Report type: Weekly Strategy
Is the Risk From the New Type Pneumonia Entering a New Dimension?
Is the risk from the new type pneumonia entering a new dimension? On 13/2, in addition to the original analysis of the components of the mucous membrane of the nose and throat, Hubei Province changed its method of analysis to include persons confirmed by “clinical analysis” in the number of infected persons. As a result, there was a surge in the number of infected persons. It may be possible to say that simply changing the standard of diagnosis by itself may not be related to the change in momentum of actual infection. Nevertheless, it was reported that a woman in her 80s living in Kanagawa had died from the novel coronavirus infection in Japan despite having never travelled to China. There is now increasing suspicion of domestic infection. It was also reported that there were four seriously-ill patients on the cruise ship, “Diamond Princess”, on which mass infection of the virus had occurred. These patients are now in intensive care with the aid of ventilators at the hospitals they were sent to. Infection therefore appears to have entered a new phase when compared to the relatively mild symptoms of infected people in Japan until now.
On the other hand, while rising to 23,908 points on 13/2 before retreating, the Nikkei Average was resilient at 23,603 points on 14/2. This is because of the strong US economy, with good news from the ISM Manufacturing Report On Business and employment statistics. In addition, another factor is the preference for the US dollar as a result of the generally strong performance and outlook for major companies in the Oct-Dec period. The Euro’s two-year low against the dollar on 13/2 also seems to be supporting Japanese stocks through a stronger dollar and a weaker yen situation. On top of that, the fact that stocks of large US tech companies with large market capitalization are regarded as relatively favorable investment targets, thereby boosting the major US stock indices, may also have supported the Nikkei Average. However, the historically high ratio of the NYSE FANG+ index to the S&P 500 index may indicate that FAANG stocks are being over-bought. We should therefore be wary of possible upcoming market adjustments.
For the Apr-Dec financial results period, the operating income and bottom line of some major Japanese companies had fallen into the red. There could be many factors that could temporarily weigh down on investment and impairment losses. It is therefore important to determine whether the profitability of the core businesses of companies is declining or not. Low PBR (Price-To-Book Ratio) companies should be the focus for stock selection. If the PBR is less than 1.0, net assets will increase even if profits decrease. Therefore the gap between BPS (Book-value per share) and the stock price will increase, making it difficult to lower the stock price. However, the point of investing in low-priced stocks is not simply selecting low-priced stocks that have been neglected at low prices, but instead selecting companies that are highly-motivated to return to shareholders through business structuring and share buybacks.
In the 17/2 issue, we will be covering Sekisui Chemical (4204), Bunka Shutter (5930), Fukuda Denshi (6960), and Renewable Japan Energy Infrastructure Fund (9283).
・A resin processing manufacturer established in 1947. Develops cellophane tapes, poly-buckets and Eslon pipes. In addition to Sekisui Heim, well known for its housing business, company also operates four other businesses including environment/lifeline, high-performance plastics and other businesses.
・For 3Q (Apr-Dec) results of FY2020/3 announced on 30/1, net sales decreased by 0.7% to 823.307 billion yen compared to the same period the previous year, and operating income decreased by 2.2% to 58.197 billion yen. Domestic sales of building tubing for detached houses and non-residential buildings were strong. However, sales and profits declined due to the impact of prolonged sluggish overseas market conditions relating to the high-performance plastics business.
・For its full year plan, net sales is expected to increase by 0.6% to 1.15 trillion yen compared to the previous year, and operating income to increase by 1.4% to 97.0 billion yen. On 24/1, company announced Veredus Laboratories, a Singapore subsidiary develops and sells genetic analyzers and diagnostic reagents, had developed a portable test kit that could quickly detect pneumonia infection caused by the novel coronavirus. Company’s medical business accounted for 6% of sales in 3Q, and this is expected to expand further through global expansion.
・Established in 1955. Main businesses are the manufacture and sale of rolling shutters, house construction materials and building construction materials, as well as their maintenance, inspection and repair, and home remodeling. Strengthening its waterproofing business developing equipment for preventing flooding during torrential downpours.
・For 3Q (Apr-Dec) results of FY2020/3 announced on 5/2, net sales increased by 5.9% to 126.928 billion yen compared to the same period the previous year, and operating income decreased by 10.6% to 5.283 billion yen. All business segments, including the waterproofing business, performed well, with increased sales. However, profit decreased due to increased depreciation expenses, as a result of increased capital investment, and increased installation construction costs.
・For its full year plan, net sales is expected to increase by 8.8% to 190.0 billion yen compared to the previous year, and operating income to increase by 12.2% to 11.0 billion yen. 3Q net sales of the waterproofing business dealing with social issues like torrential downpours and severe rainstorms have increased 29.7% YoY, and operating income has increased 3.1 times likewise. Increasing awareness of climate change risks may help the business to expand. In anticipation of the arrival of the season with torrential rain, the financial wisdom of “buying a straw hat during winter” is a useful reference.
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: