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Nippon Paint, a company heavily exposed to China’s faltering property market, is betting it can still make “good money” by rapidly expanding its market share even as the country’s developers flirt with default.
Nippon Paint’s co-president Yuichiro Wakatsuki said he remains “cautiously optimistic” about China despite investor concerns about the impact of the slowdown for the Japanese group, which makes 35 per cent of its revenues in the world’s second-largest economy.
By selling lower value paints to a growing DIY market and focusing on home renovations, Wakatsuki wants to rapidly grow the company’s market share in China.
“You have to be very agile, you have to adapt to the market, you have to know what’s going on. You have to know what our competitors are trying to attack,” he said.
Wakatsuki’s goal is to expand the market share of various business lines from between 8 and 24 per cent to 40 per cent “relatively quickly”. He added that there is potential for growth through acquisitions: “If there’s an opportunity to buy companies, I will buy China.”
In 2020, Nippon Paint agreed to a $12bn deal with its largest shareholder Wuthelam Group — a private company founded by one of Singapore’s richest billionaires Goh Cheng Liang — to combine two of Asia’s biggest paints and coatings groups. The group currently has a market capitalisation of over ¥2.7tn ($18bn).
As Chinese property developers started collapsing two years ago, Nippon Paint began shifting its business model away from large-scale projects, writing down its exposures to developers and demanding cash on delivery instead of extending credit. One of its largest clients, the developer Country Garden, has been scrambling in recent weeks to fend off default on dollar bond payments.
The company’s share price has risen 10 per cent so far this year. But analysts at Mizuho say it will take more certainty about China’s stimulus plans for them to recommend buying the stock once more, having downgraded it to neutral in a recent note to clients due in part to concerns about China.
Shigeki Okazaki, an analyst at Nomura, argued that a reassessment of the stock hinges on whether the company can increase its margins and market share in China or the “potential for growth in markets other than China” picks up again.
In its deal with Wuthelam in 2020, Nippon Paint bought out a series of joint ventures in Asia it established over the years. Wakatsuki, Nippon Paint’s former chief financial officer and head of mergers and acquisitions for Merrill Lynch in Japan, took over at the top of the company in 2021. He shares power with Wee Siew Kim, who runs Nipsea, one of the paint businesses bought back as part of the deal.
Nippon Paint has also bought back its Indian businesses from Wuthelam, where it had launched a promotional push, targeting the southern states of Tamil Nadu and Karnataka. Nippon Paint is planning to expand further into India.
“We believe that Nippon Paint needs to develop regions outside of China in order to increase its share of the commodity paint market over the medium to long term. Whether that is Indonesia, India or Oceania, I don’t know,” said Atsushi Yoshida, an analyst at Mizuho.
Wakatsui said that the push into India is “not about diversifying away from China”. Nomura analysts noted that the Indian businesses only represent 1 per cent of company-wide earnings before interest, tax, depreciation and amortisation.
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