Sumitomo Chemical (4005): Raise PO: Expect growth in semiconductor materials and overseas crop protection

Research evidence excerpt

Sumitomo Chemical (4005): Raise PO: Expect growth in semiconductor materials and overseas crop protection

Short-term view

• We estimate 1Q core OP of ¥55.0bn and OP of ¥52.5bn (vs. consensus of ¥42.8bn).

We expect guidance to remain unchanged. The strong 1Q results, supported by crop

protection, semiconductor materials and PetroRabigh (which has already reported

earnings), are likely to serve as a positive share-price catalyst.

• While we lower our outlook for Sumitomo Pharma and smartphone-related

materials, we modestly raise our earnings estimates reflecting improved prospects

for crop protection and PetroRabigh. We raise our FY3/27E core OP to ¥222bn from

¥215bn, while leaving our FY3/28E unchanged at ¥225bn. Although we expect OP at

Sumitomo Pharma to peak out versus FY3/26, we see overseas crop protection and

semiconductor materials as the key earnings growth drivers.

o We note that higher non-controlling interests following Sumitomo

Pharma's equity offering (ownership stake declining from 51.81% to

45.84%) negatively affect our FY3/27 and FY3/28 net profit estimates.

• We see further progress in overseas crop protection products (Indiflin, Rapidicil, and

Pavecto) and improving prospects for semiconductor materials (photoresists,

process chemicals, and glass-core substrate materials, among others) as potential

catalysts for further share-price upside.

Medium/long-term view

• Improvement in shareholder returns is the focal point to watch. Management

targets a dividend payout ratio of over 30% during the medium-term business plan

(FY3/26-28). We expect the dividend to recover to ¥21 per share in FY3/28 (the

company targets ¥24 per share) due to reduced losses from the sale of some shares

in Petro Rabigh and significant improvement at Sumitomo Pharma.