Report type: Weekly Strategy
”EV / Metal-related stock market brought about by reduced greenhouse gas emissions”
It was reported during the week of 23/11 that Democrat Joe Biden, who had secured victory in the US presidential election, will appoint former Fed Chair Janet Yellen as Treasury Secretary. As a result, in global financial markets, stocks and interest rates rose, while the dollar weakened, with the view that the economy could be expected to rise through a strong lineup of additional fiscal stimulus, and strengthening cooperation with the Fed as the central bank which has a low interest rate policy. The US Dollar Index, which indexes the US dollar against several major currencies, also fell below 92 points on 25/11 to its the lowest since 1/9. The weaker dollar has pushed up prices of a wide range of commodities, including grains, non-ferrous metals and crude oil, and has helped boost the share prices of stocks, especially economically-sensitive value stocks that are susceptible to commodity markets, such as resources.
Among them, global prices of non-ferrous metals used in a wide range of industries have risen across the board. In addition to the continued recovery of China’s economy from the Covid-19 pandemic, the election of Mr Biden, who has pledged to promote clean energy, and the push for electric vehicles (EVs) as announced by major countries to reduce greenhouse gas emissions, are believed to be the main push factors. Apparently, the main reasons for the rise in non-ferrous metal prices are that besides using more than twice as much copper for motors and other components as gasoline-powered cars, EVs also use nickel and lead for storage batteries, and the use of aluminum to reduce vehicle weight is also expected to increase.
On the other hand, rare earths, the raw material for high-performance magnets, are essential for products needed to reduce greenhouse gas emissions, such as EVs and wind turbine motors. In this regard, there are concerns that China’s export control law, scheduled to take effect on 1/12, may include rare earths, in which the country has a large share of production, among its strategic commodities. If this happens, it will cast a pall over the promotion of clean energy policies to reduce greenhouse gases. However, the neodymium magnet, a typical high-performance magnet, was invented in 1984 by Mr Masato Sagawa of Sumitomo Special Metals (currently Hitachi Metals (5486)), and the product is now handled by Hitachi Metals, Shin-Etsu Chemical (4063), Daido Steel (5471), and TDK (6762). It is therefore noteworthy that China’s export control regulations could be an advantage for Japan, as this is an area where Japanese companies have a global advantage.
In the US, major retail and home improvement companies such as Walmart (WMT), Home Depot (HD) and Target (TGT) have released their Aug-Oct 2020 results since 17/11. With the growth of online shopping driving earnings, the style of ordering online and picking up at stores and parking lots (curbside) has contributed to increase in sales. Japanese retailers with large suburban stores and parking lots will have room to improve their performance as well.
In the 30/11 issue, we will be covering Sumitomo Metal Mining (5713), Musashi (7521), Furuya Metal (7826), and Yamada Holdings (9831).
・A non-ferrous metal company founded by the founder of the Sumitomo family (Soga Riemon) in 1590. Operates three business segments, namely, “Resources” such as resource development, “Smelting” for metal refining and processing, and “Materials” including battery materials and functional materials.
・For 1H (Apr-Sep) results of FY2021/3 announced on 9/11, net sales decreased by 0.8% to 419.123 billion yen compared to the same period the previous year, and profit before tax decreased by 28.8% to 25.884 billion yen. Lower sales arose due to lower copper and nickel prices, as well as a temporary production adjustment in the battery materials business. Profitability was affected by the deterioration of equity method investment profits due to the decline in copper prices.
・For its full year plan, net sales is expected to decrease by 1.7% to 858.0 billion yen compared to the previous year, and profit before tax to decrease by 15.2% to 67.0 billion yen. With major countries announcing plans to promote electric vehicles (EV), company is supplying most of its nickel-based lithium-ion battery materials to Panasonic (6752), as well as battery materials for hybrid vehicles to Toyota Motor (7203). Its strength of securing procurement of nickel from mineral veins is valued.
・Established in 1946. Handling information / industrial systems equipment and election systems equipment. Operating four business segments, namely, information / printing / industrial systems equipment, general-purpose financial equipment related to cash-handling / election systems equipment, paper / processed paper products, and real estate rental / leasing.
・For 1H (Apr-Sep) results of FY2021/3 announced on 10/11, net sales decreased by 28.6% to 14.18 billion yen compared to the same period the previous year, and operating income fell into the red to minus 185 million yen from 1.127 billion yen in the same period of the previous year. The drop in sales of cash-handling machines due to restraint in capital investment by financial institutions had impacted profits in the general-purpose financial / election systems equipment business, which accounts for the majority of operating income.
・For its full year plan, net sales is expected to decrease by 13.6% to 32.481 billion yen compared to the previous year, and operating income to decrease by 82.2% to 182 million yen. In-house-developed election systems equipment is expected to be largely dependent on the dissolution of the House of Representatives and the holding of the general election by PM Suga. Furthermore, with the Trump campaign’s accusation of election fraud related to vote counters and related software in the US presidential election, the global demand for election system updates may increase in order to ensure confidence in elections, which is fundamental to democracy.
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:
