Investments In Perovskite Solar Cells And Plastics Will Unlock Potential

Key Takeaways

• Heavy investment in high-performance plastics and solar cells aims to boost growth in sustainable energy and high-tech sectors.
  
• Strategic global expansion, especially in medical and UIEP segments, enhances international market presence and potential earnings.
  
• Global market uncertainties, tariff impacts, and foreign exchange fluctuations pose risks to Sekisui Chemical's operating profits and revenue growth across multiple segments.

Catalysts

Engages in the housing, urban infrastructure and environmental products, high performance plastics, and medical businesses.

• Sekisui Chemical is investing heavily in capacity expansion for High Performance Plastics and the mass production of perovskite solar cells, which should boost revenue and position them for future growth in sustainable energy and high-tech sectors.
  
• Strategic focus and investment in high-performance products, particularly in electronics, mobility, and industrial applications, are expected to drive revenue and operational profit growth, potentially improving operating and net margins.
  
• The company plans to grow the renovation business within the housing segment, which has shown resilience and profitability, suggesting potential growth in revenue and operating profit from this sector.
  
• Continued global expansion efforts, particularly in the Medical business and UIEP segment, could lead to increased sales and higher net earnings, bolstering their international market presence.
  
• Active shareholder returns through dividend increases and share buybacks suggest a commitment to using profits to enhance Earnings Per Share (EPS), which might positively impact stock valuation over time.

Sekisui Chemical Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sekisui Chemical's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.3% today to 6.1% in 3 years time.
• Analysts expect earnings to reach ¥92.0 billion (and earnings per share of ¥228.4) by about May 2028, up from ¥81.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the JP Industrials industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.33%, as per the Simply Wall St company report.

Sekisui Chemical Future Earnings Per Share Growth

Risks

• The company faces uncertainties such as the impact of tariffs and foreign exchange fluctuations, which could negatively affect operating profit projections and net margins.
  
• Changes in market conditions have led to sales volume and product mix contributions falling short of expectations, potentially impacting revenue growth across segments like Housing and Medical.
  
• Concerns over global market uncertainties, particularly in the auto market, could stall Sekisui's growth and performance targets, affecting sales and operating profit.
  
• Declines in new housing orders and delays in market recovery, especially in rural areas, could hinder revenue growth expectations for the Housing segment.
  
• Risks associated with the U.S. reciprocal tariff measures could result in a negative impact on operating profit, estimated at negative ¥2.5 billion, potentially affecting earnings.

Valuation

• The analysts have a consensus price target of ¥2620.0 for Sekisui Chemical based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3000.0, and the most bearish reporting a price target of just ¥2370.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1520.0 billion, earnings will come to ¥92.0 billion, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of ¥2489.0, the analyst price target of ¥2620.0 is 5.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.