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Asahi Glass Auto Stigma Hides 89% Jump in Flat-Panel Earnings

Post Time:Jul 23,2008Classify:Company NewsView:454

Asahi Glass Co. shareholders, shortchanged by a struggling U.S. auto industry, may have a brighter future in television as consumers switch to flat-panel sets even as the economy cools.

"As sales of cars fall, glassmakers will have to consider ways to survive, such as making flat-panel glass," said Yuuki Sakurai, general manager of financial and investment planning at Fukoku Mutual Life Insurance Co., which oversees $54 billion.

The Tokyo insurer´s Fukoku Capital Management Inc. unit boosted its stake in Asahi Glass by 3.2 percent to 64,000 shares as of April 21, according to Bloomberg data.

The world´s biggest maker of car and truck windshields is trading at a three-month low on the Tokyo Stock Exchange. It is valued 36 percent cheaper than Nippon Sheet Glass Co., which sold a half-interest in the world´s fourth-largest LCD producer to U.S. private-equity firm Carlyle Group in June. Asahi´s screen-making unit is more than three times as profitable as the auto-and construction-glass division.

Global sales of LCD televisions will probably increase 31 percent to 104 million in 2008, accounting for 51 percent of the market, according to Daiwa Institute of Research, citing DisplaySearch. U.S. shoppers continue to buy flat-panel TVs even with consumer confidence at a 16-year low, Corning Inc. Chief Financial Officer Jim Flaws said in a June 24 interview.

`Amazing´ Picture

Elana Lewinbuk, a 38-year-old customer at a Best Buy Co. store on West North Avenue in Chicago, eyed a $1,499 Sony Corp. flat-panel TV on July 16 even though she´s trying to save money by riding her bicycle instead of driving.

"I feel like I almost have no choice than to spend a little more because this is also the latest thing," Lewinbuk said. "The picture is amazing."

Consumers such as Lewinbuk are a reason why 11 analysts in a Bloomberg survey recommend buying Asahi Glass, while six say to hold and only one advises selling. The shares trade at 11 times next year´s estimated earnings, less than Tokyo-based Nippon Sheet Glass´s multiple of 17.

A 10 percent slide in Asahi Glass shares in the past month, coupled with an almost doubling of profit at the electronics and display unit last quarter, makes the company a "strong buy," said Katsumi Hosoi, an analyst at Tokai Tokyo Research Center Co.

Glass `Edge´

"Having LCD glass is an edge for Asahi Glass," Hosoi said. The shares gained 2 percent yesterday to 1,202 yen in Tokyo trading.

Flat-panel displays may help Asahi Glass record a 7.3 percent gain in operating profit to 212 billion yen ($1.97 billion) in 2008, according to the average estimate of 15 analysts surveyed by Bloomberg. Operating income at Nippon Sheet Glass may fall 32 percent to 34.1 billion yen in the year through March 2009, analysts said.

Asahi Glass, which trails only Corning in screen production, plans to spend about 20 billion yen to build a fifth LCD-glass kiln in Taiwan next month, spokesman Yoshihiko Saitou said.

The company is spending 30 billion yen to install a furnace and polishing line to produce LCD glass at a plant in western Japan. Sharp Corp., Japan´s largest maker of liquid-crystal TVs and one of Asahi Glass´s customers, plans to open a factory for screens as wide as 60 inches.

Operating income at Asahi Glass´s LCD-display unit surged 89 percent to 42.4 billion yen last quarter, exceeding profit at the auto and construction unit by more than fivefold.

U.S. Slump

The company forecasts operating profit of 137 billion yen for the electronics and display division this year, or 69 percent of total operating earnings. The estimate is "conservative," Hiroyuki Okaseri, a senior analyst at Mitsubishi UFJ Securities, wrote in a May 12 report.

Asahi Glass´s operating-profit margin for electronics and displays was 25.4 percent in 2007, exceeding the 7.4 percent for construction and automotive glass, according to the earnings statement.

The company cut U.S. output of automotive glass by about 10 percent, it said on June 17. The car industry recorded an 18 percent sales decline last month, the steepest in almost six years, as gasoline prices reached a record high.

Shipment reductions to automakers come two months after Asahi said it would scale back window-glass production because of the U.S. housing slump and higher raw-material costs.

`Better Positioned´

Nippon Sheet Glass has increased its focus on window and auto glass since buying St. Helens, England-based Pilkington Plc two years ago and selling its 50 percent stake in NH Techno Glass Corp. to Carlyle Group.

Even after the Pilkington deal, Asahi remained the biggest global maker of flat glass used in automobiles and buildings.

"Asahi Glass is probably better positioned than Nippon Sheet Glass in the short term," said Fukoku Mutual´s Sakurai. "It may take time before Nippon Sheet Glass will generate more synergies with Pilkington and the market will price in those."

Source: Asahi Glass Co., Ltd.Author: admin

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