Sojitz: F3/26 Miss, F3/27 Guidance Ambitious – Key Catalyst in Australian Coal Exit and Used-Car Turnaround

Core Conclusion

Sojitz’s F3/26 net profit of ¥103.6bn missed guidance/consensus of ¥115.0bn by 10%, driven by impairment in Australian used-car and coking coal assets. The F3/27 guidance of ¥130.0bn sits slightly above consensus (¥124.5bn) but lacks detailed quantification for the ¥10.0bn loss-reduction and ¥6.0bn existing-business improvement components, making the plan appear aggressive. Management’s commitment to exit Australian coking coal and restore Australian used-car profitability by F3/27 1H are the two most consequential catalysts, yet execution risk is high. At ¥6,218, the stock trades 18% above our ¥5,100 target price (0.93x F3/27 P/B), implying current valuations price in a smooth turnaround not yet supported by concrete milestones.

What the Market May Underappreciate

1. The aspirational nature of the F3/27 guidance components.
The ¥10.0bn reduction in losses and ¥6.0bn improvement in existing businesses were presented without underlying assumptions or segment-level breakdown. In prior years, such unspecified upside components have frequently fallen short. Investors relying on the headline 130.0bn may be overestimating the probability of achievement.

2. The asymmetry within the guidance — Chemicals is conservatively set.
Chemicals net profit guidance of ¥200–215bn for F3/27 embeds only one month of currently elevated methanol prices. If methanol stays at or above current levels for a full fiscal year, the segment could deliver ¥20–30bn upside. This conservative hedge contradicts the optimistic assumptions used for loss-making businesses, creating a structural mispricing: the market undervalues a clear potential upside while overpricing vague improvement claims.

Evidence Chain

Claim 1: F3/26 actual net profit missed consensus by 10%.
F3/26 NP = ¥103.6bn vs guidance/consensus ¥115.0bn and our estimate ¥116.0bn. YoY decline of 6.3% from F3/25’s ¥110.6bn. The miss was concentrated in Autos (NP –¥5.3bn vs ¥1.6bn prior) and Metals, Minerals & Recycling (NP +¥4.8bn vs ¥29.2bn), both hit by impairments.

Claim 2: F3/27 guidance of ¥130.0bn is above consensus but lacks supporting detail.
Breakdown: +¥10.0bn reduced losses, +¥6.0bn existing business improvement, –¥4.0bn MTP2020/23 profits, +¥12.0bn MTP2026 investments, –¥8.0bn other. No segment-specific numbers for the first two components; prior history suggests such items are unreliable.

Claim 3: Chemicals guidance is conservative.
Only one month of high methanol price is factored into the ¥200–215bn range. If the elevated conditions persist, Chemicals could overshoot. This was explicitly contrasted with the aggressive tone of other guidance items.

Claim 4: Structural reform roadmap includes exiting Australian coking coal and restoring used-car profitability in 1H F3/27.
Impairments in F3/26 already reflect the exit. The used-car turnaround timeline is aggressive given the scale of past losses.

Claim 5: Dividend guidance ¥180/share is in line with consensus.
F3/26 DPS was ¥165; ¥180 implies a payout ratio near 30% of F3/27 guidance, providing a floor but no upside catalyst.

Key Divergences and Risks

Divergence: Market views F3/27 guidance as credible and achievable; we see it as aggressive given limited quantification and history of large unexpected items. Conversely, market may overlook the upside from Chemicals if methanol remains elevated.

Downside risks:

• Global commodity price weakness (especially LNG, coal) or yen appreciation could erase the ¥12.0bn MTP2026 investment gains.
• Australian used-car turnaround fails to materialize within 1H F3/27, requiring further provisions.
• Exit from Australian coking coal could incur incremental costs beyond current impairments or lower sale proceeds.

Upside risks:

• Methanol prices stay elevated for a full year, pushing Chemicals segment NP to ¥240–250bn.
• Asset recycling profits from coal exit or other divestitures exceed the plan.
• Yen weakens further, boosting earnings from USD-denominated businesses.

Valuation or Trade Implication

Target price ¥5,100 derived from F3/27e BPS ¥5,471 × 0.93x P/B (implied by ROE 11.7% / estimated COE). Current price ¥6,218 implies ~18% downside. The stock’s premium to target suggests the market is pricing in a successful restructuring — a scenario we view as low-probability given the lack of detail. Maintain Equal-weight until concrete milestones for the Australian used-car turnaround and coal exit emerge. Any slippage in either catalyst would likely trigger re-rating downward.

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Appendix: Earnings Summary Table (Selected Key Items)