Stock Price Performance of Japan for past 6 month (Daily

Source: Bloomberg, Amended by Phillip Securities Japan, Ltd.

“The 2022 Stock Market Forecast and Hoping to Receive Your Support Next Year as Well”

As a special year-end issue and the last investment strategy weekly report for the year, we bring you the “2022 Stock
Market Forecast”. Please feel free to refer.

The Nikkei average forecast for 2022 is “a high of 34,000 points in August and a low of 26,500 points in February”.

1. Reason for the high: an influx of inflation evasion money into the low inflation Japanese stock market following an increase in interest rates and a trend in sustained inflation in the U.S. A peak in the year after the House of Councillors election in summertime. After which, the high is prevented from an increase due to the involvement with the U.S. midterm elections.
2. Reason for the low: since U.S-China relations are likely to worsen until the Beijing Olympics period, it is likely to go into adjustment selling for both Japanese and U.S. enterprises with a focus on China-related enterprises. It is also a period where there would be remaining concerns on interest payments of debts in U.S. dollars for China’s Evergrande Group.
3. Triggers that will raise uncertainty if the forecast falls through: an increase in risks of a fast approach and military invasion by both countries, China, with its human rights issue and the Taiwan issue, as well as Russia with its Ukraine issue, which have worsening conflict with the U.S. As a result of an increase in tension, starting from businesses of overseas enterprises in China being shut out by the Chinese government and a sudden price hike in energy due to the supply of natural gas by Russia, etc., they will likely turn out to be factors for a decline roughly until a level that was right after the U.S. Presidential Election in Fall 2020.

Factors for a rise or fall in stock prices are as follows:

1. Factors perceived to be most likely to cause a rise in stock prices are”Japan-buying from inflation evasion money”, “the expansion of emerging economies other than China”,“an increase in return to stockholders”and “infrastructure investment by the governments of each country”.
2. Factors perceived to be most likely to cause a fall in stock prices are“concerns of a Biden trade rewind from an increase in the sense of uncertainty surrounding the U.S. midterm elections”,“monetary policies by the central banks of each country”and“a slump in high-tech and growth stocks”

Investment topics perceived to gain attention in 2022 are “automatic driving in cars”, “infrastructure export” and “an increase in pressure to reinforce a return to shareholders of low P/B ratio stocks”.

Promising sectors predicted in the 2022 stock market are as follows:

1. Paper and pulp (with there being a progressive reduction in production capability due to an already reduced demand in printing paper, the start of a price increase cycle and an increase in demand from the shift from plastic to paper products in the way of life)
2. “Fisheries and foodstuff” (a price rise permeation in food and beverages and an expansion of the frozen food economy)
3. “Iron and steel” (with sluggish production and export due to China’s commitment to CO2 reduction, there will be small risks of a price collapse in iron and steel and a revitalisation in infrastructure investment by the governments of each country in the world).

In the 27/12 issue, we will be covering Giken (6289), Chino (6850), Anicom Holdings (8715) and Kintetsu World Express
(9375).

• Giken Ltd. (6289)　　 　  　　　　 4,025 yen (24/12 closing price)
  

・ Founded in 1967. Carries out the construction machines business, such as the development, manufacture, retail and maintenance services involving vibrationless and noiseless hydraulic pile press fitting and extraction machines (Silent Piler) and the press fitting construction business, which utilises innovative techniques in press fitting technology.

・ For FY2021/8 results announced on 11/10, net sales increased by 12.1% to 27.618 billion yen compared to the previous year and operating income increased by 59.9% to 3.997 billion yen. Although there was a decrease in sales and income in the press fitting construction business involving the implant construction method due to the completion of a cycle in construction countermeasures for the Nankai megathrust earthquakes and the earthquake disaster reconstruction business, there was growth in demand for renewing the Silent Piler for steel sheet piles and pile materials in the construction machines business.

・ For their FY2022/8 plan, net sales is expected to increase by 8.6% to 30 billion yen compared to the previous year and operating income to increase by 12.6% to 4.5 billion yen. At the Cabinet Office’s council of experts on 21/12, it was announced that earthquake damages of a M9 level were expected with the Japan Trench and Kuril-Kamkatcha Trench as the seismic centre region from offshore Tohoku to Hokkaido. With the demand for swift and effective disaster mitigation measures, there will likely be an increase in the degree of attention on the implant construction method which constructs enduring structures integrated with Earth following the Nankai megathrust earthquake countermeasures.

• Chino Corporation (6850)　　 　  　　　　 1,573 yen (24/12 closing price)

・ A measurement equipment manufacturer which began as Chino Works that was founded in 1913. Operates the manufacture and retail of measurement control equipment, instrumentation systems and sensors, etc. Accounts for a high share in Japan and overseas in the infrared measurement and fuel cell evaluation testing fields.

・ For 1H (Apr-Sep) results of FY2022/3 announced on 10/11, net sales increased by 4.3% to 9.711 billion yen compared to the same period the previous year and operating income increased by 3.9 times to 387 million yen. There was an increase in revenue from a driving force which was temperature measurement, monitoring realisation sensors and products essential in production sites for major clients, such as automobiles and electronic components, etc. In addition, cost rate improvement in instrumentation systems contributed in terms of profit.

・ Company revised its full year plan upwards. Net sales is to remain the same and expected to increase by 5.8% to 22.3 billion yen compared to the previous year, however, operating income is to increase by 14.4% to 1.3 billion yen (original plan 1.2 billion yen). Regarding temperature control solutions involving hydrogen generation, transportation and storage, etc. where orders received for them are being reinforced by the company, an increase is predicted in facility investment in operation sites of clients aiming for a conversion to IoT and research and development involving decarbonisation. Also, an increase in orders received involving food hygiene control in line with HACCP is expected.