Tag: Japan Market
Panasonic has implemented a huge restructuring several times, approximately for every 15 years, and recovered its profitability each time. On the other hand, we doubt Panasonic’s capability on strategic investment, as the company failed to address the changing environment in the global consumer electronics industry and consequently did not generate sufficient return from past investments. In fact, Panasonic’s revenue has been unchanged at around JPY 7 trillion-JPY 8 trillion, and its operating margin has ranged between 1% and 5% for more than two decades.
Financial Strength
Panasonic has a very strong financial position, with net cash of JPY 288 billion (USD 2.7 billion) at the end of March 2016, having improved its balance sheet from a net debt position of JPY 1 trillion (USD 9.5 billion) at the end of 2012. This improvement has been achieved through a combination of improved operating cash flow performance (the company produced an operating cash flow loss in 2012 but generated a combined JPY 1.80 trillion in operating cash flow over 2013-15), as well as sales of investments and property, plant, and equipment.
Panasonic’s June-quarter revenue was 29% up from the previous year exceeding our expectations. The automotive segment’s sales were 1.8 times as large as the previous year driving the revenue growth because of the lower base due to the pandemic. The appliance segment’s sales were 22% up from the previous year as demand for flat-panel TVs and digital cameras recovered. Revenue for the industrial solutions segment was 24% up from the previous year as a result of robust investment for semiconductors and data centers. Panasonic’s revenue and operating income forecast for fiscal 2021 to JPY 7.3 trillion and JPY 390 billion from JPY 7.15 trillion and JPY 360 billion, respectively. Our new operating income forecast is 51% up from the previous year, driven by automotive, connected solutions, and industrial solutions segments.
Bulls Say’s
- Panasonic has plenty of “one-off” earnings and cash flow upside available through exiting unprofitable products.
- If Panasonic can hit its fiscal 2019 corporate plan targets, it will generate earnings and cash flow growth that should support a higher valuation.
- Panasonic’s leading position in electric vehicle batteries puts it in a very strong position in a potentially revolutionary technology.
Company Profile
Panasonic is a conglomerate that has diversified from its consumer electronics roots. It has five main business units: appliances (air conditioners, refrigerators, laundry machines, and TVs); life solutions (LED lighting, housing systems, and solar panels; connected solutions (PCs, factory automations, and in-flight entertainment systems); automotive (infotainment systems and rechargeable batteries); and industrial solutions (electronic devices). After the crisis in 2012, former president Kazuhiro Tsuga has focused on shifting the business portfolio to increase the proportion of B2B businesses to mitigate the tough competition in consumer electronics products.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
and draws on the research capabilities of Fidelity’s analysts based on the ground in Asia.The Fund aims to achieve returns in excess of the MSCI AC Asia ex-Japan Index NR over the suggested minimum investment time period of five to seven years.
Our Opinion
Our rating is based on the following key drivers:
Capable PM/team:
The Fund’s star portfolio manager, Anthony Srom, and his supporting cast of analysts in high regard. Mr. Srom is well-supported by 50 on-the-groundanalysts in Asia and Fidelity’s global researchteam of 180 analysts and 400 investmentprofessionals worldwide. This makes the team one of the largest buyside firms. Nevertheless, we question the extent at which ongoing and deep research can be maintained in order to beat the index –in our view, it is increasingly difficult no matter how large an investment team is,to beat a benchmark of an efficient, liquid and well researched market.
Well-resourced and access to Company management
Relative to peers, the investment team is well resourced with additional access to third party research and consultants to conduct deep investment research as well as a thorough company visitation schedule (as a result of the investment firm’s reputation). Fidelity conducts more than 15,000company meetings a year, in order togain better insights andknowledge, to make investment decisions.
Sensible investment process rooted in bottom-up research, high conviction, highly concentrated and low turnover
The Fund conducts fundamentals bottom-up stock selection to build a high conviction and highly concentrated portfolio of 20–35 stocks based in the Asia Pacific ex Japan region. There is no deliberate portfolio management style bias, although new positions typically exhibit a contrarian/value bias. Mr. Srom is willing to take a long-term view on a stock, resulting in a low turnover strategy (40%–70%). This translates to a holding period of 18–24 months, but there are stocks that have been held for more than three years.
Downside Risk
Asian economic conditions deteriorate, leading to earnings downgrades at the company level. High quality companies underperform especially in stocks where the Fund has a relative overweight position.
Key-man risk should Portfolio Manager, Mr. Anthony Sromdepart.
The Fund invests in emerging markets which can be more volatile than other more developed markets.
The Fund invests in a relatively small number of companies and so may carry more risk than fundsthat are more diversified.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
