NEG Substrate Glass fab back by April 1
On 12/15/20 we noted that a 5 hour power blackout in Takatsuki, Japan has placed Nippon Electric Glass (5214.JP), aka NEG in a potentially serious position. The 5 hour blackout is said to have caused damage to between three and six of the company’s melters (six total at this site), which would reduce the company’s glass capacity by between 13% and 27% of the company’s capacity, depending on the extent of the damage, and while this represents less than 7% of worldwide display glass capacity, it would have an unusually large effect on LG Display (LPL), NEG’s largest customer.
At the time, we expected the production lines at NEG to be up within 90 days, or around the middle of March, although the company made no statements as to the extent of the damage or repair time after the event. NEG has now stated that they expect the plant to be operational by the end of March, and will take a special charge of $61.7m to account for the repair cost. That said, the company also stated that they will be adding glass capacity in China this year, with a project spend of ~$285m that will increase the company’s capacity in China by 50% and will add ~5% to the company’s overall capacity.
No precise timetable was given for the project, but given the expansion of large panel LCD fabs in China, the benefits of such additional capacity would be most felt if available by the end of August, which would be a very aggressive plan. Given that there are only a small, number of glass producers that can guarantee sufficient material volumes for large panel fabs, NEG would be competing with Corning (GLW) and Asahi (5201.JP), with Corning just having recently announced expansion plans for its lines in Wuhan and Guangzhou. NEG expects to see a 7% increase in sales and a net profit increase of 1.6% this year and a 2% q/q net profit increase in 1Q as a result of increasing demand. The loss of the NEG production capacity in 1Q and an explosion at Ashai’s Gumi glass plant (Gen 10.5 line) has already squeezed what was a tight display glass market and, as we noted last week, Corning is expecting to see flat glass pricing in 1Q, a very unusual circumstance, with the increased demand for IT products and large format TVs driving demand.
At the time, we expected the production lines at NEG to be up within 90 days, or around the middle of March, although the company made no statements as to the extent of the damage or repair time after the event. NEG has now stated that they expect the plant to be operational by the end of March, and will take a special charge of $61.7m to account for the repair cost. That said, the company also stated that they will be adding glass capacity in China this year, with a project spend of ~$285m that will increase the company’s capacity in China by 50% and will add ~5% to the company’s overall capacity.
No precise timetable was given for the project, but given the expansion of large panel LCD fabs in China, the benefits of such additional capacity would be most felt if available by the end of August, which would be a very aggressive plan. Given that there are only a small, number of glass producers that can guarantee sufficient material volumes for large panel fabs, NEG would be competing with Corning (GLW) and Asahi (5201.JP), with Corning just having recently announced expansion plans for its lines in Wuhan and Guangzhou. NEG expects to see a 7% increase in sales and a net profit increase of 1.6% this year and a 2% q/q net profit increase in 1Q as a result of increasing demand. The loss of the NEG production capacity in 1Q and an explosion at Ashai’s Gumi glass plant (Gen 10.5 line) has already squeezed what was a tight display glass market and, as we noted last week, Corning is expecting to see flat glass pricing in 1Q, a very unusual circumstance, with the increased demand for IT products and large format TVs driving demand.
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