Japan Weekly Strategy Report – Challenging the 23,000 point barrier as we prepare for results announcement! July 24, 2018 1424

Since hitting a bottom of 21,462.95 points on 7/5, the Nikkei Average has rebounded by 1277.05 points (5.95%) to 22,740 points on 7/17.  The US has entered the earnings release season, and domestically, we are also preparing for 1Q (April-June) FY2019/3 results.  Indeed, market interest is zeroing in upon performance trends. 

In the US, major banks such as JP Morgan Chase (JPM) and Bank of America (BAC) are benefitting from tax reduction measures, and have announced favourable results across the board, with ensuing stock price increases.  Driven by its strong trading business, the 2Q (April-June) FY2018/12 results of Morgan Stanley (MS), which is approximately 24% owned by Mitsubishi UFJ Financial Group (8306, hereinafter “MUFG”), showed results beyond market expectations, with net operating revenue increasing by 12% to 10.61 billion dollars compared to the same period the previous year, and net income increasing by 39% to 2.437 billion dollars.  This was the largest increase in Wall Street.  In addition, Bank of Ayudhya (BAY), a subsidiary of MUFG and whose business expansion is still continuing, announced good results for the 2Q (April-June) period, with net operating revenue increasing by 10.5% to 26.916 billion THB (Thai baht) compared to the same period the previous year, and net income increasing by 6.8% to 6.382 billion THB.  We recommend to pay attention to further developments relating to MUFG which has managed to evolve its overseas business.

At its results announcement on 7/12, Yaskawa Electric (6506) announced that orders for motion controls for 1Q (March-May) FY2019/2 had dropped 1% compared to the previous period.  As a result of concerns over the US-China trade war, its stock price dropped even further, achieving a record low since the beginning of the year.   However, the stock price level with expected PER below 20 times is considered somewhat oversold.  In addition to Fanuc, whose stock price has fallen due to similar concerns, Nidec (6594), Shin-Etsu Chemical (4063), Hitachi Construction Machinery (6305) and LINE (3938) are expected to announce results on 7/25.  Indeed, we need to pay attention to the business results and stock price trends of these companies. 

US GDP (preliminary figures) for April-June will be announced on 7/27.  As of 7/18, GDPNow forecasted by the Federal Reserve Bank of Atlanta is expected to rise 4.5% annually compared with the previous quarter, and the market forecast is a very strong prospect of 4.0% increase.  This is likely to be a supporting factor for the market.  We expect global stock price increases centering on developed countries to take a break in the short-term, but owing to tax reduction effects in the US, good business results are expected.  Therefore, we expect an improvement in investor sentiments, especially for overseas investors.  We anticipate that domestic markets will also continue to grow steadily.  We may like to pay attention to see whether the Nikkei Average will rise again to the 23,000 point level. 

In the 7/23 issue, we will be covering TKP (3479),   Media Do Holdings (3678), LINE (3938), ELAN (6099), OSG (6136) and Kintetsu Department Store (8244).

 

Selected Stocks

TKP Corp (3479)

・Established in 2005.  Starting with rental meeting rooms, company generates space through effective usage of under-utilized real estates and executes a space regeneration and distribution business that creates comfortable “place”, “space” and “time” as added values.   Has 2,004 meeting rooms both in Japan and overseas. Able to undertake large-scale projects such as university entrance examinations and country-wide recruitment operations of major companies.

・For 1Q (Mar-May) of FY2019/2, net sales increased by 25.7% to 9.111 billion yen compared to the same period the previous year, operating income increased by 24.8% to 1.765 billion yen, and net income increased by 32.7% to 992 million yen.  Growth of high-grade facilities / accommodation centering on “Garden City PREMIUM” had driven performance.  In terms of sales mix, value added sales other than room charges had increased.   ・For FY2019/2 plan, net sales is expected to increase by 20.4% to 34.55 billion yen compared to the previous year, operating income to increase by 16.1% to 4.004 billion yen, and net income to increase by 2.4% to 2.12 billion yen.  Although sales will increase owing to aggressive recruitment activities for new graduates and an increase in employee trainings, we expect profit to remain only modestly higher stemming from the recognition of gains on sales of fixed assets in the previous fiscal year. 

Media Do Holdings Co., Ltd (3678)

・Established in 1996.  Involved with distribution of digital content. Implementing “EBook Distribution Business” handling EBooks on behalf of publishers and sales through company-operated EBook stores, promotion support for EBook stores, “Media Promotion Business” providing information to encourage users to purchase EBooks, and “other business”. 

・For 1Q (Mar-May) of FY2019/2, net sales increased by 38.2% to 10.708 billion yen compared to the same period the previous year, operating income increased by 25.4% to 186 million yen, and net income was 62 million yen, turning positive from a loss of 21 million yen for the same period the previous year.  Significant increase in sales owing to closure of pirated sites and consolidation of results with Digital Publishing Initiatives Japan Co., Ltd.   Also secured profits by overcoming increases in SG&A.

・For FY2019/2 plan, net sales is expected to increase by 20.9% to 45.0 billion yen compared to the previous year, operating income to remain the same at 930 million yen, and net income to increase by 25.6% to 450 million yen.  Sales will recover as the impact of pirated sites diminishes, but operating income is expected to remain flat due to staff recruitment for new business development and investment in R&D. 

Important Information

This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.

By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.

Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.

This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.

Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.

Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.

Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.

To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.

The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.

This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.

This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.

IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE

Where the report contains research analyses or reports from a foreign research house, please note:

  1. recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and
  2. to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!