JFE Holdings: Margins bottoming out, but unlikely to drive re-rating

Research evidence excerpt

JFE Holdings: Margins bottoming out, but unlikely to drive re-rating

st reductions, and mix improvements. In terms of equity-method earnings, our

03/28E 290.4 235.0 -19 220.6

forecast includes overall revenue from the India business (FY3/27: +¥15bn yoy). We

03/29E 335.2 248.3 -26 244.2

factor in profit contributions from JFE Engineering (start of monopile production: +

¥1.5bn yoy) and JFE Shoji (recovery in pipe business in North America: +¥8.8bn). We Harunobu Goroh

lower our EPS forecasts from ¥224 to ¥209 for FY3/27, from ¥290 to ¥235 for FY3/28, Analyst

and from ¥335 to ¥248 for FY3/29. harunobu.goroh@ubs.com

+81-3-5208 6215

Uncertainty from strong dependence on Asian steel market to weigh on stock Lihui Huang

Over the medium term, the company is continuing to pursue carbon neutral-related Analyst

lihui.huang@ubs.com

structural reforms at production facilities. For example, the blast furnace in the Kurashiki

+81-3-5208 6217

area is set to be converted to an electric furnace by Q1 FY3/29. With steel demand

expected to decline in the domestic market, we think the potential for flexible supply-

demand adjustments could act as a supporting factor over the longer term. We expect

cost reductions, mix improvements, profit contributions from the India business, and

revenue growth in the engineering business to serve as positive factors ahead of FY3/28.

Over the longer term, however, JFE’s strong dependence on the Asian steel market leads

us to believe that these factors will not be enough to drive a further rise in the market

consensus.

Valuation:

We are lowering our price target from ¥2,190 to ¥1,860 (FY3/27E PBR 0.44X; previously

0.53X). We roll forward our valuation basis to FY3/28-29, estimating average ROE of