Chiyoda (TSE:6366) Rebounds This Week, Is Its 2.2x P E Too Cheap?

Recent share performance and business backdrop for Chiyoda

Chiyoda (TSE:6366) has drawn fresh attention after recent share price moves, with the stock gaining 2.5% over the past day and 7.6% over the past week, inviting a closer look at its fundamentals.

Over the past month the stock is up 1.9%, although it is down 12.1% over the past 3 months and down 16.3% year to date. The current share price stands at ¥698 as of the latest close.

Chiyoda operates an integrated engineering business that covers consulting, planning, design, construction, procurement, commissioning and maintenance for a wide range of plants and facilities. These include projects tied to gas, electricity, petroleum, petrochemicals, chemicals, pharmaceuticals, environmental protection and disaster preservation in Japan, the United States and other international markets.

The company also has activities in oil and gas and other mineral resource exploration, including related investment and financing, as well as civil engineering, construction, piping work and equipment installation. This breadth of operations gives investors multiple business lines to monitor when assessing the stock.

See our latest analysis for Chiyoda.

For context, Chiyoda’s recent 2.5% 1 day share price return and 7.6% 7 day share price return come after a period of weaker share price momentum this year, even though the 1 year total shareholder return of 86.1% remains strong.

If you are weighing Chiyoda against other opportunities in energy infrastructure and related themes, this could be a useful moment to scan 37 power grid technology and infrastructure stocks

After Chiyoda’s sharp swing over the past year and softer trend in recent months, the real decision is whether today’s ¥698 price already reflects the risks and recovery hopes, or if patience could offer a better entry.

Price-to-earnings of 2.2x for Chiyoda, is it justified?

On simple multiples, Chiyoda looks inexpensive, with the stock trading on a P/E of 2.2x at a share price of ¥698. That is paired with an SWS DCF estimate of fair value at ¥1,424.75, which indicates a large gap between the trading price and the modelled value.

The P/E multiple reflects how much investors are paying today for each unit of current earnings. For an engineering and construction business like Chiyoda, this can give a quick read on how the market is pricing its earnings profile and project pipeline.

Here, the market price implies a much lower earnings multiple than peers. Chiyoda trades at a P/E of 2.2x compared with about 10.7x for the broader JP Construction industry and 10.8x for its peer group. It also sits below an estimated fair P/E of 4.5x that the SWS model suggests the stock could reasonably trade towards if sentiment and assumptions align with that benchmark.

Explore the SWS fair ratio for Chiyoda

Result: Price-to-earnings of 2.2x (UNDERVALUED)

However, investors still need to weigh Chiyoda’s recent revenue and net income declines, along with any project or execution setbacks that could challenge the argument for a low P/E ratio.

Find out about the key risks to this Chiyoda narrative.

Another view on Chiyoda’s value

Alongside the simple P/E comparison, the SWS DCF model presents a case for potential undervaluation for Chiyoda. With the stock at ¥698 and the DCF fair value estimate at ¥1,424.75, the model indicates that the market price is below its assessed future cash flow value.

For any investor considering how much weight to place on that difference, the key question is how confident you are in the cash flow assumptions that drive the SWS DCF model and whether they align with your own expectations for Chiyoda.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Chiyoda for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 19 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mix of concern and optimism around Chiyoda, it makes sense to review the data yourself and decide quickly where you stand. To weigh both sides of the story in one place, start with the 3 key rewards and 2 important warning signs

Looking for more investment ideas beyond Chiyoda?

If Chiyoda has caught your attention, do not stop there. Broader investing ideas can help you build a watchlist that fits your goals and risk comfort.

Scan fresh opportunities now using the Simply Wall St Screener to spot three different types of stocks that might complement how you are thinking about Chiyoda.

• Target potential value setups by reviewing companies highlighted in the 19 high quality undervalued stocks so you are not overlooking stocks that trade below assessed worth.
• Strengthen your focus on resilience by checking companies featured in the 55 resilient stocks with low risk scores, which emphasises businesses with more measured risk profiles.
• Spot potential early-stage opportunities by checking the 1 elite penny stocks with strong financials that match tighter financial filters instead of chasing every low priced stock blindly.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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