Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Early this month, the two key MLCC players reported some new developments to their product portfolios. This insight looks at these announcements, which suggest <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> continuing to focus on 5G, while <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> builds its sensor business. The key points are:
<ul class="">
<li>Murata partners with US-based Resonant Inc to use the latter’s XBAR technology (a Radio Frequency-RF filter technology) to design RF filters that will help accelerate 5G deployment.
<ul class="">
<li>Following up on this, Murata also agreed to develop a Millimetre-Wave RF module for Facebook’s Terragraph (a gigabit wireless technology project).</li>
<li>XBAR technology and Facebook’s project are both expected to successfully enter the market by 2020, alongside 5G.</li>
<li>We believe that Murata’s connection with Resonant is geared to help the MLCC leader capitalise on possible 5G business opportunities like Facebook’s Terragraph.</li>
</ul>
</li>
<li>TDK, via its TDK-Micronas partnership, expands its sensor business by adding new features to its Hall Effect sensor product: masterHAL. The solution appears suitable for EVs and Automotive applications and is expected to start production in 2020.
<ul class="">
<li>With the new addition, TDK’s masterHAL becomes an all-in-one sensor device. </li>
</ul>
</li>
<li>Murata and TDK have increased by almost 29% and 4% respectively since our last report ( <a href="https://www.smartkarma.com/insights/murata-mlccs-for-the-long-term" target="_blank" data-smartkarma-citation="insights:32144" rel="noopener">Murata: MLCCs for the Long Term</a> and <a href="https://www.smartkarma.com/insights/sensor-business-expansion-and-progress-in-solid-state-batteries-using-mlcc-expertise" target="_blank" data-smartkarma-citation="insights:32776" rel="noopener">Sensor Business Expansion and Progress in Solid State Batteries Using MLCC Expertise</a>). Despite overall weak momentum due to trade tension, Murata has managed to rise as we expected, on the back of better expectations on the smartphone market. TDK (given its exposure in the sensor business) recently improved as chipmakers saw a surge in share price following Samsung’s optimistic Q3 guidance. </li>
</ul>

Early this month, the two key MLCC players reported some new developments to their product portfolios. This insight looks at these announcements, which suggest Murata Manufacturing (6981 JP) continuing to focus on 5G, while TDK Corp (6762 JP) builds its sensor business. The key points are:

Murata partners with US-based Resonant Inc to use the latter’s XBAR technology (a Radio Frequency-RF filter technology) to design RF filters that will help accelerate 5G deployment.

Following up on this, Murata also agreed to develop a Millimetre-Wave RF module for Facebook’s Terragraph (a gigabit wireless technology project).
XBAR technology and Facebook’s project are both expected to successfully enter the market by 2020, alongside 5G.
We believe that Murata’s connection with Resonant is geared to help the MLCC leader capitalise on possible 5G business opportunities like Facebook’s Terragraph.


TDK, via its TDK-Micronas partnership, expands its sensor business by adding new features to its Hall Effect sensor product: masterHAL. The solution appears suitable for EVs and Automotive applications and is expected to start production in 2020.

With the new addition, TDK’s masterHAL becomes an all-in-one sensor device. 


Murata and TDK have increased by almost 29% and 4% respectively since our last report ( Murata: MLCCs for the Long Term and Sensor Business Expansion and Progress in Solid State Batteries Using MLCC Expertise). Despite overall weak momentum due to trade tension, Murata has managed to rise as we expected, on the back of better expectations on the smartphone market. TDK (given its exposure in the sensor business) recently improved as chipmakers saw a surge in share price following Samsung’s optimistic Q3 guidance. 


5G Proliferation and RF Filters for Murata; Sensors for TDK

<a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> has taken a hit during the recent quarters following the slowdown in its key end-markets: Automotive and Industrial Equipment. This was mainly because of the company’s exposure to the Chinese market. However, as we have previously mentioned, the long-term growth prospects for the MLCC players are very attractive, and the focal point seems to be which of these players will be able to better capitalise on its opportunities.
Similar to <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a>, TDK also wants to secure business beyond MLCCs for smartphones and consumer electronics and has taken necessary steps to do so. While Murata seems to be betting solely on its MLCC technology for use in products, TDK appears to be using its MLCC expertise to advance new technology for areas like semiconductors and batteries. In our opinion, TDK’s efforts in solid-state battery development and the holistic expertise it has obtained in sensor technology via its strategic acquisitions should probably give the company a strong competitive edge to better exploit the potential growth prospects.  
Despite the current low performance in earnings (which is likely to continue during the FY), TDK has still managed to surpass market expectations. That said, in our opinion, the share price does not look vulnerable to significant declines as of now, whereas there is some upside if business conditions improve. Similar to Murata, TDK’s long-term prospects seem quite appealing. Thus, trading in line with peer <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" data-smartkarma-citation="entities:9924:1" rel="noopener">Taiyo Yuden (6976 JP)</a> and slightly below Murata (which deserves a premium), the stock seems to be reasonably valued. Although we would not aggressively accumulate the stock as some underperformance might still be likely, we feel that long term investors should consider accumulating on weakness.
This Insight discusses:
-The company’s 1Q FY03/20 earnings
- Expectations for FY03/20E
- The long-term view for TDK and its MTP

TDK Corp (6762 JP) has taken a hit during the recent quarters following the slowdown in its key end-markets: Automotive and Industrial Equipment. This was mainly because of the company’s exposure to the Chinese market. However, as we have previously mentioned, the long-term growth prospects for the MLCC players are very attractive, and the focal point seems to be which of these players will be able to better capitalise on its opportunities.
Similar to Murata Manufacturing (6981 JP), TDK also wants to secure business beyond MLCCs for smartphones and consumer electronics and has taken necessary steps to do so. While Murata seems to be betting solely on its MLCC technology for use in products, TDK appears to be using its MLCC expertise to advance new technology for areas like semiconductors and batteries. In our opinion, TDK’s efforts in solid-state battery development and the holistic expertise it has obtained in sensor technology via its strategic acquisitions should probably give the company a strong competitive edge to better exploit the potential growth prospects.  
Despite the current low performance in earnings (which is likely to continue during the FY), TDK has still managed to surpass market expectations. That said, in our opinion, the share price does not look vulnerable to significant declines as of now, whereas there is some upside if business conditions improve. Similar to Murata, TDK’s long-term prospects seem quite appealing. Thus, trading in line with peer Taiyo Yuden (6976 JP) and slightly below Murata (which deserves a premium), the stock seems to be reasonably valued. Although we would not aggressively accumulate the stock as some underperformance might still be likely, we feel that long term investors should consider accumulating on weakness.
This Insight discusses:
-The company’s 1Q FY03/20 earnings
- Expectations for FY03/20E
- The long-term view for TDK and its MTP

Sensor Business Expansion and Progress in Solid State Batteries Using MLCC Expertise

MLCC players are likely to be affected by any decline in the end markets to which they cater. As such, <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata Manufacturing (6981 JP)</a> has also taken a hit during the recent quarters following the slowdown in its key end-market- Communications. As <a href="https://www.smartkarma.com/profiles/farha-sabri" target="_blank" data-smartkarma-citation="accounts:1653" rel="noopener">Farha Sabri</a> mentioned in her previous notes ( <a href="https://www.smartkarma.com/insights/murata-diversification-into-new-markets-and-m-a-to-propel-long-term-growth" target="_blank" data-smartkarma-citation="insights:17849" rel="noopener">Murata: Diversification into New Markets and M&amp;A to Propel Long-Term Growth,  </a><a href="https://www.smartkarma.com/insights/metrocirc-production-issues-open-buying-opportunity" target="_blank" data-smartkarma-citation="insights:17209" rel="noopener">Metrocirc Production Issues Open Buying Opportunity</a><a href="https://www.smartkarma.com/insights/murata-diversification-into-new-markets-and-m-a-to-propel-long-term-growth" target="_blank" data-smartkarma-citation="insights:17849" rel="noopener"> , </a><a href="https://www.smartkarma.com/insights/murata-revises-fy03-19-guidance-following-solid-1h-performance" target="_blank" data-smartkarma-citation="insights:25656" rel="noopener">Murata Revises FY03/19 Guidance Following Solid 1H Performance</a>), the company is an MLCC leader, with products being developed to capture the new trends in its end market. The company trades at a premium to peers, due to its market leadership but recent unfavourable economic conditions (especially in the smartphone and automotive markets) and dependence on customers like Huawei for sales, have hurt the stock. That said, despite the current low performance in earnings (which is likely to continue during the FY), we feel that the share price has sort of reached its bottom and is unlikely to significantly decline further (similar levels during the first half of 2016). Trading at an FY1 PE of 14.5x Murata is below its historical median and in-line with its peers’ historical median, looking reasonably valued and quite attractive for its prospects in the market (focus on Auto Electronics for long term growth, attractive line-up of new products, M&amp;A activities, and strengths in technology and execution). Thus, while downside risks are minimum, the upside is quite promising for Murata, suggesting that its current investor should have faith in the stock for its long-term growth prospects and that new investors may consider now a good entry point.
This Insight takes a look at:
-The company’s 1Q FY03/20 earnings analysis
- Expectations for FY03/20E
- The long-term view for Murata and its medium-term plan
We go through the details below.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/620/original/Screenshot_1.jpg?1567331928" class="editor-image img-responsive" data-smartkarma-image-id="97620"></figure>
<div class="content-remarks">
Source: CapIQ
</div>

MLCC players are likely to be affected by any decline in the end markets to which they cater. As such, Murata Manufacturing (6981 JP) has also taken a hit during the recent quarters following the slowdown in its key end-market- Communications. As Farha Sabri mentioned in her previous notes ( Murata: Diversification into New Markets and M&amp;A to Propel Long-Term Growth,  Metrocirc Production Issues Open Buying Opportunity , Murata Revises FY03/19 Guidance Following Solid 1H Performance), the company is an MLCC leader, with products being developed to capture the new trends in its end market. The company trades at a premium to peers, due to its market leadership but recent unfavourable economic conditions (especially in the smartphone and automotive markets) and dependence on customers like Huawei for sales, have hurt the stock. That said, despite the current low performance in earnings (which is likely to continue during the FY), we feel that the share price has sort of reached its bottom and is unlikely to significantly decline further (similar levels during the first half of 2016). Trading at an FY1 PE of 14.5x Murata is below its historical median and in-line with its peers’ historical median, looking reasonably valued and quite attractive for its prospects in the market (focus on Auto Electronics for long term growth, attractive line-up of new products, M&amp;A activities, and strengths in technology and execution). Thus, while downside risks are minimum, the upside is quite promising for Murata, suggesting that its current investor should have faith in the stock for its long-term growth prospects and that new investors may consider now a good entry point.
This Insight takes a look at:
-The company’s 1Q FY03/20 earnings analysis
- Expectations for FY03/20E
- The long-term view for Murata and its medium-term plan
We go through the details below.


Source: CapIQ


Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

1Q results were better than we had expected, with operating profit rising 29.9% year-on-year on a 3.5% increase in sales in the three months to June. Profit growth was supported by an 8.9% increase in sales of capacitors led by demand from the auto industry and a 10.1% increase in sales of modules led by multilayer resin substrates for high-end smartphones. Sales were up in all regions except Greater China, where sales were down 4.6%.But new capacitor orders were down 33.9% year-on-year to 80% of sales and the capacitor order backlog declined by 21% from the end of March. 1Q sales and profit momentum are therefore unlikely to be maintained and profits are likely to be down in FY Mar-20 as a whole. Management's guidance - flat sales and a 17.5% decline in operating profit - remains unchanged.This should be mostly discounted. After peaking at ¥6,752 nearly a year ago, Murata dropped below ¥4,500 in January, May and June of this year. At ¥4,810 (August 2 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22.The 5-year P/E range is 12x - 26x. There is 10% potential downside to the 52-week low of ¥4,328, while 20x our EPS estimate for FY Mar-22 yields a long-term share price target of ¥7,500, or 56% potential upside. We continue to recommend buying on weakness for the long term.

1Q results were better than we had expected, with operating profit rising 29.9% year-on-year on a 3.5% increase in sales in the three months to June. Profit growth was supported by an 8.9% increase in sales of capacitors led by demand from the auto industry and a 10.1% increase in sales of modules led by multilayer resin substrates for high-end smartphones. Sales were up in all regions except Greater China, where sales were down 4.6%.But new capacitor orders were down 33.9% year-on-year to 80% of sales and the capacitor order backlog declined by 21% from the end of March. 1Q sales and profit momentum are therefore unlikely to be maintained and profits are likely to be down in FY Mar-20 as a whole. Management's guidance - flat sales and a 17.5% decline in operating profit - remains unchanged.This should be mostly discounted. After peaking at ¥6,752 nearly a year ago, Murata dropped below ¥4,500 in January, May and June of this year. At ¥4,810 (August 2 closing price), the shares are selling at 18x our EPS estimate for this fiscal year, 16x our estimate for next year and 13X our estimate for FY Mar-22.The 5-year P/E range is 12x - 26x. There is 10% potential downside to the 52-week low of ¥4,328, while 20x our EPS estimate for FY Mar-22 yields a long-term share price target of ¥7,500, or 56% potential upside. We continue to recommend buying on weakness for the long term.

Murata Mfg. (6981 JP): 1Q Profits Up, Orders Down

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/001/original/2019-07-13_16-16-31.png?1563002212" class="editor-image img-responsive" data-smartkarma-image-id="93001"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/005/original/2019-07-13_16-25-24.png?1563002742" class="editor-image img-responsive" data-smartkarma-image-id="93005"></figure>Source: Japan Analytics
</div>MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/020/original/2019-07-14_06-28-16.png?1563053334" class="editor-image img-responsive" data-smartkarma-image-id="93020"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/024/original/2019-07-14_06-45-29.png?1563054338" class="editor-image img-responsive" data-smartkarma-image-id="93024"></figure> Source: Japan Analytics</div>VALUE TRADED RATIO - The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. <div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/025/original/2019-07-14_06-47-40.png?1563054585" class="editor-image img-responsive" data-smartkarma-image-id="93025"></figure> Source: Japan Analytics</div>TORAKU INDEX - Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  <div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/026/original/2019-07-14_06-54-51.png?1563054906" class="editor-image img-responsive" data-smartkarma-image-id="93026"></figure> Source: Japan Analytics</div>VOLUME SCORE TIMELINE - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the 'go-to' defensive Sector while the Information Technology and Internet Sectors are the 'tema-du-jour' - to mix language metaphors. The 'untouchables' are Metals, Banks, UtilitiesTransportation,  and Multi-Industry.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/028/original/2019-07-14_07-31-40.png?1563057109" class="editor-image img-responsive" data-smartkarma-image-id="93028"></figure> Source: Japan Analytics</div>3-MONTH SECTOR CONTRIBUTION - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The Retail Sector has responded well to the results released so far led by drugstores <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a> and <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha (3391 JP), </a><a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a><a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">, and </a><a href="https://www.smartkarma.com/entities/lawson-inc" target="_blank" data-smartkarma-citation="entities:1040:1" rel="noopener">Lawson (2651 JP)</a>. Electrical Equipment has suffered from weakness in component stocks <a href="https://www.smartkarma.com/entities/alps-alpine-co-ltd" target="_blank" data-smartkarma-citation="entities:12001:1" rel="noopener">Alps Alpine (6770 JP)</a> (-38% over one year), <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata (6981 JP)</a> (see <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s <a href="https://www.smartkarma.com/insights/murata-mfg-6981-jp-buy-on-decline-for-the-long-term" target="_blank" data-smartkarma-citation="insights:30919" rel="noopener">(Buy on Decline for the Long Term</a>), and <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" data-smartkarma-citation="entities:9924:1" rel="noopener">Taiyo Yuden (6976 JP)</a>, while <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a>, <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, and <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu (6301 JP)</a> have weighed on the Machinery Sector.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/031/original/2019-07-14_07-44-47.png?1563057897" class="editor-image img-responsive" data-smartkarma-image-id="93031"></figure></figure> Source: Japan Analytics</div>SECTOR SCORE MATRIX - Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (<a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">OBIC (4684 JP)</a>, Other Commerical Products (<a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya Corp (7741 JP)</a>, and Commercial Services (<a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit 6098 JP).</a> We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (<a href="https://www.smartkarma.com/entities/nippon-steel-sumitomo-metal-corp" target="_blank" data-smartkarma-citation="entities:961:1" rel="noopener">Nippon Steel &amp; Sumitomo Metal (5401 JP)</a>) <div class="content-highlight">In the DETAIL section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a>, <a href="https://www.smartkarma.com/entities/daiseki-co-ltd" target="_blank" data-smartkarma-citation="entities:2330:1" rel="noopener">Daiseki (9793 JP), </a><a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP), </a><a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis (4927 JP)</a>, <a href="https://www.smartkarma.com/entities/sekisui-house-ltd" target="_blank" data-smartkarma-citation="entities:4508:1" rel="noopener">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>, and <a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">Obic (4684 JP)</a>.</div>


Source: Japan Analytics
MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
 Source: Japan AnalyticsVALUE TRADED RATIO - The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. 
 Source: Japan AnalyticsTORAKU INDEX - Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  
 Source: Japan AnalyticsVOLUME SCORE TIMELINE - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the 'go-to' defensive Sector while the Information Technology and Internet Sectors are the 'tema-du-jour' - to mix language metaphors. The 'untouchables' are Metals, Banks, UtilitiesTransportation,  and Multi-Industry.
 Source: Japan Analytics3-MONTH SECTOR CONTRIBUTION - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The Retail Sector has responded well to the results released so far led by drugstores Welcia (3141 JP) and Tsuruha (3391 JP), Fast Retailing (9983 JP), and Lawson (2651 JP). Electrical Equipment has suffered from weakness in component stocks Alps Alpine (6770 JP) (-38% over one year), Murata (6981 JP) (see Scott Foster's (Buy on Decline for the Long Term), and Taiyo Yuden (6976 JP), while SMC (6273 JP), Fanuc (6954 JP), and Komatsu (6301 JP) have weighed on the Machinery Sector.
 Source: Japan AnalyticsSECTOR SCORE MATRIX - Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (Nippon Steel &amp; Sumitomo Metal (5401 JP)) In the DETAIL section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on Welcia (3141 JP), Daiseki (9793 JP), Yaskawa Electric (6506 JP), Pola Orbis (4927 JP), Sekisui House (1928 JP), Keyence (6861 JP), Japan Post Insurance (7181 JP), and Obic (4684 JP).

🇯🇵 JAPAN • Market Update - Levitating on Thin Air

Japan

MURATA MANUFACTURING COMPANY, LTD. manufactures and sells ceramic applied electronic components.  The Company's products include filters, capacitors, thermistors, resistors, noise suppression components, coils, piezoelectric sound components, power supplies, sensors, hybrid integrated circuit (IC), and microwave components.

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Murata Manufacturing (6981 JP)

5G Proliferation and RF Filters for Murata; Sensors for TDK

Early this month, the two key MLCC players reported some new developments to their product portfolios. This insight looks at these announcements,...

Aqila Ali

Sensor Business Expansion and Progress in Solid State Batteries Using MLCC Expertise

TDK Corp (6762 JP) has taken a hit during the recent quarters following the slowdown in its key end-markets: Automotive and Industrial Equipment....

Aqila Ali

Murata: MLCCs for the Long Term

MLCC players are likely to be affected by any decline in the end markets to which they cater. As such, Murata Manufacturing (6981 JP) has also...

Aqila Ali

Murata Mfg. (6981 JP): 1Q Profits Up, Orders Down

1Q results were better than we had expected, with operating profit rising 29.9% year-on-year on a 3.5% increase in sales in the three months to...

Scott Foster

🇯🇵 JAPAN • Market Update - Levitating on Thin Air

MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has...

Campbell Gunn

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