The Must Read PSA Weekly Research Round-up (week to 26 Oct)

Highlights this week: REPORTS: The LCP opportunity in High-End Handsets/ Shin-Etsu Chemical (4063 JP) H1 FY18 Earnings Preview / Fanuc (6954 JP) FY18 Q2 Preview / Hitachi Chemical (4217 JP) FY18 H1 Results / BIG PICTURE Insights: We think the chances that Japan’s 3Q GDP will be negative are quite high / new gaming licences halted in China, is a clamp-down on the existing game market to come? COMPANY INSIGHTS: NEC’s tie-up with Samsung to sell 5G base stations in the US & Japan provides free call option / EARNINGS COMMENTS on Hitachi High-Tech (8036 JP), HCM (6305 JP), Nidec (6594 JP), CyberAgent (4751 JP)

The Weekly Comment by Pelham Smithers

From the outset, there has been much debate over what would happen to the drugs industry under a Donald Trump administration. On the one hand, he seemed to view his new purpose in life to be undoing everything that Obama had done – which obviously implied dismantling Obamacare. On the other hand, his team included several people who were pro-pharma, including a couple who had been lobbyists for the industry. Added to that, his core white lower-middle class, middle-to-older-aged fan base was relying more and more on Medicare and Medicaid. The latter now services 50mil people. However, with all the turbulence elsewhere, healthcare started to take a backseat and it came somewhat out of the blue when Trump did deliver his views on the matter. Perhaps even more of a surprise, though, was the tone. Trump didn’t want to dismantle Obamacare, but he did want to make it more cost effective. Notably, by ending the “global freeloading” on drug development, by ending the US habit of pricing way above anywhere else, US$17.2bil could be saved over five years.
Trump’s proposal is that for Medicare Part B pricing – that is, for drugs prescribed by physicians – Medicare would base payments for some drugs on an International Pricing Index. His Health Secretary, Alex Azar, provided further colour: the new pricing model would be introduced in half the country on a selection of specific drugs to start with, as a test, before being extended countrywide. Separately, it has also been suggested that payments to physicians would cease to be a percentage (6%) of the prescription cost and would instead be subject to a flat fee – the belief being that physicians are currently financially motivated to prescribe the more expensive drugs.

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

1. The LCP Opportunity in High-End Handsets
2. Shin-Etsu Chemical (4063 JP) H1 FY18 Earnings Preview
3. Fanuc (6954 JP) FY18 Q2 Preview
4. Hitachi Chemical (4217 JP) FY18 H1 Results

Company / Sector / Thematic Comments at a Glance

Technology: Consumer Electronics, Gaming

1. New Gaming Licenses Halted in China
2. Sony’s (6758 JP) Aniplex Income to Improve in 2Q FY18?

Technology: Electronic Components / SPE / Precision

3. Nidec (6594 JP) Breaks the ¥50bil/qtr OP Barrier
4. Canon (7751 JP) Revises Down
5. Hitachi High-Tech (8036 JP): FY18 2Q OP +63% YoY
6. NEC (6701 JP) as 5G Play
7. Fujitsu (6702 JP) FY18 Q2 Saved by One-Offs
8. Hitachi (6501 JP): FY18 2Q OP +17% YoY and OPM of 7.2%
9. Ricoh (7752 JP): FY18 2Q OP Up as Sales Shrink

Chemicals / Materials

10. Shin-Etsu Polymer (7970 JP) Posts Firm Results
11. Shin-Etsu Chemical (4063 JP) Has a Standout Q2
12. Roundup Cancer Trial Advances

Autos

13. Toyota (7203 JP) Stays Cool
14. Subaru (7270 JP) Downgrades Earnings Forecast
15. Oct 24 Sees Isuzu Recover and Subaru Tumbles

Auto Parts / Machinery

16. HCM (6305 JP) Raises Guidance

Telecom

17. Suga’s Comments Send Telcos Lower Again

Internet / eCommerce

18. CyberAgent’s (4751 JP) AbemaTV has New Shareholders / Misses Consensus Q3 Targets
19. LINE (3938 JP) Posts Miserable Q3 Results
20. Recruit (6098 JP): Approaching a Nice Entry Point

Macro

21. Might Japan 3Q GDP be Negative?
22. Oct 25 Sell-Off – A Price Reset?

Miscellaneous

23. Tokyo Steel (5423 JP): FY18 2Q is Ahead of Co Ests, In-line with Market
24. MonotaRO’s 3Q OP Underwhelms; Can it Follow in the Footsteps of M3 (2413 JP)?
25. Retail Digital Divide: Bic Camera (3048 JP) vs. Yamada Denki (9831 JP)
26. J&J (JNJ US) Bids ¥5,900/shr for CI:Z Holdings (4924 JP)

PSA Company Visits, Tours and Interviews

• Attended earnings meeting at Shin-Etsu Chemical (4063 JP), Hitachi Chemical (4217 JP), Hitachi Construction Machinery (6305 JP)
• Interviewed / Conference Call with Subaru (7270 JP), LINE (3938 JP), CyberAgent (4751 JP)

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