On Thursday, Sumitomo Osaka Cement Co Ltd (5232:JP) received an upgrade from a JPMorgan (NYSE:JPM) analyst, who shifted the stock's rating from Neutral to Overweight. Accompanying the upgrade, the price target was increased to JPY5,100 from the previous JPY4,300.
The upgrade follows the company's announcement on June 14 that it plans to raise domestic cement prices by at least JPY2,200 per metric ton, starting with shipments in April 2025.
The JPMorgan analyst noted that despite the challenges posed by the weak yen, the planned price hikes are expected to significantly boost profit levels from the fiscal year 2025.
Sumitomo Osaka Cement's other main business, electrostatic chucks, has experienced a decline in profits due to weaker shipments to semiconductor processing equipment (SPE) makers, especially those related to NAND.
The operating profit margin (OPM) for this segment dropped from 25% in FY2022 to 15% in FY2023. However, the analyst anticipates signs of recovery in this area as early as the third quarter of FY2024, with gradual improvements in the end market.
The revised price target of JPY5,100 represents a 27% upside to the stock's closing price on July 9. The target is based on a price-to-book (P/B) valuation model, with a P/B of 9x on the firm's FY2025 earnings per share (EPS) estimate.
This valuation is considered low relative to the historical average price-to-earnings (P/E) ratio of the stock. The time horizon for the price target is set to the end of December 2025.
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