Report type: Weekly Strategy
The Japanese Economy Picks up Towards the Olympics
For the Japanese stock market in the week of 20/1, the Nikkei average exceeded 24,000 points on 20/1 as a result of the strong Chinese economy from last weekend’s announcement of China’s GDP for Oct-Dec, industrial production and retail sales for Dec, as well as the steady increase in housing starts for Dec in the U.S. However, discouraged by the trend in the spread of pneumonia from the new strain of coronavirus that occurred in Wuhan prior to the Chinese New Year, from 21/1 onwards, the Nikkei average fell back to around 24,000 points and its high price was prevented from a further increase.
Also, for the unsettled buying balance of arbitrage (unsettled spot purchases with unresolved “forward selling and spot purchase” position) and unsettled selling balance of arbitrage (unsettled long sales with unresolved “forward buying and long sales” position) involving the Nikkei average, the unsettled buying balance of arbitrage exceeded the unsettled selling balance of arbitrage between 20/12 to 30/12, and although from the supply and demand aspect, the buying lead was expected to stabilise, however, with the unsettled selling balance of arbitrage exceeding the unsettling buying balance of arbitrage once again between 10/1 and 17/1, etc., a strong sense of selling pressure was felt with the Nikkei average at the 24,000 point level. On the other hand, on 20/1, the IMF raised the forecast for the real GDP growth rate for the Japanese economy from 0.5% at Oct 2019 to 0.7%, and on 21/1, in the “outlook report” released after the Monetary Policy Meeting, the Bank of Japan raised the median for the real GDP growth rate in the forecast for the Japanese economy in 2020 from 0.6% to 0.8%. Consumption tax countermeasures, strong capital investment and the economic policies adopted by the government in Dec 2019 are predicted to contribute. In particular, with Japan being the only major advanced country / region having an upward revision in the IMF forecast, etc., the future also appears to be bright for the Japanese economy.
Additionally, it was announced that last trains in the Tokyo metropolitan area would be extended up to about 2 hours during the Olympic Games period. Also, in Osaka with its upcoming Osaka / Kansai Expo in 2025, practical tests involving extended operation hours for the Midosuji line are scheduled. In terms of stocks related to the Olympics, there tends to be a perspective involving the reinforcement of security and baggage checks as a precaution against terrorism, cybersecurity as a precaution against cyberterrorism, as well as strengthening quarantine procedures at airports to curb infections at the border, however, it is said that many foreign tourists visiting Japan frown upon the early closing times of recreational facilities, etc. in Japan and the lack of acceptance of cashless payments. It is likely that attention will be on the expansion of the night-time economy and the popularisation of cashless payments in the future as well, since these would directly tie in with a consumption increase by foreign tourists visiting Japan.
In the 27/1 issue, we will be covering Toray Industries (3402), Round One (4680), AOKI Holdings (8214), and Japan Exchange Group (8697).
・Established in 1926 as a manufacturer of basic materials. Engages in businesses such as fibres and functional products, carbon fibre composite materials, environment & engineering and life sciences, etc. Boasts the world’s top polyester film and carbon fibre for aircrafts.
・For 1H (Apr-Sep) results of FY2020/3 announced on 7/11, net sales decreased by 5.8% to 1.1223 billion yen compared to the same period the previous year and operating income decreased by 7.8% to 71.648 billion yen. This was due to the 10.3% decrease in net sales in the fibres business and the 8.6% decrease in net sales of the functional products business as a result of a market slump from the slowdown in the Chinese economy and the U.S. China trade friction dragging out.
・For its full year plan, net sales is expected to decrease by 2.5% to 2.33 trillion yen compared to the previous year and operating income to increase by 2.5% to 145 billion yen. Due to the absence of a large-scale M&A, net cash flow is predicted to return to profitability. In addition, it was reported that they had developed technology that would enable production of the IC tag, a key component in IoT and which is used for product inventory management, etc., at less than 2 yen per piece, which is about one-fifth of the original cost. We can expect the improvement in their financial situation to support business expansion in growth areas.
・Established in 1980. Company operates community-based indoor integrated leisure facilities focusing on bowling / amusement / karaoke / Spo-cha (sports facilities charged by the duration). Launched in the U.S. in 2010.
・For 1H (Apr-Sep) results of FY2020/3 announced on 8/11, net sales increased by 8.8% to 53.188 billion yen compared to the same period the previous year and operating income increased by 24.7% to 5.813 billion yen. In Japan, they are reinforcing the real-time live communication function which connects all Round One facilities across the country, and in the U.S., in addition to opening new facilities and extending operating hours on the weekend, they are implementing measures to raise awareness. The increase in both income and profit have contributed.
・For its full year plan, net sales is expected to increase by 6.2% to 107.64 billion yen compared to the previous year and operating income to increase by 3.2% to 11.81 billion yen. On 22/1, it was announced that the Tokyo 2020 Organisational Committee’s policy would be to implement extra trains for the last train timings and in the late hours of the night in Sapporo, Sendai and Ibaraki in addition to the Tokyo metropolitan area. Since many foreign tourists visiting Japan are unhappy about the lack of late-night entertainment available in Japan, there will likely be increased expectations on the company’s integrated entertainment facilities.
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:
