The Must Read PSA Weekly Research Round-up (week to 16 Nov)

REPORTS OUT THIS WEEK: CyberAgent (4751 JT): We Still Like the AbemaTV Story / Strategy: How Well is the Chinese Economy Doing? / Interesting Visit to Alps (6770 JT) / BIG PICTURE INSIGHTS: Tariff Talks for auto imports to the US are on again / Ethylene and polyethylene come under pressure / COMPANY INSIGHTS: Valuing Softbank Holding’s NAV now we have Softbank Mobile’s IPO price / Nintendo slumps on weak guidance from Nvidia / COMPANY INSIGHTS: We think the sell-off in Ashi kasie is overdone / Oct sales at MonotaRO rose an impressive 32.7% – but you are paying heady valuations for the shares / We consider whether Subaru’s expansion was too fast, leading to question marks over quality

The Weekly Comment by Julie Boote

Autos Out of Favour – Time for Stock-Picking?

2018 has been a dismal year for global automakers, which are facing dark clouds over China (softening auto demand), Europe (diesel demise, WLTP disruption) and the US (rising interest rates). Moreover, the US government’s new stance on trade is raising fears over the imposition of high US import tariffs and possible retaliatory measures from its trading partners. Rising raw material prices and emerging markets’ currency weakness have not helped either. Unsurprisingly, global auto stocks have performed poorly, with German automakers particularly hard hit due to their high dependence on Europe and China. American, Korean and Japanese auto stocks also fell on the impact of deteriorating market conditions as well as on concerns over upcoming troubles, in particular with regard to trade.
Given the poor performance of the sector, it is tempting to ask whether the bad news is already reflected in stock prices and whether it is now time to invest. Unfortunately, a straightforward recovery in 2019 is not on the cards, in our view:
• Without government subsidies, China demand is likely to remain lacklustre, although we don’t expect a hard landing.
• In Europe, automakers need more time to adjust their model line-up and production to meet regulatory requirements; in this environment, we expect to see a stagnation in sales, as the level of uncertainty among buyers remains high, although there could be gradually increasing interest in new, more fuel-efficient cars.
• As for the US, it is hard to see how rising interest rates will not dampen demand, given the importance that financing has for the auto market.
• With regard to trade, the only certainty seems to be that the level of uncertainty is set to remain high, creating further volatility in the sector in the coming year.

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

1. CyberAgent (4751 JT): We Still Like the AbemaTV Story
2. How Well is China’s Economy Doing?
3. Interesting Visit to Alps (6770 JT)

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics / Gaming / Electronic Components

1. Nintendo (7974 JT) Slumps on Weak Guidance from Nvidia (NVDA US)
2. An Interesting Visit to Alps (6770 JT)

Chemicals / Materials

3. JSR (4185 JT): Life Sciences Segment is Looking Better
4. Japan Display (6740 JT) Lowers Guidance
5. Asahi Kasei (3407 JT) May Be Worth Consideration
6. Tokyo Ohka Kogyo (4186 JT) FY18 Q3 in Line with Plans
7. V-Technology (7717 JT) Shares Respond to Strong Q2
8. Ethylene and Polyethylene Come Under Pressure
9. Kanto Denka (4047 JT) / Stella Chemifa (4109 JT) Fall in Tandem

Autos

10. Small Automakers Under Pressure Despite Weaker Yen
11. 25% Tariffs on Imported Cars to the US: Implications for the Japanese OEMs
12. Toyota (7203 JT) Reveals New Corolla Sedan
13. Mazda (7261 JT): The New Mazda3 – With the New Skyactiv X Technology – to be Presented at the Los Angeles Auto Show
14. Support for China’s Auto Market Unlikely

Auto Parts / Machinery

15. China Anti-Dumping Probe on Nikkei Front Page – Again; Implications for Fanuc (6954 JT)
16. Daikin (6367 JT) Soft on China Issues and Semiconductor Worries
17. Daifuku (6383 JT) – Big Lucky – Responds to an Upbeat Results Meeting / THK (6481 JT) Ahead of Guidance but No Change to FY
18. MonotaRO (3064 JT) Oct Sales +32.7%
19. Akebono Brake (7238 JT) Getting More Press than it Warrants
20. Ferrotec (6890 JT) Lowers Sales Guidance While Improving on its Strengths

Telecom

21. The SoftBank Mobile IPO

Internet /eCommerce

22. mixi (2121 JT) Cuts Full-Year Guidance
23. Trend Micro (4704 JT): FY18 Q3 Profit Falls Short of Consensus
24. Recruit (6098 JT) Expects Less from Glassdoor this FY
25. Kakaku.com (2371 JT) Has Given Back Almost All the Gains Since Earnings Release
26. Mercari (4385 JT) to Provide Anonymous Shipping in the US

Enterprise Software

27. GMO Internet (9449 JT) Misses Consensus Estimates for Q3
28. PKSHA Technology (3993 JT) Costs Eat into Margins

Macro / Miscellaneous

29. “How Well is China’s Economy Doing?”

PSA Company Visits, Tours and Interviews

• Attended earnings meeting at W-Scope (6619 JT), Sumitomo Bakelite (4203 JT), Japan Display (6740 JT), V-Technology (7717 JT), Stella Chemifa (4109 JT), Fujimi (5384 JT), Akebono Brake (7238 JT), Toyoda Gosei (7282 JT)
• Attended information meeting at Mitsui Chemicals (4183 JT)
• Interviewed / Conference Call with Tokyo Ohka Kogyo (4186 JT), Subaru (7270 JT), NTT Data (9613JT), IIJ (3744JT), Persol (2181JT)
• Visited Alps (6770 JT), Screen (7735 JT), Rohm (6963 JT), Cybozu (4776 JT)

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