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

REPORTS: Hitachi Chemical (4217 JT): Higher Interest in a Share Transfer than Results / Shin-Etsu Chemical (4063 JT): Examining the weak FY18 Q4 / Strategy: The “Muddling Through” Conundrum / NTT Data (9613 JT): FY18 Q4 Preview – Waiting for the Nth American Shoe to Drop / US Auto Sales in April as Incentives and Fleet Sales Decline / INDUSTRY INSIGHTS: New players enter fuel cell scene / Tougher times ahead for game software / COMPANY INSIGHTS: Softbank’s latest three-card trick / PREVIEWS/RESULTS: Panasonic beats – but not really / Autos: Toyota’s cautious FY19 outlook; Mazda’s two-step model introduction could delay recovery; Honda fails to lift itself out of profit slump; Grim forecasts at MMC, Subaru and Suzuki / DMG Mori posts strong Q1 / IHI disappoints / Daikin delivers / Daifuku good FY18 neutral FY19 guidance / Hoya to focus on leading-edge ICs and medical services / Capcom forecasts ¥20bil in FY19 OP / Gree’s Q3 earnings beat / LINE declines on uncertain earnings outlook / Mercari’s Q3 earnings miss /Yahoo Japan rises on brighter outlook / NS Solutions’ FY19 outlook: steady as she goes

The Weekly Comment by Pelham Smithers

Is Japan Really a Stock Picker’s Market?
There are a lot of problems with Japanese companies as equity investments, including issues of transparency and responsibility. However, in quantifiable terms, they boil down to three issues: (1) low operating margins; (2) low return on equity; and (3) low growth (which has replaced indebtedness as a problem). Where these problems exist, they are not necessarily the fault of the companies themselves, but of the (Japanese) system within which they operate; Japan has a falling working population which is constraining growth and tough employment laws and high corporate taxes, which combine to hamper profitability. However, in the world where the dog has eaten the homework, it remains the case that the homework hasn’t been handed in.

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

1. NTT Data (9613 JT): FY18 Q4 Preview – Waiting for the North American Shoe to Drop
2. Weak US Auto Sales in April as Incentives and Fleet Sales Decline
3. Shin-Etsu Chemical (4063 JT) – Examining the Weak FY18 Q4
4. Hitachi Chemical (4217 JT) – Higher Interest in a Share Transfer than Results
5. Strategy – The “Muddling Through” Conundrum

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics / Gaming

1. Panasonic (6752 JT) Beats – But Not Really
2. Capcom (9697 JT) Forecasts ¥20bil in FY19 OP
3. Tougher Times Ahead for Game Software6

Technology: Electronic Components and Precision

4. Result’s Impact on First Day Back from Golden Week
5. Rohm’s (6963 JT) Reaction

Chemicals / Materials

6. Hoya (7741 JT) to Focus on Leading-Edge ICs and Medical Services7


7. Toyota (7203 JT) Releases Cautious FY19 Outlook
8. Honda (7267 JT) Fails to Lift Itself out of Profit Slump
9. Mazda’s (7261 JT) Two-Step Model Introduction Could Delay Recovery
10. Mitsubishi Motors (7211 JT): Weaker Margins on Rising Costs
11. Subaru (7270 JT): Higher Expenses Set to Curtail Recovery
12. New Players Enter Fuel Cell Scene

Auto Parts / Machinery

13. DMG Mori (6141 JT) Posts Strong Q1
14. IHI (7013 JT) Disappoints
15. Daikin (6367 JT) Delivers
16. Daifuku (6383 JT): Good FY18 Neutral FY19 Guidance


17. SoftBank’s (9984 JT) Latest Three-Card Trick

Internet / eCommerce

18. Gree’s (3632 JT) Q3 Earnings Beat
19. LINE (3938 JT) Declines on Uncertain Earnings Outlook
20. Yahoo Japan (4689 JT) Rises on Brighter Outlook
21. Mercari’s (4385 JT) FY19 Q3 Shortfall

Enterprise Software

22. NTT Data (9613 JT): FY19 Guidance Weak and Vague New Mid-Term Plan
23. TIS (3626 JT) Preview: Likely to Beat Forecasts for FY18
24. Outsourcing Inc (2427 JT) Takes a Tumble Following FY19 Q1 Results
25. NS Solutions’ (2327 JT) FY19 Outlook: Steady as She Goes

PSA Company Visits, Tours and Interviews

• Visited: JSR (4185 JT)
• Attended earnings meetings at: Hoya (7741 JT), Sumco (3436 JT), Disco Corp (6146 JT), Shin-Etsu Polymer (7970 JT), Nissha (7915 JT), Showa Denko (4004 JT), Nippon Shokubai (4114 JT), Asahi Kasei (3407 JT), Koito Mfg (7276 JT), IHI (7013 JT), Daikin (6367 JT), Minebea Mitsumi (6479 JT)
• Interviewed / Conference Calls: Showa Denko (4004 JT)
• Watched earnings webcast of: Mercari (4385 JT)
• Participated in earnings call with: SoftBank (9984 JT), NTT Data (9613 JT)

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