The Must Read PSA Weekly Research Round-up (week to 08 Feb)

REPORTS: US Auto Sales for Jan 2019: SAAR Falls on Bad Weather, Government Shutdown / Ferrotec (6890 JT) – Still Semiconductor Driven / Are We Past Peak Console Gaming? / STRATEGY: We address what is priced into the tech sector and consider what companies might prove to be winners over the coming year / Consensus 2019 EBIT/Shr calls for a decline / EARNINGS COMMENTS ON: Panasonic, Rohm, Capcom, Sega Sammy, Square Enix, Nikon, Olympus, Taiyo Yuden, Comsys, Nissha, Wacom, Mitsubishi Chemical, Sumco, Toyota, Honda, Subaru, Suzuki, Mitsubishi Electric, Minebea Mitsumi, Toyoda Gosei, IHI, Fujikura, Daifuku, Yahoo Japan, Kakaku.com, GungHo, GREE, Mixi, DeNA, Mercari, TIS, NTT Data, IIJ / INDUSTRY INSIGHTS: Tesla places a bet on supercapacitors with its purchase of Maxwell Tech / COMPANY INSIGHTS: 5G is not really about hardware but software. This is where NEC comes into its own

The Weekly Comment by Pelham Smithers

Traditionally, there have been four types of share buyback in Japan:
1. The Toyota (7203 JT)-style “we’ve announced a share buyback because the government wants us to set an example, but we don’t really want to”,
2. The Nintendo (7974 JT)-style “we are under a lot of pressure from shareholder activists to return our massive cash pile”,
3. The Canon (7751 JT)-style “we’ve announced a share buyback to cover up an earnings miss” and then there’s
4. The Nidec (6594 JT)-style “undertaking a share buyback at an ultra-low price, don’t expect to get hit, but happy if it happens”, which is often paired with a CB issue, so that it effectively becomes a top-and-tail trade.
Very rarely, there is the fifth type of share buyback, which is the “total return to shareholder” buyback. This is common in the US, although there, it is often tied into the issuance of stock options. It essentially sees the company augment a dividend payment with a share buyback. Aside from funding stock options plans, it makes sense to do this if you think that your recent earnings gains aren’t sustainable; it doesn’t commit you to paying a higher dividend in the future, and actually cuts the total cost of dividend payments going forward, by reducing the number of shares outstanding.

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

1. Ferrotec (6890 JT) – Still Semiconductor Driven
2. Are We Past Peak Console Gaming? Prospects for Sony (6758 JT) and Nintendo (79974 JT)
3. US Auto Sales for Jan 2019 –SAAR Falls on Bad Weather, Government Shutdown 51. Global Auto Sales Outlook for 2019

Company / Sector / Thematic Comments at a Glance

Technology

1. Electronics Sector Strategy Following Sentiment Improvement
2. Is NEC (6701 JT) Really a 5G Play?
3. Rohm (6963 JT) Falls After YoY Earnings Gain
4. Panasonic (6752 JT) Revises Down
5. Capcom (9697 JT) Solid 3Q Numbers
6. Taiyo Yuden (6976 JT): Record 3Q OP (+69% YoY) but No Change to FY
7. Olympus (7733 JT): 3Q OP Slumps 20% YoY
8. Wacom (6727 JT): Earnings Whiplash
9. Sega Sammy (6460 JT) Revises Down
10. Square Enix (9684 JT) Leaves Forecasts Unchanged
11. Not a Pretty Picture Ahead for Nikon (7731 JT)

Chemicals / Materials

12. Sumco’s (3436 JT) Earnings Are Taken in Stride
13. Nissha (7915 JT) Revises Down
14. Mitsubishi Chemical (4188 JT) Hit by Falling MMA Markets
15. Mixed Reactions to Materials Earnings
16. Tesla Places a Bet on Supercapacitors

Autos

17. Honda (7267 JT) and Mitsubishi Motors (7211 JT) Fall on Q3 Earnings
18. Suzuki (7269 JT) FY18 Q3 Results Hurt by Expenses, Forex
19. Toyota (7203 JT) Q3 Results: NP Down on Equity Revaluation, But Solid Core Operations
20. Subaru (7270 JT): Positive US Volume and Incentives Development in Q3

Auto Parts / Machinery

21. Mitsubishi Electric (6503 JT): Q3 Results Bodes Well for the FY Despite Revision Down
22. Toyoda Gosei (7282 JT) Picking Up Steam
23. Fujikura (5803 JT) Cuts FY18 OP Guidance
24. Minebea Mitsumi (6479 JT) Cuts FY18 Guidance
25. IHI (7013 JT) Edges Up Guidance with Less Risk for FY19
26. Daifuku (6383 JT) Raises OP Guidance Yet Again
27. Nabtesco (6268 JT) FY18 In-Line; FY19 Guidance too Bullish?

Internet / eCommerce

28. GungHo (3765 JT): FY18 Q4 Was a Positive Surprise
29. GREE (3632 JT): Disappointing Q2 Results and Q3 Guidance
30. Yahoo Japan (4689 JT) up on Brighter Outlook
31. Kakaku.com’s (2371 JT) Earnings Beat
32. Mixi (2121 JT): Q3 was Weak but We Remain Confident
33. DeNA (2432 JT): Weakness in Game Continues
34. Mercari (4385 JT: Q2 was Good but Slower Growth Ahead

Enterprise Software

35. Fuji Soft (9749 JT): Nikkei Flags its FY18 CE OP is Below Consensus
36. NTT Data (9613 JT): Lots of Hard Work Ahead to Meet Full-Year Forecasts
37. TIS (3626 JT): Strong Beat at Q3 / Litigation Proceedings
38. Internet Initiative Japan (3774 JT) Beats Q3 Forecasts

Miscellaneous / Market

39. Comsys Holdings (1721 JT): 3Q OP +24% YoY – Boosted by M&A
40. Consensus Topix EBIT/Shr for 2019 is Down YoY

PSA Company Visits, Tours and Interviews

• Visited / Had a Conference Call / Contacted: Shin-Etsu Chemical (4063 JT), TDK (6762 JT), NGK Spark Plug (5334 JT), TIS (3626 JT)
• Attended earnings meetings at: Teijin (3401 JT), Tosoh (4042 JT), Ube Industries (4208 JT), Sumco (3436 JT), Iwatani Corp (8088 JT), Asahi Kasei (3407 JT), Fujifilm Holdings (4901 JT), Taiyo Nippon Sanso (4091 JT), Toray (3402 JT), Nissan Chemical (4021 JT), Kaneka (4118 JT)
• Participated in the earnings calls for: Yahoo Japan (4689 JT), SoftBank (9984 JT), Minebea-Mitsumi (6479 JT), IHI (7013 JT), Fujikura (5803 JT), Mercari (4385 JT), DeNA (2432 JT), NTT Data (9613 JT), TIS (3626 JT)

PSA in the Press

In this link, FOX Business 1 Feb 2019 , Pelham Smithers is explaining on Fox News why he expects 2019 to see the first drop in video game revenues since 1995. Nonetheless, he still thinks prospects for what are in his view the most promising five video game stocks – Nintendo, Mixi, Nexon, Sony and CyberAgent – are good.
Pelham is also quoted in the FT Nintendo’s shares plunge sparks debate on future of console gaming [FT Feb 4, 2019] and in Breaking down nearly 50 years of video games revenue [Gamasutra, Jan 30, 2019

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