Japan-Weekly Strategy Report “Interpreting the Japanese Stock Market through the Bank of Japan’s Tankan Survey and Land Prices.” July 11, 2023 157

Report type: Weekly Strategy

Interpreting the Japanese Stock Market through the Bank of Japan’s Tankan Survey and Land Prices.

Interpreting the Japanese stock market based on the Bank of Japan’s Tankan Survey and land prices for the first week of July, with the survey results released on the 3rd of the month, the Business Conditions Diffusion Index (DI) for large corporations in June showed a 7-period improvement for the manufacturing sector and a 5-period consecutive improvement for the non-manufacturing sector. This indicates that the supply shortage of components, such as semiconductors, has eased, leading to a recovery in automobile production. Additionally, the non-manufacturing sector was boosted by an increase in foreign tourists, contributing to the recovery of accommodation and food service industries. Moreover, the planned capital investment for the fiscal year 2023 is expected to increase by 11.8% compared to the previous year across all industries. Particularly, large corporations in the manufacturing sector are projected to see a significant increase of 19.3%, surpassing the 6.5% growth recorded in the 2022 fiscal year. This suggests a strong emphasis on automation and investments related to decarbonization.

The “Employment Conditions Diffusion Index (DI),” which represents the shortage of labor, remained unchanged at -32 (indicating a shortage) for all industries compared to the previous Tankan survey conducted in March. However, in the non-manufacturing sector, the “future outlook” deteriorated by 4 points to -44, and in the manufacturing sector, the “future outlook” worsened by 3 points to -23, both compared to the current situation. Starting from April 2024, the “limitation on overtime work” as part of the “workstyle reform” will also be applied to truck drivers and construction workers. The logistics industry is concerned about the shortage of labor causing difficulties in long-distance transportation, while the construction industry is worried about the worsening labor shortage due to issues like project delays, known as the “2024 problem.” However, it is expected to provide a tailwind for investment in automation and mechanization. If the labor shortage continues, the attention is likely to increase for Daifuku (6383), known for its development of unmanned logistics systems.

According to the land prices announced by the National Tax Agency on the 3rd, the average evaluation standard value for standard residential land in 2023 showed a consecutive annual increase of 1.5% nationwide, with a focus on commercial areas and tourist destinations. Among them, cities such as Sapporo, where an extension of the Hokkaido Shinkansen is expected, and Kikuyo-cho in Kumamoto Prefecture, where Taiwan Semiconductor Manufacturing Company (TSMC) is expanding, demonstrated an upward trend. Chitose City, located near Sapporo, is also planning the construction of a new factory by semiconductor manufacturer Lapides. In addition, it was reported that U.S. semiconductor manufacturer Micron Technology will invest 500 billion yen in its Hiroshima plant. Amid reports of accelerated merger discussions between Toshiba(6502)‘s equity-method affiliate, Kioxia, and U.S. semiconductor giant Western Digital (WD), both companies are strengthening their investment in facilities such as the “Seventh Manufacturing Building” at their joint Yokkaichi plant in Mie Prefecture. Renesas Electronics (6723) aims to resume operations at its closed Kofu plant by 2024.

Real estate transactions and financial activities are likely to be stimulated by the gathering of related trading partners and talent. Among all industries of listed companies, regional banks in each area tend to have the lowest Price-to-Book Ratio (PBR). If it is assumed that the correction phase for low PBR stocks will continue in the future, there is a significant potential for attractive opportunities. Regional banks also have the advantage of being responsive to adjustments in the Bank of Japan’s monetary easing policy, similar to major banks.

In the 10/07 issue, we will be covering Lengo Co., Ltd. (3941), Nitto Seiko Co., Ltd. (5957), Daifuku Co., Ltd. (6383), Ambis Holdings Co., Ltd. (7071).


Rengo Co., Ltd. (3941)           3 yen (7/7 closing price)

・Founded in 1909 by Seijiro Inoue, pioneering the first cardboard business in Japan. The company operates in various segments, including paper and cardboard handling, soft packaging, heavy packaging, overseas operations, and other related businesses.

・According to the financial results announced on May 12th for the fiscal year ending March 2023, Lengo reported a 13.3% increase in sales revenue to 846 billion yen compared to the previous year, while operating profit decreased by 22.0% to 25.967 billion yen. The major four business segments experienced revenue growth due to product price revisions (increases). However, the rise in energy, waste paper, and raw material prices had a negative impact on the paper and cardboard handling as well as the heavy packaging segments, resulting in a decrease in operating profit. On the other hand, the soft packaging and overseas segments achieved an increase in operating profit.

・For the fiscal year ending March 2024, the company’s planned financial targets include a 9.9% increase in sales revenue to 930 billion yen, an 81.1% increase in operating profit to 47 billion yen, and an unchanged annual dividend of 24 yen per share. The company anticipates the contribution of product price revisions and an increase in consolidated subsidiaries. On June 29th, Lengo announced the integration of its subsidiary, San-Tox Co., Ltd., with a subsidiary of Mitsui Chemicals Co., Ltd. (4183) called Mitsui Chemicals Tohcello, Inc. Lengo will hold a 51% stake in the new entity. This integration is expected to strengthen the focus on the soft packaging business, accelerate the development of environmentally-friendly new products, and expand overseas operations.

Nitto Seiko Co., Ltd. (5957)            619  yen (7/7 closing price)

・Established in 1938, this industrial fastener manufacturing and sales company is headquartered in Ayabe City, Kyoto Prefecture. In addition to the fastener business, it is also involved in the industrial machinery and precision equipment sector, control systems (including measurement and control equipment), and medical business.

・According to the financial results announced on May 12th for the first quarter (January-March) of the fiscal year ending December 2023, the company reported a 15.7% increase in sales revenue to 10.912 billion yen compared to the same period of the previous year, with operating profit increasing by 15.6% to 675 million yen. The company’s main fastener business faced production adjustments in the automotive industry due to semiconductor shortages, but achieved success through expanding the lineup of application-specific products and exploring the European market. The streamlining of business operations contributed to profitability.

・The company’s full-year financial targets include a 5.6% increase in sales revenue to 46.5 billion yen compared to the previous fiscal year, a 19.4% increase in operating profit to 3.5 billion yen, and an annual dividend increase of 2 yen to 18 yen per share. The company announced on the 3rd that it has obtained a patent for the world’s first medical-grade bioresorbable high-purity magnesium material. High-purity magnesium has excellent biocompatibility, and if the company can expand its presence in the market for medical implant products, its medical business, which achieved sales of 10 million yen in the previous fiscal year, has the potential to become a major revenue driver.

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