The Must Read PSA Weekly Research Round-up (week to 19 Oct)

Highlights this week: REPORTS: Recruit Holdings (6098 JP): Unappealing Valuations / PSA Visits the Auto Assemblers: Feedback / BIG PICTURE: We discuss how Chinese mobile game moratorium lasting into 2019 is only part of the problem / Can EUV deliver? Plus, a read across from ASML’s 3Q results / COMPANY INSIGHTS: Julie Boote looks at the slip in Isuzu’s share price / Pelham Smithers looks at Huawei’s targeting of Nintendo’s Switch with its new phone / Joel Scheiman looks at TSMC’s roadmap for next generation processing materials

The Weekly Comment by Pelham Smithers

This last week has been a tough one for investors globally not because it has been particularly bad – indeed the S&P500 is actually up so far this week – but because there is this growing sense of the walls closing in, so while it wasn’t bad, there’s a growing feeling that it should have been. Prior to last week you had the following concerns: Brexit, US-China trade, Venezuelan contagion in South America, Russian unorthodoxy and Italian debt; to which you now have to add Saudi insanity. Furthermore, these macro geo-political horrors are starting to take their toll on corporate performance. Less than a year ago, Harmonic Drive Systems [HDS] (6324 JP) was the darling of the Japanese stock market as a geared play (both figuratively and literally) on the booming robotics market. This week, it has announced that its Jul~Sep quarter orders were down 58% YoY. Now, HDS’s problems are specific to China and we would argue that China has had problems even prior to Washington turning up the trade heat, but however you slice and dice it, Beijing’s trade war with the US hasn’t helped. The fact that HDS’s orders are back to 2016 levels is not something anyone would have anticipated twelve months ago. However, it perhaps should be something that was anticipated, considering HDS’s share price performance. Since the start of the year, HDS’s shares have halved (and are down 60% from their January peak). Clearly, anyone buying HDS at ¥8,000 in January wasn’t anticipating orders to slump, but presumably anyone buying at ¥4,000 earlier this month would have been braced for bad news.

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

1. Recruit Holdings (6098 JP) – Unappealing Valuations
2. PSA Visits the Auto Assemblers: Feedback

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics, Gaming

1. Huawei’s New Phone Goes After Nintendo’s Switch
2. Concerns Chinese Mobile Game Moratorium Will Last Into 2019 Only Part of the Problem
3. Panasonic (6752 JP): Tesla Model 3 Production Running at Around 4K/wk

Technology: Electronic Components / SPE / Precision

4. Is EUV Struggling to Deliver?
5. The MLCC Shortage is Good for Murata (6981 JP), but What About Taiyo Yuden (6976 JP)?
6. Harmonic Drive (6324 JP) FY18 2Q Orders Slump 58% YoY

Technology: Cryptocurrency / Bit Coin / Blockchain

7. SBI Holdings (8473 JP) Sold Off on Nikkei Preview

Chemicals / Materials

8. TSMC’s (2330 TT) Advancing Technology Roadmap
9. Asia PVC Markets Weaken, as Expected
10. Fujifilm (4901 JP) Can Resume Talks with Xerox (XRX US)
11. Kanto Denka (4047 JP) to Expand into China

Autos

12. Isuzu (7202 JP) Hit by Saudi Arabia Turmoil
13. Mitsubishi Motors (7211 JP) Hurt by Asia Concerns

Auto Parts / Machinery

14. Automation Firm at Start of the Week
15. Vertical Machine Centres to the Fore as China Threatens a Squeeze on Tech Imports
16. Fanuc (6954 JP) Likely to be Most Affected by China Anti-Dumping Probe

Internet / eCommerce

17. Another Step in the Right Direction for ZOZO Inc (3092 JP)

Macro / Miscellaneous

18. CyberAgent (4751 JP) Correlation with Netflix (NFLX US); Launches CAAnimation
19. Government Confirms Consumption Tax Hike
20. Nationwide CPI Slips in September
21. Tourists to Japan Decline
22. Uber IPO Price US$120/shr?

PSA Company Visits, Tours and Interviews

1. Attended earnings meeting at Idom (7599 JP), ABC Mart (2670 JP), LaSalle Logiport REIT (3466 JP) and Bic Camera (3048 JP)
2. Interviewed / Conference Call with Nitto Denko (6988 JP) and Kuraray (3405 JP)

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