Report type: Weekly Strategy

While there is a lull in the overall market, there are still many investment opportunities available.

Is it a “summer lull” in the market? The trading value of the Tokyo Stock Exchange, which had exceeded 3 trillion yen for 15 consecutive business days until the 17th, has remained in the 2 trillion yen range since the 18th. The Nikkei average tested around 31,300 yen on the 17th and 18th and was resilient, leading to a rebound from the 21st onwards. However, within thin trading, it remained within the range of around 32,000 yen, centered on “mean reversion.” In the US market, after the earnings announcement of semiconductor company NVIDIA (NVDA) on the 23rd local time, it surged in after-hours trading, but the gains were mostly erased during the 24th’s regular trading session. Globally, there is a sense of the market’s upward momentum reaching its limits.

Turning to the Japanese stock market, bank stocks have remained resilient, not following the decline in US regional bank ratings by credit rating agencies or the decrease in long-term interest rates in both Japan and the US. Furthermore, stocks related to residential construction and small construction machinery are also performing well, driven by the growth in US housing starts and new home sales. While it’s important to monitor the stock price trends of semiconductor-related companies associated with NVIDIA, there is no concern about the increasing demand for image processing semiconductors (GPUs) related to generative AI (Artificial Intelligence). The expansion of generative AI into domains beyond text, such as images and audio, is starting to become apparent, much like “ChatGPT.”

In the Weekly issue dated May 29, 2023, there may be renewed attention on the AI-related stocks discussed in the article, “Stock Prices of AI-Related Companies After the Launch of ChatGPT.” These include Digital Media Professional (3652), User Local (3984), Parksha Technology (3993), and Soliton Systems (3040). There is potential for renewed interest. The Digital Agency also requested a budget estimate of 567 billion yen, a year-on-year increase of 18%, for government information system development and operational expenses in the fiscal year 2024 budget request. Sakura Internet (3778) and Internet Initiative Japan (3774) are expected to draw attention as “domestic cloud” providers from an economic security perspective.

After 12 years since the Fukushima Daiichi nuclear plant accident, the release of treated nuclear plant water began on the 24th. In response, China announced a complete halt on the import of Japanese seafood products. While this will negatively impact Japanese fisheries and retail/food establishments in China that handle Japanese products, there’s also a potential upside. The increase in inbound tourism from foreigners eager to experience authentic sushi and the rise in inbound consumption could offset the impact. A similar scenario could apply to Japan’s real estate investment. If the real estate slump in China persists, it might heighten Chinese interest in Japanese real estate, potentially prompting them to explore property options during their visits, as a part of their travel plans.

There is a rapid increase in care facilities specialized for patients with terminal cancer and serious illnesses, known as “hospice-type residences.” Publicly traded companies such as Amvis HD (7071), Japan Hospice HD (7061), and CUC (9158) have also entered this field. As the government faces strained healthcare finances, it is promoting home care as a less cost-intensive alternative to hospitalization. However, there is a shortage of facilities that cater to the aspect of “end-of-life care.

In the August 28th issue, the following companies were featured: Vestera (1433), Digital Media Professional (3652), Ambis Holdings (7071), and Nippon Telegraph and Telephone (9432).  

Besterra Co., Ltd (1433.JP)　　　　　　　　　 1,120 yen (25/8 closing price)

・Established in 1974 as a specialist contractor for plant dismantling in Nagoya City. The company possesses unique patented dismantling methods that contribute to decarbonization, such as the “Apple Peeling Method” for cutting and the “Wind Turbine Toppling Method” for large storage tank dismantling.

・For the first quarter of the fiscal year ending January 2024, announced on June 9th, the company’s sales decreased by 8.6% year-on-year to 1.537 billion yen, and operating profit fell from a profit of 196 million yen in the same period of the previous year to a loss of 35 million yen. While new large-scale project orders remained robust, the start dates for contracted projects are expected to be concentrated in the 2nd quarter and beyond. Additionally, certain low-profit-margin projects weighed down overall profitability.

・The company’s full-year plan includes a 42.9% increase in sales compared to the previous year, reaching 7.8 billion yen, a turnaround from an operating loss of 215 million yen to an operating profit of 510 million yen, and an annual dividend of 20 yen, which is the same as the previous year. Collaborations with Hitachi Plant Construction for the decommissioning and dismantling of domestic nuclear power plants and the trend toward decommissioning inefficient and aging coal-fired power plants in line with the decarbonization movement are expected to provide favorable conditions. The trend of facility upgrades and factory restructuring is also expected to continue in industries such as steel and chemicals.

Digital Media Professionals Inc.(3652.JP)　　　2,600 yen (25/8 closing price)

・Founded in 2002, the company develops graphics IP cores that are integrated into semiconductor IP cores for various applications such as gaming devices, automotive systems, and mobile communication devices. They provide these semiconductor IP cores to semiconductor and final product manufacturers and are also engaged in the manufacturing and sales of LSI products.

・For the first quarter of the fiscal year ending March 2024, announced on August 9th, the company’s sales increased by 80.3% year-on-year to 699 million yen, and operating profit turned around from a loss of 89 million yen in the same period of the previous year to a profit of 30 million yen. By segment, the sales distribution includes 630 million yen (90% increase) from their main amusement sector driven by mass production and shipment of the next-generation image processing semiconductor “RS1,” and 23 million yen (5.8 times increase) from the robotics sector.

・The company’s full-year plan includes a 12.0% increase in sales compared to the previous year, reaching 2.6 billion yen, and a 5.5 times increase in operating profit to 150 million yen. Since its founding, the company has focused on image processing, low-power consumption IP, and AI technologies. The generative AI “ChatGPT” has also introduced the beta version of “GTP4,” which is capable of image input. The incorporation of a new image processing AI system for extracting various patterns from images, known as “intelligentization of images,” is expected to enhance their service offerings, especially in the field of car-mounted camera autonomous driving, and increase the value of the company’s services.