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研报Underweight5月11日 · Morgan Stanley

Kobe Steel: F3/26 Results: Records Impairment Loss in Aluminum Business; Aims for Turnaround in F3/27

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中文EN⚠ quality lint: see notes

Kobe Steel: Impairment Exposes Aluminum Weakness; F3/27 Guidance Relies on Optimistic Cost Assumptions

Core Conclusion

Kobe Steel’s F3/26 recurring profit of ¥121.3bn modestly beat consensus, but a ¥20.9bn impairment in the aluminum rolled products business confirms structural deterioration. Management’s F3/27 RP guidance of ¥120bn depends on a ¥10bn cost saving in steel and a ¥3bn depreciation reduction in aluminum—both facing execution risk under weak demand. The assumed ¥10bn Middle East impact covers only the first half; a full-year disruption would widen the damage. At ¥2,012, the stock trades 18% above our ¥1,700 target (0.51x P/B on F3/27e BPS ¥3,346). Maintain Underweight.

What the Market May Be Underpricing

Three factors are not fully discounted.

Aluminum turnaround timeline. F3/26 aluminum RP was -¥0.9bn (guidance -¥2.5bn), but the ¥20.9bn impairment signals deeper asset quality issues. The company targets aluminum RP of ¥5.5bn in F3/27—a ¥6.4bn swing—driven by a ¥3bn depreciation reduction and volume recovery. Since F3/25 aluminum RP was already -¥0.6bn, two consecutive losses suggest structural rather than cyclical problems. The implied recovery assumes utilization and cost improvements not yet demonstrated.

Steel cost savings under demand uncertainty. Steel products RP collapsed from ¥24.3bn in F3/25 to ¥3.8bn in F3/26. The F3/27 plan calls for ¥19.5bn, requiring ¥10bn in cost savings (¥5bn internal). That savings target is nearly triple the entire F3/26 steel RP. Achieving it with crude steel production flat at 5.9mn tons and average price rising to ¥139k/ton from ¥133k assumes a dramatic unit-margin improvement—aggressive given current end-market pricing.

Middle East risk tail. The guidance explicitly embeds a ¥10bn negative impact assuming disruption ends after 1H. If conditions persist into 2H, the actual hit will exceed ¥10bn. Morgan Stanley’s own F3/27 RP estimate of ¥103bn is ¥17bn below the company’s, already pricing a more conservative outcome. The market may be underestimating the probability of a full-year effect.

Evidence Chain

  • Segment deterioration. Steel & Aluminum combined RP fell from ¥23.7bn (F3/25) to ¥2.9bn (F3/26). Steel alone dropped to ¥3.8bn; aluminum was -¥0.9bn. The ¥20.9bn impairment was recorded outside RP.
  • Guidance magnitude. F3/27 Materials segment RP is targeted at ¥25bn (1H ¥8.5bn, 2H ¥16.5bn)—an 8.6x jump from F3/26’s ¥2.9bn.
  • Cost savings. Steel ¥10bn (¥5bn internal) and aluminum ¥3bn depreciation reduction constitute ¥13bn, or 52% of the targeted Materials profit increase.
  • Volume and price assumptions. Steel shipments guided flat at 4.7mn tons; average price assumed at ¥139k/ton (+4.5% YoY). Neither is well-supported by macro indicators.
  • Middle East sensitivity. The ¥10bn hit assumes 1H-only; a full-year scenario could widen to ¥13–15bn based on past exposure.
  • Estimate gap. Morgan Stanley’s F3/27 RP estimate of ¥103bn is 14% below the company’s ¥120bn, concentrated in the Materials segment.

Key Disagreements and Risks

Upside risks. Steel demand recovers faster than expected; metal spreads widen; aluminum restructuring accelerates. Carbon neutrality investments could drive a long-term re-rating.

Downside risks. Weak steel demand persists; raw material costs rise faster; Middle East disruption extends beyond 1H; cost savings fail to materialize.

The current stock price implies a midpoint between company guidance and conservative analyst estimates. If 1H F3/27 results show Materials segment RP below the ¥8.5bn target, re-rating downward is likely.

Valuation or Trading Implication

Our ¥1,700 price target uses F3/27e BPS ¥3,346 × P/B 0.51x (implied ROE 6.6%, cost of capital ~11.5%). At ¥2,012, the stock offers 15.4% downside. The 14% gap between company EPS guidance (¥251.8) and consensus (¥218.4) underscores material disappointment risk. No safety margin exists even if guidance is fully delivered. Maintain Underweight.

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