PSA Japan Research Round-Up for the Week ending Feb 01, 2019

The Weekly Comment Summary
Are we embarking on a repeat of the 2015~16 China-driven slowdown, a repeat of the 2001~3 tech bubble burst, or a repeat of the 2008~9 Lehman Crisis? Pelham Smithers discusses which scenario is most likely and offers strategies for stock selection.
Reports / Flash Notes Summaries
1. Global Auto Sales Outlook for 2019
2. CyberAgent (4751 JT): A Disappointing FY19 Q1 Leads to a Sharp Downward Revision for the Full Year
Company / Sector / Thematic Comments at a Glance
Technology:
Previews and Results Comments
1. Wacom (6727) 3Q Preview
2. Sony (6758 JT) Q3 Results and Outlook
3. Canon (7751 JT): FY18 Results and FY19 Outlook
4. Best Q3 for Nintendo (7974 JT) Since FY09 but No Change to FY Forecasts
5. A Record December Quarter for Murata (6981 JT) but We Have Concerns
6. Koei Tecmo (3635 JT) FY18 Q3 Results
Consumer Electronics / Gaming
7. Slowdown in Global Smartphone Shipments Accelerating
Chemicals / Materials
Previews and Results Comments
8. Dexerials (4980 JT) Reports an Unexpected Downward Revision
9. Hoya (7741 JT) Shares Rise on Firm Results
10. Sumitomo Chemical (4005 JT): FY18 Q3 Was a Little Light
11. TDK (6762 JT) Rebounds After Revising Down
12. JSR (4185 JT) and Shin-Etsu Polymer (7970 JT) Report Solid Q3 Results
13. Shin-Etsu (4063 JT): A Strong Q3 / Raises Hopes of Share Repurchases
14. A Quick Take on Nitto Denko (6988 JT), Hitachi Chem (4217 JT), Zeon (4205 JT)
Chemicals / Materials
15. TSMC Yields Disrupted by Defective Photoresists
16. SanBio (4592 JT), Sumitomo Dainippon’s (4506 JT) SB623 Trials Disappoint
17. Japan Display’s (6740 JT) Rally Was Short-Lived
Autos
18. Honda (7269 JT) Q3: Sharp OP Drop on Warranties, Currency and Incentives
19. Hino (7205 JT) Q3 Profits Drop on Higher Costs
Auto Parts / Machinery
20. Auto Parts Suppliers Denso (6902 JT) and Aisin Seiki (7259 JT) both Revise Down
21. Fanuc (6954 JT) Q3 Orders / Q4 Guidance Below Consensus
22. Komatsu (6301 JT) Disappoints with Mining
23. Little Spark in Q3 for NGK Spark (5334 JT)
24. HCM (6305 JT) Posts Strongest Quarter Ever; but FY Revision Lacklustre
25. Koito (7276 JT) Rises on Good Q3
26. IHI Gains on Nikkei Report of Restructuring
Internet / eCommerce
27. ZOZO (3092 JT) Slashes FY18 Guidance
28. LINE (3938 JT): FY18 Earnings Beat Due to One-off Factors
29. Trend Micro Revises Down FY18 Guidance
Enterprise Software
30. M3’s Share Price Rally Proves Short Lived after Q3 Earnings
31. SCSK (9719 JT) Slam Dunks Q3 Earnings, Raises Full-Year Forecasts
32. Can TIS (3626 JT) Outperform in the Q3?
33. Mixed Bag for NRI’s (4307 JT) Q3
PSA Company Visits, Tours and Interviews
• Visited / Had a Conference Call / Contacted: JSR (4185 JT), Fanuc (6954 JT), Denso (6902 JT), Aisin Seiki (7259 JT), Komatsu (6301 JT), HCM (6305 JT), Nomura Research Institute (4307 JT)
• Attended earnings meeting at: JSR (4185 JT), Shin-Etsu Chemical (4063 JT), Sekisui Chemical (4204 JT), Maxell (6810 JT), TDK (6762 JT), Zeon Corp (4205 JT), Hitachi Chemical (4217 JT), Dexerials (4980 JT), Nitto Denko (6988 JT), Hoya (7741 JT), Konica Minolta (4902 JT), Sumitomo Chemical (4005 JT), Topcon (7732 JT), CyberAgent (4751 JT), Murata (6981 JT), Tokyo Electron (8035 JT)
• Participated in the earnings calls for: CyberAgent (4751 JT), LINE (3938 JT), ZOZO (3092 JT)
PSA in the Press
The Financial Times this week referenced autos analyst Julie Boote’s explanation of model platforms.
Weekly Market Comment by Pelham Smithers
For retailers operating in most of the major economies, it was a pretty cheerless holiday season. However, one country appears to have done okay; Japan reported a 1.3% YoY rise in retail sales for December. While this is not a substantial increase, it nevertheless means that December saw the highest retail sales for any month in Japan this millennium. Given Japan’s demographics, the shift to online shopping, plus the growing question mark over the current spending propensity of the tourist from China, that is actually pretty good.
Whatever the 4Q GDP numbers due on Feb 14 turn out to be, this retail sales figure underscores the fact that Japan was not in a recession in 2H 2018; which is not to say that Japan isn’t heading for one. While industrial production was down only 0.1% MoM in December, that was the 8th month in 2018 that it was down. Having started the year growing at a healthy 3.2% YoY, industrial production ended the year declining 1.9% YoY. That shrinkage was understandable in light of recent export figures (-3.8% YoY in December), which themselves are almost entirely attributable to China (-7% YoY), as both US (+1.6% YoY) and EU (+3.9% YoY) rose.
China accounts for 20% of Japan’s exports (25%, if you include Hong Kong) and exports are 18% of GDP. This means that for every 10% fall in exports to China, you knock around 0.4% off GDP. Interestingly, since 0.4% QoQ is the current consensus figure for Japan’s 4Q GDP, that makes China a swing variable. That said, much of what Japan sells to China is put into goods that are then exported out of that country. As long as Chinese exports hold up - and up until December they had been doing okay, growing 8% YoY in renminbi terms in 4Q 2018 - this shouldn’t be that great a problem.