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| Fundamental Equity Research |
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We set our target price for AGC at ¥5,400 (FY12/25E PER of 11x). We calculate our target price using a sum of the parts (SoTP) method referencing the one-year forward consensus-based PERs of global peers in each business. The multiples applied to each business are as follows: 7x for the glass business (construction glass and automotive), 15x for the display business, 20x for electronic materials, 7x for chemicals (essential chemicals and performance chemicals), and 20x for life science.
We use FY12/25 as our valuation base year but note that AGC is currently working to improve profitability in its core businesses and to expand earnings in its strategic businesses. We believe the profit weighting of the strategic businesses will rise over the next few years. Our target multiples for the strategic businesses (20x for electronic materials, 20x for life science) are higher than those for the core businesses (7x for glass, 15% for displays, 7x for chemicals). As a result, we think an even higher multiple could be justified in the future if the firm succeeds in changing its business footprint going forward.
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Downside risks to our target price include 1) a lack of progress in price revisions for glass and displays, 2) a deterioration in glass and display profits caused by a rise in material and energy prices, 3) further delays in the ramp-up of life science plants, and 4) difficulties or delays in the EUV-based mass production of semiconductors by major EUV blank customers.
Upside risks to our target price include 1) the generation of greater-than-expected benefits from measures to improve glass and display profitability, 2) an early recovery in life science-related demand, 3) progress in expanding EUV blank market share, and 4) the development of competitive new products in semiconductor-related materials.
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