Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea. Permanent resident of Japan.

Senior Technology Analyst, Japanese Equities

Sumco – Overcapacity Risks but Oversold

Shin-Etsu – Blowout but Will PVC Prices Sustain?

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

On September 30, SUMCO announced plans to issue up to 60 million common shares to finance the construction of new 300mm silicon wafer production capacity. Maximum dilution of the current share count would be 20.7%.Total capital investment in new plant buildings and equipment is expected to reach ¥228.7 billion and is scheduled to be completed by the end of 2024. Capacity will be expanded in stages in order to keep up with customer demand, which is forecast to rise at a CAGR of 5.1% from 2020 to 2024. The maximum amount of proceeds is estimated at nearly ¥128 billion. The remainder will come from cash on hand, which amounted to ¥95.6 billion at the end of June. On top of that, cash generated by operations has recently been running at an annual rate of more than ¥90 billion.The Pricing Date will be between October 12 and October 15. On Friday, October 1, the share price dropped 4.4% to ¥2,151. The estimate of maximum proceeds implies a price of ¥2,133.On a 3-year view, our forecast has the P/E ratio dropping from 23x to 16x and P/CF dropping from 9x to 6x. We continue to recommend buying into the current weakness for the medium to long term.

On September 30, SUMCO announced plans to issue up to 60 million common shares to finance the construction of new 300mm silicon wafer production capacity. Maximum dilution of the current share count would be 20.7%.Total capital investment in new plant buildings and equipment is expected to reach ¥228.7 billion and is scheduled to be completed by the end of 2024. Capacity will be expanded in stages in order to keep up with customer demand, which is forecast to rise at a CAGR of 5.1% from 2020 to 2024. The maximum amount of proceeds is estimated at nearly ¥128 billion. The remainder will come from cash on hand, which amounted to ¥95.6 billion at the end of June. On top of that, cash generated by operations has recently been running at an annual rate of more than ¥90 billion.The Pricing Date will be between October 12 and October 15. On Friday, October 1, the share price dropped 4.4% to ¥2,151. The estimate of maximum proceeds implies a price of ¥2,133.On a 3-year view, our forecast has the P/E ratio dropping from 23x to 16x and P/CF dropping from 9x to 6x. We continue to recommend buying into the current weakness for the medium to long term.

Sumco (3436 JP): 21% Dilution from New Share Issue, Buy into Current Weakness

SUMCO Corp

Sumco (3436 JP): 21% Dilution from New Share Issue, Buy into Current Weakness