The Must Read PSA Weekly Research Round-Up (week to Oct 27th): Highlighting an in-depth report on Fujifilm Holdings (4901) and Results Comments on Canon (7751), Nidec (6594), Sumi Chem (4005), Shin-Etsu Chem (4

Inside the PSA Japan Weekly Research Round-Up you have:

The Weekly Comment by Pelham Smithers (available upon request):

Pelham Smithers mulls over the earnings season so far in both Japan and the US.

Reports / Flash Notes Published This Week: Headlines at a Glance (full reports available upon request):
1.     Fujifilm Holdings (4901) – A Picture of Improving Health
2.     Yaskawa (6506) FY17 H1 Results Comment
3.     Hitachi Chemical (4217) FY17 H1 Comment – Unfortunate Downward Revision Likely Seen as a One-Off
4.     CyberAgent (4751) FY17 Beat Consensus; FY18 Tough for Games, Eyes on Abema TV

Company / Sector / Thematic Comments at a Glance (for more details, please ask):
Technology: Consumer and Industrial Electronics / Electronic Components/ Precision
1.     Sony (6758): CMOS Opportunities Enough to Offset Threat from Samsung / Positive Press
2.     Canon (7751): Revised Up for the Third Time This Year / Shares Outperformed WoW
3.     Nidec (6594): FY17 2Q Raises Questions on Future Growth and Valuations
4.     Differing Fortunes at Hitachi (6501) and Fujitsu (6702)
5.     Advantest (6857): Keeping the Bears at Bay
Chemicals / Electronic Materials
6.     Sumitomo Chemical (4005): Strong Upward Revision to Lift Consensus Views
7.     Shin-Etsu Chemical (4063): Positive Read-Across from TSMC on 10nm Chips / H1 Meeting Highlights
8.     Chemical Sector Earnings Revisions:
Autos
9.     Toyota (7203): Game Changer Solid-state Batteries Coming in the Early 2020s
10.   Suzuki (7269): Following Customers, Not Regulators, in India
11.   Subaru (7270): Also Undertaken Unqualified Inspections
Auto Parts / Machinery
12.   Yaskawa (6506): Mixed Results
13.   Fanuc FY17 H1 Results Comment – Capacity Contest
14.   SMC (6273): High Inventories Helping
15.   Komatsu (6301): Despite Q2 Beat, FY17 CE Remains Conservative
16.   The National Congress is Likely to have Distorted China’s Production Timing
Communications: Telecom
17.   NTT Docomo (9437): Previews and Results – Confirms Past Peak 4G
Internet
18.   DeNA (2432): Nintendo Finally Announces the Launch of Animal Crossing
19.   LINE (3938): Ads Business Kicking In, But Is It Enough to Justify Heady Valuations?
Pharma
20.   Chugai Pharmaceutical (4519): Strong Earnings Thankfully Support the High Valuations

PSA Company Visits, Tours and Interviews:

• Participated in the earnings call of Hitachi Chemical (4217) and the LINE (3938), CyberAgent (4751) and Yahoo Japan (4689) webcasts
• Attended earnings meeting of Advantest 6857, Sogo Medical (4775), Monex (8698), Megachips (6875), Fanuc (6954), Shin-Etsu Chemical (4063), Hoya (7741), Hitachi Maxell (6810)

PSA in the Media

• Pelham Smithers interview on CNBC discussing US tech stock results https://www.cnbc.com/video/2017/10/27/why-twitters-fake-counting-is-pretty-irrelevant.html

List of PSA Published Reports since August 2017 (see below)
 
PSA Reports / Notes Published This Week
 
1.    Fujifilm Holdings (4901) – A Picture of Improving Health
Analyst Joel Scheiman has written a 24-page in-depth update on Fujifilm against a background of underperformance by Fujifilm shares from April to July, after compliance issues emerged at Fuji Xerox. We believe management is addressing those issues. Meanwhile, in Joel’s view stronger than expected earnings appear capable of supporting improved performance by the shares. We estimate FY17 OP of ¥199.6bil vs. guidance of ¥185.0bil and consensus of ¥195.5bil and for FY18 we estimate ¥220.2bil vs. consensus of ¥213.0bil. Fujifilm’s medium-term plan focuses on healthcare and highly functional materials, exploring out-licensing opportunities for pharma and expanding its presence in biopharma and regenerative medicine. Electronic materials are benefiting from strong IC markets while OLED products are gaining traction. Management plans to channel annual free cash flow of at least ¥120bil into shareholder returns and M&A. On August 30th, the company announced a buyback of up to 3.7% of outstanding shares for as much as ¥50bil. There seems to be an opportunity here: valuations do not appear demanding, although this partly reflects single-digit ROE. We estimate a FY17 PER of 15.8x, PBR of 1.0x and EV/OP of 9.3x. On a cash-adjusted basis, we estimate that FY17e ROE would be 9.7% instead of 6.7%.
2.    Yaskawa (6506) FY17 1H Results Comment – Mixed
Analyst Will Nestuk commented on Yaskawa’s FY17 HI where there was a ¥0.4bil shortfall in Q2 as against guidance, ascribed to delayed profit recognition, plus a miss from Systems Engineering due to weak solar power conditioner sales. We judge the upgrade to FY17 full-year (20 days shorter as year-end changes from March 20 to end-Feb) to be conservative, judging from the order backlog.
3.    Hitachi Chemical (4217) FY17 H1 Comment – Unfortunate Revision Down Likely Seen as a One-Off
Provisioning of about ¥10bn for pricing cartel activities in auto condensers by Hitachi Automotive Systems affected this quarter’s earnings. Analyst Joel Scheiman notes that the possibility of Hitachi Chemical’s write-down has been around since 2013, so it is not a complete surprise and will likely be viewed as a one-time event. Management appears pleased that FY17 sales will exceed ¥600bil – a level achieved a decade ago, which then proved unsustainable. About half of FY17 top-line growth is being achieved through M&A activities in the areas of batteries and healthcare, and the OP contribution is, unfortunately, not as rosy. Battery operations continue to suffer from high lead prices, and while healthcare may prove to be a good strategy in the long run, for now life science businesses are adding to development costs. The company revised up Functional Materials OP guidance and Electronics, in general, is strong. Chemical mechanical planarization slurries continue to benefit from 3D NAND demand. LiB materials sales grew 44% in H1, despite management’s explanation that it has been operating at full capacity. The company’s intention is to pass on rising raw material costs from needle cokes.
4.    CyberAgent (4751) FY17 Beat Consensus; FY18 Tough for Games, Eyes on Abema TV
CyberAgent (CA) reported FY17 results this week. As Thao Nguyen explains in her commentary, with the exception of the volatile Investment Development Business which delivered a higher than expected contribution, other segments performed pretty well in line. All eyes are on CyberAgent’s big new initiative Abema TV, however. Here, CA continues to invest to grow. Thao assesses progress and expectations.  
Have a great weekend,
The Team at PSA