Report type: Weekly Strategy

Nikkei Average exceeds 28,000 points, rising cabinet approval ratings and policy expectations

At the end of the fiscal year ending 31st March 2023, the Nikkei Average exceeded the milestone of 28,000 points. This is due to changes in the flow of funds in the foreign exchange market. Amidst the selling of foreign bonds before earnings reports due to portfolio revisions, mainly by regional banks, the dollar-yen exchange rate also began to reverse its rise after the yen appreciated to less than 130 yen per dollar on 24/3. This is partly due to the recent easing of financial system concerns in Europe and the US, leading to a rise in long-term interest rates once again. Against this backdrop, the total amount of reinvestment arising from the increase in dividends paid by listed companies following the recent strengthening of shareholder return policies, including the ex- dividend rights of index-linked ETFs such as TOPIX and the Nikkei Average, has exceeded one trillion yen. This in turn led to futures purchases. Since the lowest price of the Nikkei Average on 30/3 was almost the same as the ex-rights price on the same day, it may be easier for funds to increase their linkage to the index by buying physical shares at the ex-rights price.

In addition to supply and demand factors, there is also a growing sense of relief about Japanese politics. According to a public opinion poll conducted by Nikkei and TV Tokyo from the 24/3 to 26/3, the approval rating for the Kishida Cabinet had risen 5 points from the February survey to 48%, surpassing disapproval by 4 points. Diplomatic achievements, such as PM Kishida’s surprise visit to Ukraine, timed with Chinese President Xi Jinping’s visit to Russia, and the realization of the Japan-Korea summit are believed to have boosted the approval rating.

In the midst of it all, nationwide local elections will be held until 23/4. A “draft plan” that will become PM Kishida’s concrete plan for “extraordinary measures against declining birthrates” is scheduled to be announced on 31/3. The draft plan is likely to include the abolition of income limits on child allowances, expanding the target age range to high school students, the provision of fiduciary support for entrusted child-rearing for newlyweds and child-rearing generations, and the expansion of childcare leave benefits. Another good news is that the lump sum maternity allowance will be raised to 500,000 yen from April.

On 30/3, the “Green Transformation (GX) Promotion Bill” was passed in the House of Representatives plenary session. It includes the introduction of “carbon pricing” which requires  companies that emit CO2 to pay a financial burden, as well as the issuance of new government bonds called “GX Economic Transition Bonds” to encourage private investment toward decarbonization. The “GX League”, a voluntary group of companies working to reduce CO2 emissions, is also scheduled to officially begin activities in April. The government is promoting initiatives to offset the portion of greenhouse gas emissions by companies that are difficult to reduce through the purchase of credits and other means. Projects such as forest management and afforestation are therefore expected to be eligible for credits as they absorb CO2. Amid the increasing attention on low PBR (price-to-book ratio) value stocks, companies with large forest holdings such as Oji Holdings (3861) and Nippon Paper Industries (3863) are likely to attract more attention.

In the 3/4 issue, we will be covering Takeda Pharmaceutical (4502), Eisai (4523), Hitachi (6501), and PHC Holdings (6523).

Takeda Pharmaceutical Co., Ltd (4502)　　　　　4,350 yen (31/3 closing price)

・Founded in 1781 by Chobei Omiya in Doshomachi, Osaka. Focused on digestive system diseases, rare diseases, immune diseases, cancer, neuropsychiatric diseases, etc. Acquired Ireland’s Shire in 2019 for 6.2 trillion yen.

・For 9M (Apr-Dec) results of FY2023/3 announced on 2/2, revenue increased by 13.9% to 3.0713 trillion yen compared to the same period the previous year, and core operating profit excluding one-time items increased by 26.0% to 954.7 billion yen. Solid performance in key disease areas and yen depreciation contributed to improved results despite the transfer of the Japanese diabetes drug portfolio for 133.0 billion yen, which was recorded in sales in the same period of the previous year.

・For its full year plan, core revenue is expected to increase by 14.9% to 3.93 trillion yen, core operating profit to increase by 23.5% to 1.18 trillion yen, and annual dividend to remain unchanged at 180 yen. In addition to the growth of the biologics market for inflammatory bowel disease and the expansion of market share for the mainstay Entyvio, a treatment for ulcerative colitis and Crohn’s disease, a vaccine for dengue fever (TAK-003), which is estimated to infect 390 million people worldwide, is expected to be launched in Indonesia in 2023.

Eisai Co., Ltd (4523)　　　　　　　　　　　　　　　　　7,504 yen (31/3 closing price)

・Toyoji Naito established the Sakuragaoka Laboratory Co., Ltd. in Arakawa-ku, Tokyo in 1936. Develops, manufactures and markets ethical and OTC drugs. Collaborating with Merck of the US in the oncology field and with Biogen of the US in the neurology field related to dementia drugs.

・For 9M (Apr-Dec) results of FY2023/3 announced on 6/2, revenue decreased by 3.4% to 546.197 billion yen compared to the same period the previous year, and operating income decreased by 81.1% to 13.823  billion yen. Company’s global products, including the anti-cancer drug “Lenvima”, have been strong, but a decrease in contract income received from US BMS in the previous period and an increase in profit-sharing to 50% due to the expansion of Lenvima sales have had an impact.

・For its full year plan, revenue is expected to increase by 0.5% to 760.0 billion yen, operating income to increase by 2.3% to 55.0 billion yen, and annual dividend to remain unchanged at 160 yen. Lecanemab, a drug for Alzheimer’s disease (AD), received expedited approval in the US on 6/1 this year. Currently under review by the US FDA (Food and Drug Administration) with a target date of 6/7 for completion of review for full approval. Application filed in Japan on 16/1. At a briefing on 9/3, company forecasted Lecanemab’s FY2030 sales to be in the 1 trillion yen range.