Japan-Weekly Strategy Report Major Market Trends That Are Appearing October 23, 2019 63

Report type: Weekly Strategy

Major Market Trends That Are Appearing

With the MC being decided for the Kohaku Uta Gassen that takes place on New Year’s Eve, it is now the period where there is a focus on the year-end and New Year holidays. With the implementation of the consumption tax hike from this month, although it should be the time where there is a growing public opinion of “whether there will be a factor for the Japanese economy to improve after the 2020 Tokyo Olympics”, it seems to indicate that major market trends towards next year will be related to countermeasures for climate change risks and semiconductor-related stocks.

In the Japanese stock market in the week of 15/10, while news of the growing scale of damages due to Typhoon Hagibis unfolded, such as banks being breached, there were also increased expectations towards a supplementary budget such as from Prime Minister Abe’s answer in the Diet, “With unprecedented disasters happening one after another, our past experiences and preparations alone will no longer suffice. As a country, we will make strong efforts towards National Resilience, and with this far-sighted policy, we shall build a nation which does not succumb to disasters”, which led to a purchasing trend focusing on the construction and civil engineering-related. Also, for the Nikkei average, after exceeding 22,000 points and approaching it on 15/10, on 16/10 it exceeded 22,500 points at once, which was a sudden rise in the stock market that renewed the year’s high. The reason for this is believed to be due to the following: at 11/10, there was a large difference in amount when comparing 1.598 trillion yen of the unresolved arbitrage of the “unsettled selling balance of arbitrage” at the “long futures position / short spot position”, and 478.2 billion yen of the “unsettled buying balance of arbitrage” (unresolved arbitrage involving the unsettled balance of spot purchases at the “short futures position / long spot position”), and this resulted in a buyback of spot trading stocks to cancel arbitrage, which therefore also greatly influenced the supply and demand factors that cause the market to rise. 

As a countermeasure for the heat, it was decided that the Tokyo Olympics marathon would be held at Sapporo. It was also reported that fire ants originating from South America carrying powerful venom had possibly colonised at Aomi Container Terminal. In addition, news involving abnormal weather have been on the rise, such as consecutive poor catches of pacific saury, which is a characteristic flavour of fall dishes. At the same time on 30/9, a Goldman Sachs report was published which involved repercussions of climate change on cities all over the world, and in terms of flood risks, it warned that a part of Tokyo would also face the danger of being submerged into the ocean. It is predicted that awareness of climate change risks will grow even stronger, which may serve as an opportunity for companies who contribute to the safety of people’s lives and lifestyles to reassess their value. Also, in the 3Q (Jul-Sep) results of FY2019/12 for overseas companies, 5G or IoT compatibility, such as in semiconductor equipment manufacturers, etc., the miniaturization of semiconductors which contribute to increased performance in smartphones, and the rise in demand for logic semiconductors, etc. have been confirmed, which point to an increasing chance of business performance bottoming out. Those related to semiconductors are also expected to drive the market.

In the 21/10 issue, we will be covering Doutor Nichires Holdings (3087), Sumitomo Dainippon Pharma (4506), Shionogi (4507), Takaoka Toko (6617), Net One Systems (7518) and Toho (9602).

  • Doutor Nichires Holdings, Co., Ltd. (3087)   2,180 yen (18/10 closing price)

・Established in 2007 as a holding company following a business merger between Nippon Restaurant System and Doutor Coffee. Their mainstay business involves the management of F&B restaurants in various lines of business as well as the roast processing and retail of coffee. Expands brands such as “Doutor Coffee Shop”, “Excelsior Caffé”, in addition to “Hoshino Coffee” and “Yomenya Goemon”, etc.

・For 1H (Mar-Aug) results of FY2020/2 announced on 15/10, net sales increased by 1.1% to 66.908 billion yen compared to the same period the previous year, operating income increased by 7.1% to 6.247 billion yen, and net income increased by 3.3% to 3.874 billion yen. Company is focusing on introducing new products in Doutor Coffee Shop and Excelsior Caffé. Fine tuning of existing business categories such as Yomenya Goemon, etc. have also contributed.

・For its full year plan, net sales is expected to increase by 3.2% to 133.315 billion yen compared to the previous year, operating income to increase by 5.7% to 10.721 billion yen, and net income to increase by 9.9% to 6.503 billion yen. The content that was announced on 12/4 remain unchanged. At the same time, a dividend increase was also announced. Annual dividend forecast has been raised from 32.00 yen to 34.00 yen. Company’s policy is to reinforce product appeal and the launch of new outlets.

  • Sumitomo Dainippon Pharma Co., Ltd. (4506)   1,785 yen (18/10 closing price)

・Its predecessor was Osaka Pharmaceutical which was established in 1897. Merged with Sumitomo Pharmaceuticals in Oct 2005, and Sumitomo Chemical (4005) became their parent company with an ownership of 51.6%. Sales revenue distribution ratio for North America exceeds 50%. Emphasises on antipsychosis, anti-cancer and cell regeneration.

・For 1Q (Apr-Jun) results of FY2020/3 announced on 29/7, sales revenue increased by 1.4% to 117.484 billion yen compared to the same period the previous year, and core operating income which excludes non-ordinary items from the operating income increased by 20.9% to 22.275 billion yen. Despite core segment profits in Japan decreasing by 23.0%, the 18.0% increase in their mainstay North America and 63.8% increase in China and overseas businesses have contributed.

・For its full year plan, sales revenue is expected to increase by 3.4% to 475 billion yen compared to the previous year, and core operating income to decrease by 0.4% to 77 billion yen. It was announced on 26/9 that the teams, such as the Tokyo Dental and Medical University, succeeded in creating the world’s first “mini multi-organ” connecting the liver and pancreas from human iPS cells. The company is strong in mass production technology of iPS cells and is proactively developing regenerative cell medicine, and we can look forward to the results from their mid and long-term stance. 

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