Japan-Weekly Strategy Report ”Credit’s “Anxiety Index”; BOJ’s recent daily upper price limits” March 12, 2021 504

Report type: Weekly Strategy

”Credit’s “Anxiety Index”; BOJ’s recent daily upper price limits”

On the evening of 5/3, the Japanese government is expected to finalize its decision to re-extend the deadline for the state of emergency in the Tokyo Metropolis and three neighboring prefectures for another two weeks until 21st March.  Against the backdrop of an increase in the number of people infected with Covid-19 variants, it is unclear whether the two-week extension will suffice to lift the state of emergency. However, the share prices of sectors involving F&B, leisure, tourism and restaurants, which are easily affected, as well as those of air transport and land transport stocks including JR companies have not fallen significantly, as the market is looking towards the normalization of the economy after the roll-out of vaccinations.  Nevertheless, in the midst of the current situation, the closing price on 4/3 of eGuarantee (8771), a company that provides guarantees for accounts receivable, has fallen more than 25% from its highs since the beginning of the year, reflecting deteriorating credit conditions.  The loan guarantee rate, which reflects concerns about bankruptcies and delayed payments by clients, is called the “anxiety index” and is currently at 2.77%, up 1.15 points from December 2019.  The average of new and existing data is approaching the 3.3% mark set in 2009 during the Lehman shock.  The share prices of companies that provide accounts receivable guarantees will be helpful when discerning credit trends.

The stock price of the Bank of Japan (8301) reached its upper price limit for four consecutive days until 4/3.  The main income of the BOJ is interest income generated from the assets it holds (government bonds, bills, loans, foreign currencies, etc), and the difference between this and the cost of issuing banknotes and other expenses is its profit.  As of the end of February this year, the BOJ’s total assets stood at about 713 trillion yen, a 5.5-fold increase in 10 years.  While the interest and dividend income from these assets are kept at a low level, compared to a high interest rate level, even a small percentage point increase in interest rates would result in an extremely high overall increase in interest revenue.  The BOJ introduced long and short term interest rate control, known as “Yield Curve Control (YCC)”, in September 2016.  Since the end of July 2018, the BOJ has maintained its target of guiding long-term interest rates to “around zero percent” but has also been willing to tolerate a fluctuation range of “plus or minus 0.2 percent”.  The  upper price limit for the BOJ for the past few days appears to indicate that the market has begun to take into account the possibility that the BOJ’s monetary policy meeting scheduled for 18-19 March will result in policy changes such as a higher target for long-term interest rate hikes and a wider range of fluctuation.

The rise in long-term interest rates is a push factor for industries such as banking and insurance, which are expected to expand their profit margins.  However, commodity prices such as copper futures have turned downward as the Chinese economy has showed signs of slowing down with the 28/2 release of China’s manufacturing PMI showing a decline for three consecutive months.  Among banks and insurance companies, the life insurance industry is beginning to focus attention on a trending life insurance policy where lower life insurance premiums are charged in exchange for data on health promotion obtained especially from middle-aged and older people through smartphone applications. 

In the 8/3 issue, we will be covering Nisshinbo Holdings (3105), USS (4732), Dai-ichi Life Holdings (8750), and Nippon Building Fund (8951).

  • Nisshinbo Holdings Inc (3105)       819 yen (5/3 closing price)

・Established in 1907.  A conglomerate consisting of the Wireless Comms, Microdevice, Automobile Brakes, Precision Instruments, Chemicals, Textiles, Real Estate, and Other business segments.  Aiming to become an “Environment and Energy Company”. 

・For its FY2020/12 results announced on 10/2, net sales decreased by 10.3% to 457.051 billion yen compared to the previous year, and operating income decreased by 80.7% to 1.248 billion yen.  Sales in the Microdevice, Automobile Brakes, Precision Instruments, and Textile businesses decreased due to the impact of the Covid-19 pandemic.  On the other hand, demand for semiconductors related to game consoles surged as a result of stay-at-home demands.

・For FY2021/12 plan, net sales is expected to increase by 10.3% to 504.0 billion yen compared to the previous year, and operating income to increase 5.4 times to 6.8 billion yen.   JRC Mobility, a subsidiary, had acquired two German in-vehicle equipment development companies at the end of April last year, and also took over Japan Radio’s communications equipment business, including professional radios, in January this year.  In addition, there is increased interest in technologies that combine camera images and millimeter wave radar data to simultaneously detect 3D position and speed information.

  • USS Co., Ltd (4732)              1,973 yen (5/3 closing price)

・Established in 1997 through the merger of Seishin Sangyo and the former USS.  Engages in purchase and sale of used cars centering on auto (car) auction.  Company has 39% share of the auto auction market (2019).

・For 9M (Apr-Dec) results of FY2021/3 announced on 8/2, net sales decreased by 7.3% to 53.964  billion yen compared to the same period the previous year, and operating income decreased by 3.7% to 25.758 billion yen.  Both the number of cars sold and contracted through auto auctions have been on a recovery trend since the lifting of the emergency declaration in May last year.  However, both sales and profits declined due to the plunge in sales before that.

・For its full year plan, net sales is expected to decrease by 8.9% to 71.2 billion yen compared to the previous year, and operating income to decrease by 9.5% to 32.6 billion yen.  The average winning bid price at used car auctions for dealers in January rose 6.1% YoY to 817,000 yen for the eighth consecutive month of YoY growth.  However, the number of vehicles on offer fell 1.8% YoY, exacerbating the scarcity of products.  With the automotive industry experiencing a series of production line stoppages due to semiconductor shortages, demand for used cars will increase.

 

 

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!