In the wake of every news event, there’s an investment story just champing at the bit to be told — and certainly the Japan earthquake, tsunami, and nuclear panic have brought a lot of investment stories to the fore, from broad-based thoughts on the future of nuclear energy or the impact on global GDP, to specific companies whose supply chains have been cut, plants destroyed, or, in this case, whose potential sales have been dramatically increased by the disaster.
We’ve seen several stocks in this vein in the last week — Barron’s featured a long list over the weekend of big and unloved Japanese stocks that they thought were buys after the stock market there took a hit, and many of the newsletter folks have been out with Japan-related teasers as well … so I thought I’d take a look at one of ’em today.
Bryan Tycango edits Asian Growth Stocks, which has brought some interesting ideas to our attention over the years. I haven’t written about him lately, so it’s his turn on the teaser wheel. Here’s how he pitches his idea:
“The tsunami is setting off a reconstruction that’s already estimated to cost $180 billion.
“It will be a bonanza for this glass manufacturer, because all the homes, office buildings, TVs, computers, windshields that have to be replaced will potentially double the annual demand for glass.
“And this company makes glass for almost every imaginable use. They have the largest share of market for automotive glass. Nearly 1 out of every 2 cars that roll off the assembly line are outfitted with their glass windows.
“The huge glass panels that line the sides of modern skyscrapers is another major market of theirs. They’re the world’s number two manufacturer of the glass used in flat-screen TVs.”
That’s probably enough of a clue for those of you who follow the glass business at all closely, but don’t worry, for the rest of us … there’s more …
“they emerged from the catastrophe relatively unscathed. Of their 9 glass manufacturing plants only one was shut down. But they’re already making repairs to the plant, and it should be back on-line in a month.
“Sales and earnings were roaring ahead before the tsunami. Last year they registered a 12% year-on-year growth. And earnings more than doubled….
… shares are now trading 41% below their all-time highs.”
Interested? Toss all that info into the Thinkolator, and we find that this is …
Asahi Glass (5201 in Japan, ASGLY on the pink sheets)
And yes, though they have sustained some damage at a couple of their plants, and shut one down for repairs that they estimated (immediately after the earthquake — this doesn’t take any subsequent news into account) would take about a month. A few of their facilities are also impacted by supply shortages or infrastructure issues (port facilities, raw materials, etc.)
They also did take a bit of a hit to their stock last week, though not much of one — and the stock bounced back pretty quick. The shares had a recent high in early March of about 1,150 yen and dropped briefly under 1,000 yen after the tsunami hit, but most of that drop actually came before the tsunami. The stock is off of its all-time highs by about 40%, but those all-time highs came in 2007 (and that’s in Yen — if you go by the US pink sheets shares in Dollars, the stock is probably only about 10-15% below the all-time highs).
Asahi is a leading producer of architectural and automotive glass, as well as a big competitor for Corning (GLW) in LCD glass and high-strength glass — they’ve recently been pushing a product called Dragontrail that is similar to Gorilla Glass, super strong and light and great for touch-screen devices and premium televisions and stuff like that. For full disclosure, I own shares of Corning, and have increased that stake recently.
And yes, they did report a great year for 2010 — revenues up about 12% and income was up more than 160%, they’ve been expanding elsewhere in the world, too, including a new furnace in Russia that’s expanding their capacity for architectural glass.
I can’t tell you whether or not Tycango is right about this stock returning to all time highs and giving you a 70% return from these levels (or a triple in two years, which he also predicts), but it is a reasonably priced company that has a strong global business in automotive, display and architectural glass, along with some smaller segments selling electronic products and specialty chemicals.
I wouldn’t be surprised if they see some uneven results for this current period thanks to all the supply chain disruptions, but there is certainly some logic in the idea that architectural glass demand will rise in Japan as rebuilding gets underway — whether that’s really enough to spike their results is another question, I’d assume that the architectural and automotive segments would be the most likely beneficiaries of any spike in revenue for rebuilding, but those are also, at least recently, very low margin businesses for Asahi.
The electronics and display segment (including LCD glass, Dragontrail, specialty products for semiconductor manufacturing, etc.) is where most of their profits were generated last year. Similar to Corning, it appears that their near term profitability, absent any rebuilding profiteering if they should try to increase margins for architectural glass, will depend to a substantial degree on demand for their glass in televisions, tablet computers and smart phones … and while there may be a lot of TVs to replace in northern Japan this year, I can’t help but think it’s unlikely to be a major driver for that global business.
Full disclosure: as noted above, I do own shares of Asahi’s competitor, Corning. I will not trade in any stock mentioned above for at least three days.