PSA Japan Research Round-Up for the Week ending Feb 15, 2019

The Weekly Comment Summary
Auto analyst Julie Boote sets out PSA’s position on the auto sector and highlights the assemblers with the most promising prospects
Reports / Flash Notes Summaries
1. SMC (6273 JT) Update:
2. Murata (6981 JT): The New Nidec (6594 JT)?
Company / Sector / Thematic Comments at a Glance
Technology:
1. Murata (6981 JT): The New Nidec (6954 JT)?
2. Nikkei Hints at Toshiba (6502 JT) Revision Down; What the Results Tell Us
3. Nexon (3659 JT) Warns on Chinese Revenues
Chemicals / Materials
4. Mixed Reactions for Materials, Electronic Parts Earnings
5. Kuraray (3405 JT) Misses FY18 Guidance by a Wide Margin
6. KH Neochem (4189 JT) Rises on Earnings
Autos
7. Nissan’s (7201 JT) Q3 Below Consensus and Cuts FY Guidance
8. US Auto Import Tariff Threat to the Fore Again
Auto Parts / Machinery
9. SMC (6273 JT) Q3 Deteriorates Little than Q2
10. Daifuku (6383 JT) Sales Look to Rise in FY19
11. Nabtesco (6268 JT) Rises 12% on FY19 Guidance
12. Daikin (6367 JT): Q3 A/C Profits Fall YoY
13. Ferrotec (6890 JT): FY18 Q3 Results Show Photovoltaic is Improving
14. Ichikoh (7244 JT) Wins At Least 3 Orders
Internet / eCommerce
15. iStyle (3660 JT) Slumps Following Disappointing Q2 Results and a Downward Revision
16. Rakuten (4755 JT): FY18 Results
17. Recruit (6098 JT): We Remain Confident in our Slightly Higher FY Estimates
18. Trend Micro (4704 JT): FY18 Results
Enterprise Software
19. GMO Internet (9499 JT) Misses Consensus Estimates, Hikes Dividend and Announces Buybacks
20. Cybozu’s (4776 JT) FY18; FY19 is All about Investment in Cloud, Likely to Hit OPM
21. PKSHA (3993 JT): Stock Split, to Encourage a Broader Range of Investors
22. Persol Holdings (2181 JT): Strong Domestic Trends in Q3 but Raises Some Questions in Australia
23. Outsourcing (2427 JT) Beats Sales Forecasts for FY18, Highlights Brexit Burden
Macro:
24. 4Q GDP Numbers – Japan Dodged a Bullet
PSA Company Visits, Tours and Interviews
• Visited / Had a Conference Call / Contacted: JSR (4185 JT), Toray (3402 JT), Ichikoh (7244 JT), IHI (7013 JT), NGK Spark Plug (5334 JT)
• Attended earnings meetings at: Kuraray (3405 JT), KH Neochem (4189 JT), W-Scope (6619 JT), Nissha (7915 JT), Japan Display (6740 JT), Showa Denko (4004 JT), Toagosei (4045 JT), Tokyo Ohka Kogyo (4186 JT), Daifuku (6383 JT), Sumitomo Metal Mining (5713 JT), W-Scope (6619 JT), Scala Inc. (4845 JT), MCUBS MidCity Investment(3227 JT)
• Participated in the earnings calls for: Rakuten (4751 JT), Nexon (3659 JT), Trend Micro (4704 JT), GMO Internet (9449 JT), Persol (2181 JT), Daikin (6367 JT)
PSA in the Press
• Pelham Smithers is quoted in the following on gaming:
Daily Express Feb 9 – PS5 release date, price latest: Good news and bad news for PlayStation fans /entertainment/gaming/1084845/PS5-release-date-price-UPDATE-PlayStation-2020
• Investorplace.com Feb 8 – Activision Stock Heads into Q4 Earnings on the Defensive /2019/02/activisionstock-q4-earnings-defensive-nimg/
• The PSA team are quoted in the Bloomberg article on Nexon (3659 JT): Nexon Rises on Hopes New Marquee Game Will Halt China Declines

Weekly Market Comment by Julie Boote
Increasing Interest in Auto Stocks on Improved Outlook
It has been a mixed earnings season for automakers. There were some big disappointments, such as for Honda (7267 JT) and Suzuki (7269 JT) whose profits fell on higher than expected forex losses and rising selling expenses. At the other end of the scale, Subaru (7270 JT) exceeded expectations, producing excellent results on rising sales and lower SG&A. Mazda (7261 JT) also beat consensus estimates, as it managed to rein in marketing and warranty expenses. While Mitsubishi Motors [MMC] (7211 JT) posted another quarter of sales and profit gains, markets were concerned that the slowdown in growth in Q3 was an indicator for tougher times ahead. Toyota’s (7203 JT) core operations were solid, but the huge equity valuation loss took markets by surprise and led to shares being sold off. Nissan (7201 JT) continued to struggle with a weak sales performance in major markets.
The auto sector performed poorly in 2018 [TPTRAN Index -20% / vs TPX Index -3%], with investors selling on multiple concerns; over China growth, the US sales cycle and rising US interest rates, Europe’s diesel demise and WLTP disruption, higher raw material prices, plus the generalised global trade troubles. While some of these threats still lurk and could lead to further volatility, there seems to be increasing interest in auto stocks, which are viewed as being oversold. So far this year, auto shares have risen 4% (vs TPX -1.2%). Valuations are attractive and the sales and earnings prospects for some assemblers are positive, in our view. We expect to see upbeat guidance numbers for FY19 from Toyota, Subaru and MMC.