY16 NP surged because of the impact of deferred tax accounting related to, but offsetting, a nearly ¥15bn loss to exit US home healthcare.
- We estimate the Continental Structural Plastics (US) acquisition and its goodwill are partly responsible for lower OPM in FY17e.
- It appears that Teijin will get its coated LiB separators into iPhone batteries in FY17 H2, reflecting the strengthening focus on safety.
- Valuations appear unimposing. We estimate a FY17 PER of 10.3x, EV/OP of 9.1x and PBR of 1.2x.
Teijin and its affiliates are mainly engaged in the fiber-related business. Co.'s operation is divided into two business segments: Materials Business and Healthcare Business. Materials Business focuses on high-performance fibers, such as aramid fibers and carbon fibers, as well as polycarbonate resin and polyester film. It also produces and sells Polyester and recycled polyester fabrics and textiles. Healthcare Business provides pharmaceuticals for bone and joint disease, respiratory disease, cardiovascular and metabolic disease as wel as healthcare products. Co. also provides various IT services, along with internet services such as e-comics services.
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