The Must Read PSA Weekly Research Round-up (week to 10 Aug)

Reports published this week: Telecoms: Are all Japan Telcos a “Buy”? Is SoftBank a growth stock again? / Sony (6758 JP): Is it time for a bit more restructuring…or a break up? / Electronic Components Strategy: Punchy forecasts, punchy valuations / Results comments highlighted: Strong numbers from Rakuten (4755 JP) / Disappointing numbers for Square Enix (9684 JP) / Bandai Namco (7832 JP) enjoys 14% OP growth / Nabtesco (6268 JP), IHI (7013 JP) disappoint / SoftBank’s (9984 JP) Q1 boosted by valuation gains

The Weekly Comment by Pelham Smithers

The decision by former LDP Secretary, General Shigeru Ishiba, to challenge Shinzo Abe as leader of the LDP revives the battle in 2012 which arguably changed the direction of the Japanese economy. Six years on, Ishiba is no longer a young pretender. He is now in his 60s and might even be viewed as something of a has-been, having left the Cabinet in 2016. Nevertheless, he is Abe’s most vocal critic within the party, and he does have his own (albeit small) faction – Suigetsukai. He is an obvious choice to run against Abe, although not necessarily the candidate most likely to beat him.
The LDP leadership elections are a two-stage process. A vote among the LDP membership sees the list whittled down to two, which is followed by a deciding vote among LDP Diet members. Abe is seen as a shoo-in should he be eligible for the Diet vote, since 75% of LDP Diet members are expected to vote for him, according to one recent poll. However, he is not so popular in the country as a whole, and the thinking is that if he is to be beaten, it would happen in the first round. If the country hadn’t moved on from 2012, then Ishiba would be a threat. At the time it was he who actually topped the party-wide poll, reflecting his popularity in the regions. He is from Tottori, the country’s least populated prefecture, and has been, and is seen to be, a keen proponent of regional rejuvenation. However, at the time he also had the support of the reformist-minded “youth” wing of the LDP. Over the past six years, that support has moved elsewhere. Still, you need two candidates to knock out Abe in the first round, and if that’s what you want, then starting with Ishiba is a good place to start. Who would the other necessary stalking horse be? At this point, all eyes turn to former Foreign Minister Fumio Kishida, who heads the Koga faction. Kishida left the Cabinet in August 2017. This was a signal that he was expecting to run for LDP leadership in a year’s time. However, at the time, Abe’s popularity was on the wane, and there was some doubt over whether Abe would even be first choice among Diet members.

Reports / Flash Notes Published This Week: Headlines at a Glance

1. Telcos: Are all Japan telcos a “buy”? Is SoftBank a growth stock again?
2. Sony (6758 JP): Time for a bit more restructuring…or a break up?
3. Electronic Components Sector Overview: Punchy Forecasts, Punchy Valuations

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics, Gaming

1. Square Enix (9684 JP) FY18 1Q Results Disappoint
2. Bandai Namco (7832 JP) FY18 1Q OP Rises 14% YoY
3. If Tesla (TSLA US) Goes Private… Implications for Panasonic (6752 JP)
4. Former Chairman of Universal Entertainment (6425 JP) Arrested

Technology: Electronic Components and Precision

5. Electronic Components: Punchy Forecasts, Punchy Valuations

Technology: Bitcoin / Cryptocurrency and Blockchain

6. GMO Internet (9449 JP) Reverses Strategy on Crypto Mining

Chemicals / Materials

7. Reversal of Fortunes in LiB Separators
8. Toray (3402 JP) Not Turning the Corner Yet
9. Showa Denko (4004 JP) Reports Impressive Results
10. Positive Earnings Presentation at Nissha (7915 JP)

Autos

11. Suzuki (7269 JP), Mazda (7261 JP), Yamaha Motor (7272 JP) Conduct Improper Fuel Emission Tests
12. OEMs Q1 Results: Strong Positioning in Asia Supports Profit Growth
13. Yamaha Motor (7272 JP) Earnings Hurt by Rising Expenses

Auto Parts / Machinery

14. Daifuku (6383 JP) and DMG Mori Seiki (6141 JP) See OPMs Continue to Rise
15. Nabtesco (6268 JP) Disappoints Again
16. Daikin (6367 JP) Posts Hot Q1 Numbers
17. SMC (6273 JP) Notches Up a Record Q1 OPM
18. IHI (7013 JP) Disappoints in FY18 Q1
19. Minebea Mitsumi (6479 JP) FY18 Q1 Results Were Above-Plan Yet Shares Failed to React
20. Akebono Brake (7238 JP) Weak Q1 but Support Maintained

Telecom

21. Are All Japan Telcos Arguably a “Buy”?
22. SoftBank (9984 JP): Strong FY18 1Q Boosted by Valuation Gains
23. SoftBank (9984 JP) – A Growth Stock Again?
24. NTT (9432 JP) Restructures IT Service Lines

Internet / eCommerce

25. Rakuten (4755 JP) Surges on Earnings Surprise
26. Trend Micro (4704 JP) Rose Despite OP Missing the Lowest Estimate
27. mixi (2121 JP) Reports Another Weak Quarter
28. Nexon (3659 JP) Reports Relatively Good Earnings vs Peers and Boasts an Impressive Pipeline
29. DeNA’s (2432 JP) FY18 Q1 Results Miss

Macro / Miscellaneous

30. Cash Earnings Register 20-Year Record Rise

PSA Company Visits, Tours and Interviews

• Visited: Shin-Etsu Chemical (4063 JP), Dexerials (4980 JP)
• Attended earnings meetings at: Toray (3402 JP), Nissha (7915 JP), Toagosei (4045 JP), KH Neochem (4189 JP), Sumco (3436 JP), Japan Display (6740 JP), Showa Denko (4004), Tokyo Ohka Kogyo (4186 JP), Fujifilm Holdings (4901 JP), W-Scope (6619 JP), Nabtesco (6268 JP), Mercari (4385 JP)
• Attended small meeting at: Sumitomo Chemical (4005 JP)
• Participated in earnings call with: Kaneka (4118 JP), Kuraray (3405 JP), Rakuten (4755 JP), DeNA (2432 JP), IHI (7013 JP), Daikin (6367 JP)

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