PSA Weekly Japan Research Round-Up (week to June 22)

The PSA Japan Research Round-Up for the Week Ending June 22, 2018
The Weekly Comment
Pelham Smithers is looking at Japan’s pharma sector: considering how it has performed in the Abe era to date, how it should be regarded strategically at this juncture, how it should be valued; and whether there are any opportunities.
Reports / Flash Notes Summaries at a Glance
1. Kitanotatsujin (2930 JP): FY18 is Critical Year
2. Suzuki Motors (7269 JP) in Top Form – What’s Next?
Company / Sector / Thematic Comments at a Glance
1. Cross Gate Sends Square Enix (9684 JP) to New Highs: Read-Across to Activision
2. Nintendo (7974 JP) Goes to War with Hackers
3. Disney Raises its Offer for Fox: Implications for Valuing Sony’s (6758 JP) Assets
4. Cyclical Chemicals have Discounted a Lot of Bad News
5. China’s Environmental Policies Move Material Markets
6. Japan Display (6740 JP) Rises Further from the Bottom
7. Japan’s Solid-State LiB Project Kicks Off
8. Honda (7267 JP): Doubts over Alternative Power Train Policies in North America
9. Toyota (7203 JP) to Change Marketing Approach
10. Thai Auto Market Recovers – Japanese Benefit
11. Nikkei Highlights Mitsubishi Electric (6503 JP) and Gives Other Machinery Stocks a Boost
12. Daikin (6367 JP), NOK (7240 JP) and NGK Spark (5334 JP) Show Resilience
13. Does the SoftBank (9984 JP) AGM Really Signal a Change?
14. Mercari (4385) IPO Goes Well, Bucking Market Sell-off
15. Should We Be Bullish or Bearish?
PSA Company Visits, Tours and Interviews
• Visited Daikin (6367 JP)
• Interviewed Kuraray (3405 JP)
Weekly Market Comment by Pelham Smithers
As a defensive sector, Japan’s pharmaceutical sector has had an up-and-down time of it during the Abe era. In the early days of Abenomics, the sector was a serial underperformer, as there were high hopes that Abenomics would soon pull Japan out of its deflationary slump. However, even as early as 4Q 2013, misgivings were beginning to emerge (primarily then around the forthcoming consumption tax hike) and the sector went into a long period of outperformance, which ended in June 2016 with “Kuroda Mark III”, when Kuroda changed policy on further lowering interest rates. The sector then went into a period of underperformance that really only ended this year when Trump’s trade policy started to threaten global growth. Since that point in early January, the sector has outperformed Topix by 10%, something that is all the more impressive when you consider that the sector’s largest constituent at the time, Takeda (4502 JP), has declined by a third due to worries over its merger with Shire (SHP LN).