The Must Read PSA Weekly Research Round-up (week to 09 Nov)

REPORTS Out this Week: Video Games Industry at a Crossroads / NEC (6701 JP): One Year On / Nissan (7201 JP): Slow Progress in Balancing Selling Expenses and Volumes / MMC (7211 JP) – Further Growth Opportunities in FY19 / BIG PICTURE INSIGHTS: Smartphone handset shipments are down for a 4th quarter in a row …… / COMPANY INSIGHTS: US tariffs only impact Daikin’s A/C business; no impact on fluoropolymers / Grim times ahead for Olympus / Toshiba to get rid of US LNG business / Polycarbonate markets remain weak / Shin-Etsu Polymer hiking wafer box capacity is good news for Shin-Etsu Chemical

The Weekly Comment by William Nestuk

One might have hoped for stronger stock market gains this week with the Democrats moving into the US Lower House and the US dollar rising to its highest nominal effective exchange range since the 1985 Plaza Agreement. While the Fed left interest rates intact for now, the direction is clearly for another hike around December, and in line with this thinking a steady rise in the greenback was witnessed throughout the week with a brief flirting with the ¥114/USD level on Friday. Yet yen weakness, or perhaps better put, dollar strength, is doing less for Japan corporate earnings and share prices. For one, the dollar is right now about where it was a year ago, meaning a significant contribution to Oct-Dec quarter earnings is looking unlikely.
Another and larger problem is how dollar strength feeds into higher material costs. Rising material costs began to impact Japanese corporate earnings from Q4 FY17, and the magnitude of the damage has risen with successive quarters. At H1 results meetings, where management did not clearly address material costs, the issue of recent impact and forward outlook was often raised by analysts. A strong dollar is good for most exporters to the US, where the general economy and personal consumption have been robust, but in the context of the global economy, this is probably outweighed by the strong currency’s effect on prices – and not just on cost of commodities to non-dollar nations and corporates but also on the dollar- denominated debt of developing nations and the dollar-denominated goods they import, which spurs unwanted inflation. A stable global economy requires growth spread across different countries and perhaps this worry is holding back the markets.
Democrats keeping a check on President Trump may possibly lead to a more stable direction and policy from the Administration and Trump’s somewhat conciliatory tone towards the Democratic party was notable. The immediate issue on the minds of many market participants is the direction of China’s economy, and a slight majority of Japanese corporate managers seem to be very cautious. China-related earnings have been falling in Q2 for most corporates and while the underlying tone exuded by executives seems to be that latent demand in China is merely being held back at present, it may be difficult to find a direction for the market.

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

1. Video Games Industry at a Cross Roads
2. NEC (6701 JP) – One Year On
3. Nissan (7201 JP) FY18 Q2: Slow Progress in Balancing Selling Expenses and Volumes
4. Mitsubishi Motors (7211 JP) – Further Growth Opportunities in FY19

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics / Gaming / Industrial Electronics / SPE / Precision

1. Square Enix (9684 JP): FY18 2Q OP Slumps 55% YoY on Tough Comps
2. Dragon Ball Z Dokkan Battle Helps Boost Bandai Namco’s (7832 JP) FY18 2Q OP
3. 3Q Smartphone Handset Shipments
4. Apple (AAPL US): Q4 Results Comment
5. Olympus (7733 JP): FY18 2Q OP Slumps 42% YoY
6. Toshiba (6502 JP) to Sell Problematic US LNG Business

Chemicals / Materials

7. Nippon Shokubai (4114 JP) Unexpectedly Lowers Guidance
8. 8. Stella Chemifa (4109 JP) Posts a Strong Q2
9. Teijin (3401 JP) / Mitsubishi Gas Chem (4172 JP) Hit by Weak Polycarbonate Markets
10. Feedback from Nissha’s (7915 JP) Upbeat Presentation / Guides for Strong Q4
11. Sumitomo Metal Mining (5713 JP) Revises Down
12. Fujifilm (4901 JP): Q2 Results Beat Internal Estimates
13. Shin-Etsu Polymer (7970 JP) to Hike Wafer Box Capacity a Positive for Shin-Etsu Chemical (4063 JP)
14. Asahi Kasei (3407 JP) High Housing Hurdles


15. Toyota (7203 JP): FY18 CE Raised on Currency, Strong Core Operations
16. Subaru (7270 JP): Profits Hurt by Costly Recall – Is the Rise in Incentives Coming to an End?
17. Nissan (7201 JP): Slow Progress in Balancing Selling Expenses and Volumes
18. Recalls for Mazda (7261 JP) and Subaru (7270 JP)

Auto Parts / Machinery

19. Daikin (6367 JP): Little Impact of Trump’s Fluoropolymer Tariffs / FY18 Q2 Results
20. Ichikoh Industries (7244 JP) Sees Strong Selling into a Surprisingly Good Q3
21. SMC Q2 Lower on Semiconductor Weakness


22. SoftBank (9984 JP): FY18 2Q OP +78% YoY

Internet /eCommerce

23. iStyle (3660 JP) Reports FY19 Q1 Results
24.’s FY18 Q2: Positive Surprise
25. Mercari (4385 JP) Reports Another Quarter in the Red
26. DeNA (2432 JP): Yet to See Earnings Recover
27. Nexon (3659 JP) Hit by Weak Q4 Guidance
28. Rakuten (4755 JP): Excellent Q3

Enterprise Software

29. Market Punishes NTT Data (9613 JP) After Lacklustre Q2
30. IIJ (3774 JP): FY18 Q2 Wins Over Investors
31. Fuji Soft (9749 JP): Strong Q3
32. Flagging Signpost Corp (3996 JP)
33. Persol Holdings (2181 JP) H1 Boosted by M&A

PSA Company Visits, Tours and Interviews

• Attended earnings meeting at Megachips (6875 JP), Central Glass (4044 JP), Sato Holdings (6287 JP), Fujifilm (4901 JP), Daikin (6367 JP), SMC (6273 JP), NOK (7240 JP), Minebea-Mitsumi (6479 JP), Mitsubishi Gas Chemical (4182 JP), Teijin (3401 JP), Nissan Chemical (4021 JP), Shin-Etsu Polymer (7970 JP), KH Neochem (4189 JP), Sumco (3436 JP), Nissha (7915 JP), Kureha (4023 JP), Kuraray (3405 JP), Kaneka (4118 JP), Showa Denko (4004 JP), Nippon Shokubai (4114 JP), Toray (3402 JP)
• Interviewed / Conference Call with SoftBank (9984 JP), Rakuten (4755 JP), Nexon (3659), DeNA (2432)
• Visited JSR (4185 JP), Asahi Kasei (3407 JP)

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