In this briefing:
- Memory Chips and the Elasticity Myth
- Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY
1. Memory Chips and the Elasticity Myth
During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
2. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY
After the recent inspection issues, the company clearly needs to tighten compliance issues and is now talking about improving profitability over the next two years by getting rid of low profit and none core businesses. Given the current valuations, the mid-term outlook and the renewed focus on profitability we would look to buy here. The internal issues that have hit the share price in the past appear behind them. We would look for an operating profit of about Y50bn to 3/20 which would put the shares on an EV/ebitda multiple of about 5x. The shares yield 3% and still trade at book.
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