Cycle Worries Have Opened A Window Of Opportunity At Shin-Etsu Chemical

Even the best companies aren’t immune to macro challenges, and that’s certainly the case these days at Shin-Etsu Chemical (OTCPK:SHECY) (4063.T) (“Shin-Etsu”). One of the best-run companies I know in the broader chemical space (and perhaps irrespective of industry grouping), Shin-Etsu shares have come under pressure on worries about the impact of weaker housing on polyvinyl chloride (or PVC) prices/margins, as well as concerns about weakness in the semiconductor and electronics markets.

Concern is appropriate, and Shin-Etsu is very likely to see weaker profits over the next 12-18 months, but I think the downturn needs to be kept in context. Namely, this remains the world leader in PVC cost structure and North American capacity, and the U.S. housing market should resume growing after this upcoming correction. Likewise, while I do see some risk to semiconductor demand, demand for leading-edge chips is unlikely to weaken substantially for long. Even with some risk to earnings expectations over the next 12 months, I believe the shares are priced for attractive long-term returns.

 

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Cycle Worries Have Opened A Window Of Opportunity At Shin-Etsu Chemical