Report type: Weekly Strategy

What Will Be the Trend for Stock Prices in the Remaining 2 Months This Year?

In the Japanese stock market in the week of 28/10, with important events ahead such as the US FOMC and the Bank of Japan’s Monetary Policy Meeting, etc., as well as the Dollar showing a high price trend largely attributed to good financial results in major US companies and expectations towards progress in the US-China trade friction issue, the Nikkei average was strong, such as by marking 23,000 points at one point on 29/10. Despite important events passing by smoothly, from 31/10, due to a consecutive worsening of US and Chinese economic indicators and a decline in the US long-term interest rate, the dollar/yen exchange rate saw the yen appreciating at one point by falling under 108 yen, with the Nikkei average also falling to 22,705 points.  

In the Jul-Sep term financial results, since many companies appeared to be prepared for risks especially from the US-China trade friction this term, we can infer that the full year business results forecast in industries which are thought to be heavily affected by the US-China issue gravitated towards the conservative side. Market forecasts also likewise overly took into account US-China risks, which tended to be at a low level. As a result, on one hand, stocks which did not necessarily have good business performance were purchased, whereas stocks taking expectations into account and which were bought beforehand that showed good business results ended up being sold, etc., hence, it has been difficult for market participants to predict stock prices after the release of financial results. For example, financial results of both NEC Corporation (6701) and Fujitsu (6702) announced on 29/10 fared well, and both share the common aspect of following the 5G-related trend, however, their stock prices took a drastic turn one day after the release of financial results. Also, for the financial results of Advantest (6857) which was announced on 30/10, despite significantly revising their full year income forecast upwards, their stock prices fell sharply the next day. Rather than focusing on immediate business performance, perhaps it may be necessary to select stocks by looking two or three steps ahead.

There are only 2 months remaining in 2019, and looking at the Nikkei average in the past, in Dec 2015, it fell significantly due to the “China Shock”. In 2016, it was strong from the US presidential election in Nov up to the end of the year. Also,

In 2017, despite it being strong from Sep to early Nov due to the snap election, it plateaued after until the end of the year. In 2018, it fell drastically between early Oct and late Dec. For this year, although it seems to show movements similar to 2017 based on the changes from Sep onwards, judging by the demand trends involving spot and futures arbitrage, it can also be seen as similar to 2016. However, with the presence of new risks involving the US-China trade friction issue and being currently faced with concerns on the Japanese economy due to the consumption price hike to 10%, it would be rash to simply expect it to turn out the same as it did in the past. We wonder what year-end stock market awaits us.

In the 5/11 issue, we will be covering Calbee (2229), Takamiya (2445), Oenon Holdings (2533), Sony (6758), SCSK (9719) and INES (9742).

• Calbee, Inc. (2229)　　　3,505 yen (1/11 closing price)・For 1H (Apr-Sep) results of FY2020/3 announced on 29/10, net sales increased by 3.5% to 125.246 billion yen compared to the same period the previous year, operating income increased by 12.9% to 13.258 billion yen, and net income decreased by 8.4% to 8.82 billion yen. An increase in business profit was contributed by an improvement in cost rate, sales expansion in the UK and the liquidation of their Taiwanese subsidiary. An overall profit decrease due to repercussions of the gain on sale of affiliated companies in the same period the previous year.
• ・For its full year plan announced on 14/5, net sales is expected to increase by 3.8% to 258 billion yen compared to the previous year, operating income to increase by 0.1% to 27 billion yen, and net income to decrease by 9.9% to 17.5 billion yen. Announced the acquisition of the US confectionery manufacturer, Warnock Food Products, on 29/10. Is expanding their product portfolio in the US, which is the world’s largest snack market.
• ・Established in 1934 in Hiroshima City as Matsuo Food Processing Co., Ltd. Carries out the manufacture and retail of snacks such as those involving potato, wheat and corn, etc., as well as cereals. Is an equity method affiliated company of the US food and beverage manufacturer, PepsiCo (PEP). Expands brands such as “Potato Chips”, “Kappa-Ebisen”, “Frugra”, etc.

• Takamiya Corporation (2445)　　　703 yen (1/11 closing price)・For 1Q (Apr-Jun) results of FY2020/3 announced on 8/8, net sales increased by 4.5% to 10.161 billion yen compared to the same period the previous year, and operating income increased by 2.2 times to 549 million yen. In terms of operating income by segment, contributed by the popularisation of their next-generation scaffolding, “Iq System”, which boasts increased workability and safety, their rental business increased by 2.4 times. Also, for their overseas businesses, due to the pause in the increase in depreciation cost, it returned to profitability.  

• ・Company revised their full year plan upwards on 28/10. Net sales is expected to increase by 8.1% to 45.59 billion yen compared to the previous year (original plan: 44.7 billion yen), and operating income to increase by 44.9% to 3.93 billion yen (original plan: 3.2 billion yen). Although material shipments for extension works of the Hokuriku Shinkansen have already been increasing, it is likely that future demand for temporary materials will be pushed up, such as due to reinforcements in disaster prevention infrastructure in civil engineering and bridge construction following the supplementary budget which is being discussed in the Diet, the Osaka Expo, and efforts to entice foreign capital in Vietnam, etc.
• ・Established in 1969. Handles the development, manufacture and retail business of temporary construction materials mainly for building construction, and the rental business. Manufactures in 2 factories in Japan, as well as in Korea and Vietnam. For overseas business, they are strong in the ASEAN region.