The Must Read PSA Weekly Research Round-up (week to 11 Jan)

REPORTS THIS WEEK: Nintendo (7974 JT) – A different type of 5G opportunity / Nexon (3659 JT) – Coming out of the China-Uncertainty Dungeon / What is happening with the auto market in Europe / MACRO: Former BoJ official Kazuo Momma sees a good chance the yen may hit ¥100/$ as slowing global trade tensions put investors on edge / Eco watchers survey <50 / INDUSTRY, SECTOR THEMATIC INSIGHTS: Does CES-2019 reflect an industry in search of a new direction? / We consider leaked photos of iPhone XI / Is Bitcoin in a comeback? / STRATEGY / MARKET: Value blue chip tech cyclicals off to a good start / COMPANY INSIGHTS: Yaskawa cuts its FY18 OP by 10%; weakening YoY trend: Q1 +30%, Q2-9% and Q3-19% / Nissan launches an upgrade of the Leaf / Big moves in ZOZO this week in reaction to strong New Year sales, tweets from the founder plus a broker upgrade

The Weekly Comment by Julie Boote

What is Happening with the Auto Market in Europe?
News that both Ford (F US) and Jaguar Land Rover – JLR, owned by Tata Motors (TTMT IN) – plan to cut thousands of jobs in Europe made the headlines yesterday. Hefty auto sales declines in Europe over the last four months seem to confirm that the European market is in crisis. There is a lot of confusion over what is really going on, with commentators giving simplified explanations about automakers’ ills and the state of Europe’s auto market.
WLTP Impact: In our view, the main reason for the current weakness of European auto sales is the introduction of the test cycle known as the Worldwide Harmonized Light Vehicles Test Procedure (WLTP). This has forced automakers to adjust their product line-ups, discontinuing some models or else modifying engines. There were delays when it came to testing, due to insufficient capacity, and there are still model shortages. In addition, demand was pulled forward, as non-compliant models were sold off in a hurry in the period leading up to August, creating a subsequent ‘hangover’ from September on. The negative impact of WLTP is likely to continue into the first quarter of this year.
Weak UK: Another reason for the slowdown in sales growth is the cyclical downturn of the UK market, which is Europe’s second largest auto market after Germany. In the aftermath of the Global Financial Crisis, auto sales in the UK were much stronger than in the rest of Europe: In 2017, UK sales were 26.3% higher than in 2009 (+546,000 net units added over this period), whereas in the other four large EU markets (Germany, France, Italy and Spain combined), 2017 sales were 4.8% lower than in 2009 (-723,000 net units less over this period). Unsurprisingly, after years of expansion, UK sales have begun to soften, while the other markets are still lagging behind in the cycle and are yet to reach previous sales peaks.

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

1. Nintendo (7974 JT) – A Different Type of 5G Opportunity
2. Nexon (3659 JT) – Coming Out of the China-Uncertainty Dungeon
3. What is Happening with the Auto Market in Europe?

Company / Sector / Thematic Comments at a Glance

Technology

1. Does CES-2019 Reflect an Industry in Search of New Direction?
2. Sony (6758 JT) Sells 5.6mil PS4s Over Holiday Period
3. iPhone XI Photo Leaked?
4. Bitcoin’s Comeback?

Chemicals / Materials

5. Japan Tissue Engineering (7774 JT) Rises on Expanded Indication
6. Asian Commodities Negative, At Best Uncertain
7. Graphite Electrode Maker Shares Surge
8. Biotech Shares Popular Again

Autos

9. Rising Light Truck Demand and Fleet Sales Support 2018 US Auto sales
10. Nissan (7201 JT) Staging Another EV Offensive with More Powerful Leaf
11. Carlos Ghosn and Nissan (7201 JT) Indicted

Auto Parts / Machinery

12. Daikin (6367 JT) and Fanuc (6954 JT) – Too Early?
13. Yaskawa (6506 JT) – FY18 Q3 Preview / Results see FY18 OP Again by 10%

Internet / eCommerce

14. ZOZO (3092 JT): ZOZOTOWN Made ¥10bil During a New Year Sale

Enterprise Software

15. M3 (2413 JT) Teams Up with LINE (3938 JT) to Create Online Medical Joint Venture
16. Bellsystem24 (6183 JT) FY18 3Q Results Fall Short of Guidance and Consensus

Market Comments / Strategy / Macro / Miscellaneous

17. Why Momma’s Comments Now Matter
18. Eco Watchers Survey Slips Below 50
19. Value Blue Chip Tech Cyclicals Off to a Good Start

PSA Company Visits, Tours and Interviews

• Interviewed / Conference Call with: Showa Denko (4004 JT), Yaskawa (6506 JT)
• Attended earnings meeting for: Tosei (8923 JT)
• Attended explanation meeting for: Tosei (8923 JT)
• Visited: Ube Industries (4208 JT)

PSA In the Press / TV Appearances

• With tech the outperformer on both the upside in early 2018 and the downside later in the year, IGTV’s Jeremy Naylor catches up with Pelham Smithers, to discuss the outlook for 2019. https://www.youtube.com/watch?v=wkd-HR8zSuk
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