Nissan Chemical (TSE:4021) Expands In China, Is The Valuation Already Full?

Nissan Chemical (TSE:4021) has established a new semiconductor materials subsidiary in Zhangjiagang City, Jiangsu Province, China, to produce and sell anti-reflective coatings and multilayer materials for local chipmakers.

Recent trading has already been lively. Nissan Chemical’s 1 month share price return of 14.40% and year to date share price gain of 69.94% suggest strong momentum. The 1 year total shareholder return of 75.40% points to meaningful long term rewards being priced in.

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Momentum, a fresh China semiconductor subsidiary and a share price sitting close to analyst targets put Nissan Chemical in an awkward spot for new money. Is it better to step in now, or wait for a cooler entry before beginning the valuation work?

Price-to-Earnings of 23x: Is it justified for Nissan Chemical?

Nissan Chemical trades on a P/E of 23x, which sits above several valuation markers even though the share price of ¥9,090 is 1.7% below the current analyst target of ¥9,244.

The P/E ratio compares what investors are paying today for each unit of current earnings. For a materials and chemicals group like Nissan Chemical, that figure often reflects how confident the market is about the durability of profits from semiconductor materials, agricultural chemicals and healthcare products.

Forecasts point to earnings growth of 8.1% per year and revenue growth of 6.7% per year, which is slower than both the wider JP market revenue forecast of 6.9% and market earnings expectations of 9.5%. That pattern suggests investors are paying a relatively rich multiple for growth that is not projected to outpace the broader market, even though the business currently delivers high quality earnings, an 18.3% net profit margin and a 20.9% Return on Equity, which is described as high.

The market is also paying a premium relative to the JP Chemicals industry, where Nissan Chemical’s 23x P/E is compared with an industry average of 12.7x. At the same time, the estimated fair P/E ratio of 16.7x implies a level the valuation could move toward if enthusiasm around earnings moderates. That contrast between a 23x paid multiple and a 16.7x fair multiple frames the current pricing as rich rather than cheap when set against earnings power.

Explore the SWS fair ratio for Nissan Chemical.

Result: Price-to-Earnings of 23x (OVERVALUED)

Still, any stumble in semiconductor materials demand or a reset in market optimism toward high multiples could quickly challenge the current Nissan Chemical momentum story.

Find out about the key risks to this Nissan Chemical narrative.

Another View on Nissan Chemical’s Valuation

The earnings multiple suggests that Nissan Chemical is expensive, yet the SWS DCF model indicates the opposite. At ¥9,090, the shares trade about 26.9% below an estimated future cash flow value of ¥12,430.53. Cash flow points to potential upside. The question is which signal you trust more.

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 Nissan Chemical 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 12 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

The signals around Nissan Chemical are mixed, so do not wait for someone else to tell you what to think. Take a closer look at the upside drivers yourself through the 4 key rewards.

Looking for more investment ideas beyond Nissan Chemical?

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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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