Shin-Etsu Chemical Co., Ltd. engages in the polyvinyl chloride (PVC)/chlor-alkali, semiconductor silicon, silicones, electronics and functional materials, specialty chemicals, processing, and trading and specialized businesses worldwide. It offers PVC for use in PVC pipes, plastic greenhouses, electric wire coating materials, PVC-framed windows, and siding materials. The company makes caustic soda for use in alumina, paper and pulp, cathode materials, and super-absorbent polymers. Shin-Etsu also provides semiconductor silicon wafers for use as substrate materials in smartphones, personal computers, electronic devices, data centers, and automobiles. This week, I fundamentally analyze Shin-Etsu’s stock. I review Shin-Etsu’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2021’s free cash flow of $1,489 million figure, a 7% growth rate of FCF (growth for the next 10 years), 10% discount rate, 4% long term growth rate (growth from 10 year mark to perpetuity), 1,664 million shares outstanding, and $144 million of long term debt, the DCF analysis yields us an intrinsic value of $35.13 per share. If we drop the discount rate from 10% to 7.4%, the intrinsic value comes to $51 per share. Using the current stock price of about $45.60 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return to be 0.4% if we hold this security through 2080.
0:43 Business Overview
8:55 Key Ratios Analysis
18:16 Discounted Cash Flow Analysis / Intrinsic Value
21:03 Expected Rate of Return Calculation
22:17 Summary / Conclusion
Shin-Etsu’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
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