PSA Japan Research Round-Up for the Week ending Feb 22, 2019

The Weekly Comment Summary by Pelham Smithers
Earnings of Japan Inc, as represented by the Topix Core 30 Index, continue to be under pressure – hit by China, the currency and due to simply not producing products that are now in demand. Even in areas where Japan excels are beginning to go ex-growth. We wonder how much of this is in the price.
Reports / Flash Notes Summaries
1. European Autos: Fight Over Diesel Heats Up, Sales Collapse Possible
2. Yaskawa Electric (6506 JT): Tought Times Still Ahead
Company / Sector / Thematic Comments at a Glance
Technology: Consumer Electronics / Gaming
1. Why This Year’s MWC is Worth Paying Attention To
2. Samsung’s (005930 KS) Big Unfold
3. Is Apple (AAPL US) Souring on LCP?
4. Video Game Sales Down in US in January
5. Does the Owner of NXC Have to Make a Tender Offer for Nexon (3659 JT)?
6. Nintendo (7974 JT) Buy Back / Bowser Takes Over at Nintendo US
7. Sony (6758 JT) Discusses PlayStation 5
8. Fate / Grand Order Doing Well in China
Technology: Industrial Electronics / Components
9. Fujitsu (6702 JT) Announces Unlimited Employee Buyout / Fears NEC (6701 JT) Will Follow Suit
10. UK Okays Huawei 5G Situation
Chemicals / Materials
11. Fujifilm (4901 JT) Group’s Leukemia Research
12. Japan Display’s (6470 JT) Prospects Hinge on a New Partner
Autos
13. Honda (7267 JT) to Close UK Plant
14. Japanese Auto Assemblers Continue to Outperform in China
Auto Parts / Machinery
15. Nabtesco (6268 JT) Results Meeting Feedback
16. NOK (7240 JT) to Face a Difficult Q4
17. Komatsu (6301 JT) to Halt Development of LAVs for the MoD
18. IHI (7013 JT) Sell-Off on Flat FY19 Analysis
Internet / eCommerce
19. Mercari’s (4385 JT) MERPAY CONFERENCE 2019
Enterprise Software
20. Heroz’ (4382 JT) to Provide AI for Bandai Namco’s (7832 JT) Card Game

PSA Company Visits, Tours and Interviews
• Visited: Teijin (3401 JT), Fujifilm Holdings (4901 JT), Zeon Corp (4205 JT), Kuraray (3405 JT), Hitachi Chemical (4217 JT), Mitsui Chemicals (4183 JT), Japan Display (6740 JT), Showa Denko (4004 JT), Ube Industries (4208 JT), Internet Initiative Japan (3774 JT), Yaskawa (6506 JT), NOK (7240 JT), Ferrotec (6890 JT)
• Attended a small meeting at: Sumitomo Chemical (4005 JT)
• Attended earnings meeting for Nabtesco (6268 JT)

Weekly Market Comment by Pelham Smithers
The latest earnings season has generated a rash of earnings forecast downgrades on the part of the sell-side research community, but perhaps the most striking revisions are for Topix Core 30 stocks. Not only are FY19 earnings set to be considerably lower than FY18’s (EBIT/shr ¥83.2 vs ¥89.2), but FY20 earnings, at ¥84.8, are expected to be below FY18’s as well. In comparison, for Topix as a whole, FY19 EBIT is only down slightly on FY18 (¥168.6 vs ¥170.0) and FY20 is well ahead (¥180.9). Tellingly, EBIT/shr for the Topix Mid 400 index is set to rise both this year (from ¥171.2 to ¥182.0) and next year (¥194.8).
Now, there’s an interesting question to be asked as to why analysts are so pessimistic about Topix Core 30 companies given that the yen, domestic economy and US economy are all benign, while the (official) line on China is simply that it is slowing to a more reasonable pace. However, it is fair to say that Japanese companies are certainly behaving as if the good times are over. You have Honda (7267 JT) pulling out of UK manufacturing, and Fujitsu (6702 JT) in a new redundancy plan. Japan’s big three banks are suggesting 30,000 job losses over the next five years. NTT (9432 JT) is undertaking a major reorganization, while Takeda’s (4502 JT) purchase of Shire is founded on the belief that it can’t survive as is. You have the credit rating agencies downgrading – or threatening to downgrade – debt for Canon (7751 JT) and Nissan (7201 JT).