PSA Research Round-Up for the Week ending March 15, 2019: Highlighting reports on Sumco and Toyota

The Weekly Comment Summary
Pelham Smithers is surprised by the feeble Japanese economy and looks into the factors at play.
Reports / Flash Notes Summaries
1. Examining a Battered Sumco (3436 JT)
2. Toyota (7203 JT): Back in Shape – Steady Earnings Growth on Volumes, Cost Cuts, Lower Selling Expenses

Company / Sector / Thematic Comments at a Glance
Technology: Consumer Electronics / Gaming
1. China Smartphone Shipments Continue to be Poor
2. Sony (6758 JT), PS5 and Take-Two
3. Time for M&A in the Japanese Video Game Market?
4. Sony (6758 JT) in Low-cost TV Show Move
5. Strong Week for Monster Strike, Fate / Grand Order
Technology: Industrial Electronics / Precision / Components
6. Hitachi Chem (4217 JT) Sale a Reminder of the Work Hitachi (6501 JT) Still has to Do
Chemicals / Materials
7. Implications of the Shin-Etsu Chemical (4063 JT) Buyback
8. Asahi Kasei (3407 JT): Conservative Guidance and Lease Accounting Issues
9. Ohara’s (5218 JT) Guidance Shocks Markets a Second Time
10. JSR (4185 JT) Appoints Eric Johnson as CEO
11. Fujifilm’s (4901 JT) Growing CDMO Business
Autos
12. Mitsubishi Motors (7211 JT) Presents SUV PHEV Concept Car at Geneva Auto Show
Auto Parts / Machinery
13. Feedback from Daikin’s (6367 JT) Meeting on its Chemicals Division – A Positive Slant
Internet / eCommerce
14. Istyle (3660 JT) to Benefit from Recent Changes to China’s E-commerce Law
15. Mixi (2121 JT) to Hold an eSports Tournament with a Total Prize of ¥100mil
Enterprise Software
16. NRI (4307 JT) Unveils AI-Based Office Automation Tool
17. Heroz (4382 JT) Reported Robust Q3 Results
18. Poletowin Pitcrew (3657 JT) Raises Dividend to Investors’ Delight
19. Solxyz (4284 JT) Announces Hefty Share Buyback Programme
Macro / Market / Miscellaneous
20. The BoJ Leaves QE Unchanged
21. China Economic Data Update
PSA Company Visits, Tours and Interviews
• Visited: Tokyo Ohka Kogyo (4186 JT)
• Telephone interviews with Daikin (6367 JT), SMC (6273 JT), Ferrotec (6890 JT), Trend Micro (4704 JT)
• Attended earnings meeting for: Miraial (4238 JT), Ohara Inc. (5218 JT),
• Attended information meetings for: Sumitomo Chemical (4005 JT), Hitachi Chemical (4217 JT), Daikin (6367 JT)

Weekly Market Comment by Pelham Smithers
The Japanese economy is slowing and the data we’ve seen so far has fallen short of even PSA’s low expectations. Key figures for January were poor with industrial production -3.7% MoM, flat YoY, retail sales -2.3% MoM, +0.6% YoY, and machinery orders -5.4% MoM, -2.9% YoY. The February machine tool order figure of -29.3% YoY after -18.8% YoY in January is the real shocker; importantly, domestic orders (-28%) are almost as bad as foreign orders (-30%), so this is not an isolated and isolatable situation.
Why the Japanese economy is slowing so rapidly is an interesting question. Events in China mean that the direction of travel isn’t a surprise, but unless China is itself doing far worse than has been let on, it doesn’t explain the magnitude of Japan’s slowdown, which is already extending beyond exports, to consumption and investment. The suspicion is that declining consumer sentiment is beginning to impact both retail sales and, because purchasing managers are merely a subset of consumers, corporate decision-making. Consumer sentiment, not particularly strong to begin with, has been sliding for over a year, and we are now at the lowest since Nov 2016.