Thursday, August 16, 2018

Wafer Worries Weighing On Shin-Etsu

When the stock of a well-run company that you’ve long admired gets to a point where the apparent annualized returns are in the double-digits, it’s a good time to refresh your due diligence. Such is the case with Shin-Etsu (OTCPK:SHECY) (4063.T), where management continues to execute at a high level and where the company’s core markets are healthy, but where recent fears relating to the semiconductor market seem to be having a disproportionate impact on the share price.

The risk of a sudden drop in semiconductor demand is not trivial, as Shin-Etsu’s wafer business generates about 30% of total operating profits today, but I also don’t think it’s particularly likely given the tight current supply situation and the relatively constrained capacity expansion plans across the industry. I also don’t think my modeling assumptions are all that ambitious, as I’m looking for long-term revenue growth of 4% and high single-digit FCF growth from a company exposed to global construction growth, semiconductor production, and EVs.

Read more here:
Wafer Worries Weighing On Shin-Etsu

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