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I am Futoshi Kamiwaki, Representative Director and Senior Managing Executive Officer. Thank you for joining today. I will now start the presentation of Q3 financial results.
On Page 1, the internal assumptions for foreign exchange rates are shown. FX sensitivities are shown at the bottom. A JPY 1 depreciation against the U.S. dollar has an impact of increasing annual operating profits by JPY 500 million.
Here are the results for the third quarter. Net sales were JPY 304.5 billion. Operating profit was JPY 22.1 billion. Ordinary profit was JPY 19.5 billion and profit attributable to owners of parent was JPY 13.7 billion.
For the 9-month period: Sales were JPY 912.2 billion; operating profit JPY 62.5 billion; ordinary profit, JPY 73.4 billion; and profit attributable to owners of parent was JPY 52.8 billion. Both sales and operating profit increased in Q3, but ordinary and net profit decreased due to foreign exchange losses.
Sales and operating profit for the third quarter progressed slightly below the October plan. On a Q3 cumulative basis, net sales increased and profits increased at all levels.
This page shows the results by segment for the third quarter. Although we were affected by another wave of COVID-19 in China in particular and a drop in demand due to inflation, we were able to increase sales through improvements in selling prices. We were also able to secure an increase in operating profit.
HPP, High Performance Plastics, was affected by a drop in demand, mainly in China and Europe and soaring raw material and fuel prices, but we were able to secure profits at the same level as the previous year by improving selling prices and engaging in cost reductions.
In the Housing business, despite a decrease in new housing orders and the surge in component costs, we were able to secure higher profits by increasing housing unit prices, leveling out sales and focusing on the renovation business.
In UIEP, Urban Infrastructure & Environmental Products, housing market conditions fell below expectations, but profit increased substantially owing to expanded sales of prioritized products and maintaining margins.
In the Medical Business, although affected by the lockdowns in China and delays in the authorization of COVID-19 diagnostic kits in the U.S., this was offset by an increase in diagnostics demand in Japan and overseas, together with our firm Pharmaceutical Sciences Business. I forgot to mention, but the numbers shown here by segment are numbers prior to the business portfolio optimization of the HPP and UIEP portfolios conducted in October 2022.
Here are the assumptions for market conditions. First, the Automobile market in Q3 was essentially in line with the October forecast and the market in Q4 is expected to remain close to the October forecast. On the other hand, smartphone shipments have been sluggish since Q2 because of inventory adjustments and are expected to remain below the October forecast in Q4.
The number of visitors in housing on the top right is exhibiting a recovery trend overall. Fiscal year '22 new housing starts are also expected to fall slightly below the previous year. On the other hand, the price of domestic naphtha has been lower than planned in October, and we expect this to have a positive effect.
This is the forecast by segment for the second half of the fiscal year. Group-wide second half net sales are projected to reach JPY 654.7 billion, whilst operating profit is projected at JPY 54.7 billion. This will be an increase in both net sales and profit on a group-wide basis.
On the other hand, net sales and operating profit are expected to come in slightly below the October plan. In particular, operating profit has been revised down by JPY 5 billion from the October plan. Even so, we expect to secure an increase in profit in each segment.
This page breaks down Q3 and Q4. Although Q4 will continue to be affected by stagnant global demand for smartphones, et cetera, we expect to secure an increase in profit in Q4 as well by focusing on securing margins amid the peak out of soaring raw material prices.
This page shows the factor analysis operating profit. Net sales were JPY 654.7 billion. As shown in the factor analysis on the right, sales volume and product mix was plus JPY 800 million as it was affected by a large decrease in demand from the October forecast. On the other hand, selling price is broadly in line with the October plan.
Raw materials was better compared to the October forecast. In addition, cost reduction, et cetera, includes utility costs, which were also better than the assumptions in October. We also saved fixed costs but expect that this will not be enough to cover the decrease in sales volume and product mix, and we expect an increase in profit of JPY 1.3 billion, which will be a downward revision of JPY 5 billion from the October plan.
Here is the forecast for the full year. Sales are expected to be JPY 1,262.5 billion. Operating profit is forecasted to be JPY 95 billion. Although each segment will see increases in both sales and profit, all except for the Medical Business are expected to fall slightly below the October plan. We also expect the UIEP and Medical segments to record their highest profits for the fiscal year.
This information is for your reference. It shows the figures after the portfolio optimization that took place in October. Please refer to the data as required.
Here is the forecast of profits at each level for the full year. As you can see here, groupwide net sales and profits at all levels are expected to increase. Net sales, operating profit and ordinary profit will be slightly below the October plan, but net profit is expected to be in line. Ordinary and net profit are expected to reach record highs.
Regarding dividends, we plan to pay a year-end dividend of JPY 30 per share for an annual dividend of JPY 59 per share, an increase of JPY 10 per share, in line with the October plan.
The long-term trend of operating profit is shown here. In 2022, operating profits, which once decreased due to the impact of COVID-19, has recovered to the point where it can target a level close to record high. Also, as you can see at the top where EBITDA trends are shown, the outlook for fiscal year 2022 is JPY 145 billion, a record high. We view that our earnings power is strengthening as we move toward the next medium-term plan.
From this page, I will talk about each segment. First is the outlook for the HPP divisional company. Net sales on the left side are forecasted to increase by JPY 20 billion, reaching JPY 208.7 billion. The right-hand side shows the analysis of operating profit.
Sales volumes and product mix are expected to weigh negatively on operating profit by JPY 6.2 billion, owing to the spread of COVID-19 in China and the drop in demand in Europe and are below expectations substantially. However, we are expecting selling price improvement to be greater than the October plan. The decline in raw materials prices is favorable, leading to a minus JPY 8 billion impact, which is better than expected.
Also, for cost reduction, et cetera, with the surge in LNG prices moderating and by saving fixed cost, we are expecting the negative impact to be less than planned. However, the impact of the decrease in sales volume is not expected to be fully offset, resulting in a forecast of a JPY 1.2 billion increase in operating profit from the previous year.
Compared to the October plan, the outlook has been revised down by JPY 2 billion. Let me explain the situation in the 3 strategic fields. In the Electronics field in Q3, demand for both LCD and non-LCD has continued to be weak since Q2. It is not expected to recover in Q4 but capturing new opportunities, especially in the non-LCD field are progressing steadily, which will enable us to be competitive when demand recovers.
On the other hand, in the Mobility field, progress is generally in line with plan. Sales prices are improving, especially for interlayer films. In addition, sales and profits increased on the back of expanded sales of high-performance interlayer films. Notably, head-up display interlayer films for the year are expected to grow by 15% year-on-year.
We expect a certain degree of recovery in automobile production to continue in the fourth quarter as well. We will continue to focus on expanding sales of high-performance interlayer films and improving selling prices, while sales of heat release materials for EVs are also doing well.
Regarding SEKISUI AEROSPACE CORPORATION, demand is recovering due to a slight recovery in production rates at aircraft manufacturers. Business is trending slightly above plan.
As for the Building and Infrastructure field, CPVC is performing well, mainly in India. Sales of thermal insulation and noncombustible materials are also robust due to the development of new customers. But fire-resistant materials, in particular, are being affected by the slowdown in domestic nonhousing demand.
Here is the forecast for the Housing divisional company's performance. Sales are expected to increase to JPY 282.8 billion. The analysis of operating profit on the right side shows that the Housing subsegment operating profit in the second half is expected to decrease by JPY 0.4 billion year-on-year. This is due to a decrease in the number of units sold.
Marginal profit is expected to be strongly affected by the surge in component cost, but hedging through product mix and cost reduction is steadily underway. On the other hand, the renovation and other subsegment, which includes the Town and Community Development business is expected to be brisk with operating profits expected to increase by JPY 1.3 billion and JPY 0.8 billion, respectively. As a result, operating profit in the second half of the year is expected to increase by JPY 200 million year-on-year, which is a JPY 1.5 billion downward revision from the October plan.
As for the status of visitors, as I mentioned earlier, overall visitors were up by 4% in Q3 year-on-year and is on a recovery trend. As shown on the far right, orders in Q4 are expected to recover to 100% of the previous year's level, owing to the recovery in visitors. For the second half of the year, we plan to achieve 95% of the previous year's level.
As shown in the middle, we will strive for a recovery in orders in Q4, focusing on sales of subdivision housing and ready-built houses, which we have put a lot of effort into. As for measures to acquire orders, as shown in the graph, the adoption rate of solar power and storage batteries is strong, and their competitiveness is also pushing up unit prices.
As for our land strategy, subdivision and ready-built houses newly released in Q3 have exceeded the previous year's level, and we hope this will lead to orders in Q4.
This page shows the second half forecast for the UIEP divisional company. Sales are expected to increase to JPY 122.4 billion. The analysis of operating profit shows that sales volume and product mix will have a minus JPY 0.8 billion impact affected by housing market conditions that are weaker than assumed.
On the other hand, selling price is expected to contribute by JPY 7.5 billion and raw materials, minus JPY 3.2 billion, meaning that we should be able to maintain the margins throughout the second half of the fiscal year. All in all, operating profit is expected to increase by JPY 600 million year-on-year in the second half, which is a JPY 1 billion downward revision from the second half plan.
Here is the situation in each of the 3 strategic fields. For Piping and Infrastructure, we are focusing on maintaining margins despite lower-than-expected housing market conditions. Flat business demand continues to be firm.
In the Building and Living Environment business, we are focusing on improving sales prices and expanding sales of prioritized products.
In the Advanced Materials business, demand for sheets for aircraft applications is recovering. Orders for FFU, which is used for railway sleepers are firm, mainly in Europe and the U.S. but are affected by construction delays.
In the Molding business, demand for high-performance molded products has slightly declined due to the deteriorating electronics market. In the bottom right, you can see that sales of prioritized products and overseas sales remain firm.
In the Medical Business, sales are expected to decrease to JPY 47.1 billion. This is due to the impact of the sale of Xenotech shares, a drug development solutions company in the first half of the fiscal year. As for the analysis of operating profit, the Diagnostic Business in Japan is expected to increase steadily by JPY 0.6 billion, and the overseas Diagnostics Business is doing better than the October plan, especially in Europe and the U.S. Sales of diagnostic reagents for influenza are expanding.
The impact from the lockdown in China was offset by demand in the U.S., resulting in a forecast expecting an increase of JPY 0.3 billion. In addition, the Pharmaceutical and Science and Others Business is expected to decline by JPY 0.4 billion, which is better than the October plan. All in all, we are aiming for an increase of JPY 700 million, which is in line with the October plan.
Here is the situation by business. In the top left, domestic demand for COVID-19 diagnostic kits is expanding and the domestic Diagnostics Business is expected to remain firm in Q4 due to continued demand for outpatient tests and sales expansion of COVID-19 diagnostic kits.
The right side shows overseas demand for diagnostics, which was affected by a decrease in demand due to the lockdown in China in Q3, but this was offset by an increase in demand for influenza testing in the United States.
The graph on the lower right shows the number of influenza cases in the U.S. The number of cases this fiscal year has increased considerably in the initial phases compared to the past 2 years, which is a tailwind for the business, and we expect the same trend to continue in Q4.
In the Pharmaceutical Sciences field, new pharmaceutical ingredients have been steadily contributing to earnings since Q3. And in addition, we expect the Drug Development Solutions business to grow firmly in Q4 as well.
That is all I have to say. Thank you very much for your kind attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]