Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.</li>
<li>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.</li>
<li>Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-February 2024.</li>
</ul>


JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-February 2024.


Quiddity JPX-Nikkei 400 Rebal 2024: End-Feb 2024 Estimates

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Equity Bottom-Up

<ul>
<li>Toyota Group autoparts maker <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a> today <a href="https://www.aisin.com/en/news/2023/005984.html" target="_blank" rel="noopener">announced</a> a new <a href="https://www.aisin.com/en/investors/settlement/uploads/Mid%20Long-term%20IR_presentation_en.pdf" target="_blank" rel="noopener">Medium-Term Plan</a>. They plan to shift their business away from "entrusted" business, towards BEV, Brakes, and "Safe/Comfort Entry"</li>
<li>They aim to grow revenues 25% from 2021 to 2025 and an additional 10-20% by 2030. </li>
<li>They also aim to improve investment and capital efficiency, and that's where we can look at the interesting possibilities.</li>
</ul>


Toyota Group autoparts maker Aisin Seiki (7259 JP) today announced a new Medium-Term Plan. They plan to shift their business away from "entrusted" business, towards BEV, Brakes, and "Safe/Comfort Entry"
They aim to grow revenues 25% from 2021 to 2025 and an additional 10-20% by 2030. 
They also aim to improve investment and capital efficiency, and that's where we can look at the interesting possibilities.


The New Aisin (7259) MTP - Selling Crossholdings, Eventually

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/834/original/2020-08-02_06-39-22.png?1596317982" class="editor-image img-responsive" data-smartkarma-image-id="149834"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>CORRECTION</strong> - The last day of July saw the TOPIX index fall by 2.8% to reach a new two-month low, 8.2% below the closing high of June 8th. A combination of a strong yen, peak COVID-19 cases, the continuing unedifying stream of results &amp; revisions, and month-end portfolio 'adjustments' proved toxic. Our Results Score lost a further 57 basis points, while bullish initial full-year forecasts from <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> and <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso (6902 JP)</a> helped the Forecast/Revision Score recover by 51 basis points. Nevertheless, the market's correlation with earnings and revisions momentum remains distorted by central bank liquidity. As noted in<a href="https://www.smartkarma.com/insights/japan-market-update-tired" target="_blank" data-smartkarma-citation="insights:41562" rel="noopener"> Tired</a>, we expect both our Scores to bottom nearer the 2009 lows, in which case the Bank of Japan's cumulative purchases could reach over 10% of market value.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/839/original/2020-08-02_07-35-10.png?1596321328" class="editor-image img-responsive" data-smartkarma-image-id="149839"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>DOWNFALL</strong> - After one-third of quarterly earnings announcements, at the current pace forward aggregate operating and net income could reach ¥35 trillion and ¥20 trillion, respectively by the end of the month, taking the market multiple to 30x, absent any further correction in share prices. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/840/original/2020-08-02_07-52-16.png?1596322358" class="editor-image img-responsive" data-smartkarma-image-id="149840"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>SECTOR SCORES</strong> - As in past cycles, the <strong>Information Technology</strong>,<strong> Internet</strong>, and<strong> Healthcare</strong> Sectors have proved to be the most resilient. On the downside, the breadth of the lowest-scoring Sectors is abnormal, with <strong>Consumer Services</strong> and <strong>Transport &amp; Logistics</strong> joining <strong>Metals</strong>, <strong>Autos</strong>, <strong>Eletcial Equipment</strong> and<strong> Machinery</strong>. The trailing-twelve-month (TTM) results in the table below confirm the chart above but suggests some caution over <strong>Internet</strong> Sector margins.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/842/original/2020-08-02_07-59-45.png?1596322803" class="editor-image img-responsive" data-smartkarma-image-id="149842"></figure><div class="content-caption">Source • Japan Analytics</div><hr><p style="text-align: center;"><strong>•BEST &amp; WORST 31st JULY •</strong></p><p style="text-align: left;"><strong>BEST &amp; WORST</strong> - Combining the day's results, revisions and forecasts, we select the 'best' and the 'worst' announcements according to our scoring. On the podium were <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> and <a href="https://www.smartkarma.com/entities/infocom-corp" target="_blank" data-smartkarma-citation="entities:8412:1" rel="noopener">Infocom (4348 JP)</a>. In the pits were <a href="https://www.smartkarma.com/entities/casio-computer-co-ltd" target="_blank" data-smartkarma-citation="entities:18338:1" rel="noopener">Casio Computer (6952 JP)</a> and three railway lines - <a href="https://www.smartkarma.com/entities/odakyu-electric-railway-co" target="_blank" data-smartkarma-citation="entities:5405:1" rel="noopener">Odakyu (9007 JP)</a>, <a href="https://www.smartkarma.com/entities/west-japan-railway-co" target="_blank" data-smartkarma-citation="entities:12077:1" rel="noopener">West Japan (9021 JP)</a> and <a href="https://www.smartkarma.com/entities/central-japan-railway-co" target="_blank" data-smartkarma-citation="entities:13520:1" rel="noopener">Central Japan (9022 JP)</a> for which we will show the Peer Group's record-low long-term Scores.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/913/original/2020-08-02_08-30-42.png?1596324654" class="editor-image img-responsive" data-smartkarma-image-id="149913"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/914/original/2020-08-02_08-31-29.png?1596324699" class="editor-image img-responsive" data-smartkarma-image-id="149914"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/915/original/2020-08-02_08-33-28.png?1596324818" class="editor-image img-responsive" data-smartkarma-image-id="149915"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/149/916/original/2020-08-02_08-40-22.png?1596325251" class="editor-image img-responsive" data-smartkarma-image-id="149916"></figure><div class="content-caption">Source • Japan Analytics</div><div>
<hr>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
<p style="text-align: left;"><strong>PERCENTAGES</strong> - <strong>66%</strong> of quarterly results,  <strong>71%</strong> of annual forecasts/revisions and <strong>75%</strong> of interim forecasts have negative Scores and <strong>26%</strong> of companies reporting lost money for the quarter.</p>
</div><hr><div><p style="text-align: center;"><strong>429 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 28% Positive / 6% Neutral / 66% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.1 points</li>
<li>
<strong>Average % Change in Revenue:</strong> -9.3% Quarter YoY / -2.0% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.0 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 26%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>153 Annual • 115 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 26% Positive / 3% Neutral / 71% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change</strong>: 24% Positive / 1% Neutral / 75% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -8.4 points</li>
</ul></div>

Source • Japan AnalyticsCORRECTION - The last day of July saw the TOPIX index fall by 2.8% to reach a new two-month low, 8.2% below the closing high of June 8th. A combination of a strong yen, peak COVID-19 cases, the continuing unedifying stream of results &amp; revisions, and month-end portfolio 'adjustments' proved toxic. Our Results Score lost a further 57 basis points, while bullish initial full-year forecasts from Takeda Pharmaceutical (4502 JP) and Denso (6902 JP) helped the Forecast/Revision Score recover by 51 basis points. Nevertheless, the market's correlation with earnings and revisions momentum remains distorted by central bank liquidity. As noted in Tired, we expect both our Scores to bottom nearer the 2009 lows, in which case the Bank of Japan's cumulative purchases could reach over 10% of market value.Source • Japan AnalyticsDOWNFALL - After one-third of quarterly earnings announcements, at the current pace forward aggregate operating and net income could reach ¥35 trillion and ¥20 trillion, respectively by the end of the month, taking the market multiple to 30x, absent any further correction in share prices. Source • Japan AnalyticsSECTOR SCORES - As in past cycles, the Information Technology, Internet, and Healthcare Sectors have proved to be the most resilient. On the downside, the breadth of the lowest-scoring Sectors is abnormal, with Consumer Services and Transport &amp; Logistics joining Metals, Autos, Eletcial Equipment and Machinery. The trailing-twelve-month (TTM) results in the table below confirm the chart above but suggests some caution over Internet Sector margins.   Source • Japan Analytics•BEST &amp; WORST 31st JULY •BEST &amp; WORST - Combining the day's results, revisions and forecasts, we select the 'best' and the 'worst' announcements according to our scoring. On the podium were Takeda Pharmaceutical (4502 JP) and Infocom (4348 JP). In the pits were Casio Computer (6952 JP) and three railway lines - Odakyu (9007 JP), West Japan (9021 JP) and Central Japan (9022 JP) for which we will show the Peer Group's record-low long-term Scores.Source • Japan Analytics

DAILY STATS
PERCENTAGES - 66% of quarterly results,  71% of annual forecasts/revisions and 75% of interim forecasts have negative Scores and 26% of companies reporting lost money for the quarter.
429 Quarterly Results

Results Score: 28% Positive / 6% Neutral / 66% Negative

Average Results Score Change: -3.1 points

Average % Change in Revenue: -9.3% Quarter YoY / -2.0% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.0 ppt

Percentage Making Quarterly Losses: 26%
 153 Annual • 115 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 26% Positive / 3% Neutral / 71% Negative

Interim Forecast/Revision Score Change: 24% Positive / 1% Neutral / 75% Negative

Average Forecast/Revision Score Change: -8.4 points


🇯🇵 JAPAN • Results & Revisions 31st July - Takeda, Yamato/SG, Seria, FP, Keyence, Dai-Ichi Sankyo

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

<p>Last Friday, most of the <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> group companies released their earnings results for 3QFY03/20. This Insight compares the 3Q performance of <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso Corp (6902 JP)</a>, <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-boshoku-corp" target="_blank" data-smartkarma-citation="entities:20567:1" rel="noopener">Toyota Boshoku (3116 JP)</a>, and <a href="https://www.smartkarma.com/entities/toyoda-gosei-co-ltd" target="_blank" data-smartkarma-citation="entities:20125:1" rel="noopener">Toyoda Gosei (7282 JP)</a>.</p>
<div class="content-caption"><strong><em>3Q: Toyota Industries Sees Largest Revenue Decline and Toyoda Gosei Sees Largest OP Decline</em></strong></div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/723/original/image_60587132951581012243548.png?1581012245" class="editor-image img-responsive" data-smartkarma-image-id="116723"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/720/original/image_493850921581012154694.png?1581012156" class="editor-image img-responsive" data-smartkarma-image-id="116720"></figure>
<div class="content-remarks">
<p><em>Company Disclosure, CapIQ, LSR</em><strong><em> </em></strong></p>
<p style="text-align: center;"><strong><em>3Q was Bad for All Toyota Suppliers (mainly due to Slowdown in China); Toyota Boshoku Seems to Have Managed Declines During FY03/20 Mainly Due to its Focus in Oceania</em></strong></p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/724/original/image_33379296761581012268468.png?1581012270" class="editor-image img-responsive" data-smartkarma-image-id="116724"></figure>
<div class="content-remarks">
<p><em>Source: CapIQ</em> </p>
</div>
<div style="text-align: center;" class="content-caption"><strong><em>Toyota Boshoku Maintains EBIT Margin Levels, While Aisin Has Taken a Significant Hit Through the Quarters</em></strong></div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/725/original/image_82222808771581012268469.png?1581012270" class="editor-image img-responsive" data-smartkarma-image-id="116725"></figure>
<div class="content-remarks">
<p><em>Source: CapIQ</em></p>
</div>
<div class="content-highlight">
<p>Our thoughts summarised:</p>
<ul>
<li>
<p>An Improvement in earnings through FY03/21E for most of these auto parts players depends on market conditions in China and the ongoing coronavirus spread. The Nikkei reported that the virus has resulted in staff shortages and production halts in most factories.  Given that automakers and auto parts makers usually stockpile, the effect of the disruption is likely to take at least two to three months to hit.</p>
</li>
<li>
<p>Our short-term concerns on Denso are whether quality costs incurred would continue next FY as well as the impact of the coronavirus outbreak.</p>
</li>
<li>
<p>Our key concern for Aisin Seiki remains its significant decline in profitability due to collapsing 6AT demand in China.  We feel that weaker earnings momentum is likely to continue, but like the company on the long side for its long-term growth prospects and the potential for short-term momentum bottoming.</p>
</li>
<li>
<p>Toyota Boshoku appears attractive given its focus on Oceania and lower exposure to China relative to Aisin and Denso. Despite disappointing revenue growth, the company seems to be on track to achieve its FY target.</p>
</li>
<li>
<p>Toyota Industries’ decline in revenue during 3Q despite a healthy 1H is quite concerning to us as we believed the company had an increasingly attractive outlook when compared to the other key suppliers like Denso and Aisin. Thus, although valuations look reasonable, we would want to see how the company performs during 4Q, to see if the 3Q decline in sales was temporary and if the stock could see some outperformance over the financial year.</p>
</li>
</ul>
<ul>
<li>
<p>Toyoda Gosei’s continued weakness in earnings (despite incremental improvement) alongside multiples similar to peers, makes us inclined to avoid the stock.</p>
</li>
</ul>
</div>
<div class="content-remarks">
<p style="text-align: center;"><strong><em>Denso and Aisin Could Outperform If Earnings Improve </em></strong></p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/726/original/image_53921521381581012401032.png?1581012403" class="editor-image img-responsive" data-smartkarma-image-id="116726"></figure>
<div class="content-remarks">
<p><em>Source: CapIQ</em></p>
</div>

Last Friday, most of the Toyota Motor (7203 JP) group companies released their earnings results for 3QFY03/20. This Insight compares the 3Q performance of Denso Corp (6902 JP), Aisin Seiki (7259 JP), Toyota Industries (6201 JP), Toyota Boshoku (3116 JP), and Toyoda Gosei (7282 JP).
3Q: Toyota Industries Sees Largest Revenue Decline and Toyoda Gosei Sees Largest OP Decline



Company Disclosure, CapIQ, LSR 
3Q was Bad for All Toyota Suppliers (mainly due to Slowdown in China); Toyota Boshoku Seems to Have Managed Declines During FY03/20 Mainly Due to its Focus in Oceania



Source: CapIQ 

Toyota Boshoku Maintains EBIT Margin Levels, While Aisin Has Taken a Significant Hit Through the Quarters


Source: CapIQ


Our thoughts summarised:


An Improvement in earnings through FY03/21E for most of these auto parts players depends on market conditions in China and the ongoing coronavirus spread. The Nikkei reported that the virus has resulted in staff shortages and production halts in most factories.  Given that automakers and auto parts makers usually stockpile, the effect of the disruption is likely to take at least two to three months to hit.


Our short-term concerns on Denso are whether quality costs incurred would continue next FY as well as the impact of the coronavirus outbreak.


Our key concern for Aisin Seiki remains its significant decline in profitability due to collapsing 6AT demand in China.  We feel that weaker earnings momentum is likely to continue, but like the company on the long side for its long-term growth prospects and the potential for short-term momentum bottoming.


Toyota Boshoku appears attractive given its focus on Oceania and lower exposure to China relative to Aisin and Denso. Despite disappointing revenue growth, the company seems to be on track to achieve its FY target.


Toyota Industries’ decline in revenue during 3Q despite a healthy 1H is quite concerning to us as we believed the company had an increasingly attractive outlook when compared to the other key suppliers like Denso and Aisin. Thus, although valuations look reasonable, we would want to see how the company performs during 4Q, to see if the 3Q decline in sales was temporary and if the stock could see some outperformance over the financial year.




Toyoda Gosei’s continued weakness in earnings (despite incremental improvement) alongside multiples similar to peers, makes us inclined to avoid the stock.




Denso and Aisin Could Outperform If Earnings Improve 



Source: CapIQ


A Weak 3Q For The Toyota Suppliers; Coronavirus Outbreak to Risk Earnings for FY03/21E As Well?

<ul>
<li>Last Thursday, most of the <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> group companies released their earnings results for 1HFY03/20. This Insight compares the 1H performance of <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso Corp (6902 JP), </a><a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP), </a><a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-boshoku-corp" target="_blank" data-smartkarma-citation="entities:20567:1" rel="noopener">Toyota Boshoku (3116 JP), and </a><a href="https://www.smartkarma.com/entities/toyoda-gosei-co-ltd" target="_blank" data-smartkarma-citation="entities:20125:1" rel="noopener">Toyoda Gosei (7282 JP).</a>
</li>
<li>The 1Q trend continues for 1H, where Denso and Aisin were the only companies to report significant OP declines alongside a decline in revenue both failing to meet consensus estimates. The other companies, however, managed to enjoy low single-digit growth in auto parts sales. Toyoda Gosei and Toyota Industries emerged the only Toyota suppliers to see an increase in OP, mainly due to their 1H FY03/19 OP comparison being relatively easy.</li>
<li>The slowdown in China is still the key reason for the decline in sales and profit for most of the auto and auto part related companies, as we also highlighted for Koito, Stanley, Nidec, Panasonic, and some of the key MLCC players. However, the decline in profits for Denso and Aisin also seems to stem from their increasing capex for CASE growth. It is a fact that the Toyota suppliers are pushing themselves towards investment for future growth given Toyota’s comprehensive approach to CASE technology development and Denso and Aisin could face the heaviest burden and the biggest long-term upside.</li>
<li>Except for Toyoda Gosei, the other Toyota Suppliers have all revised their guidance. We believe that Toyota Boshoku’s guidance looks realistic and also attractive out of the five and the company is on track to achieve guidance.</li>
<li>Our thoughts summarised: <ul>
<li><div class="content-highlight">Denso, as Toyota’s key supplier, is in the process of securing long-term opportunities by aligning its business model to market changes. Although weak earnings are likely for this FY the company should outperform over the medium term.</div></li>
<li><div class="content-highlight">Our key concern for Aisin Seiki remains its significant decline in profitability due to collapsing 6AT demand in China despite working towards long term growth prospects which are similar to that of Denso.  We feel that weaker earnings momentum is likely to continue, but like the company on the long side for its long-term growth prospects</div></li>
<li><div class="content-highlight">Toyota Boshoku appears attractive now given its focus on Oceania and lower exposure to China relative to Aisin and Denso. Despite disappointing revenue growth, the company seems to be on track to achieve its FY target. We felt the company was at a good entry point upon its 1Q earnings having healthy growth prospects. The stock has moved up almost 14% since then.  </div></li>
<li><div class="content-highlight">Toyota Industries has an increasingly attractive outlook when compared to the other key suppliers like Denso and Aisin. We feel the stock could see some outperformance over the financial year.</div></li>
<li><div class="content-highlight">Toyoda Gosei’s continued weakness earnings (despite incremental improvement) alongside multiples similar to peers, reduces our favour for the company among its peers.</div></li>
</ul>
</li>
</ul>


Last Thursday, most of the Toyota Motor (7203 JP) group companies released their earnings results for 1HFY03/20. This Insight compares the 1H performance of Denso Corp (6902 JP), Aisin Seiki (7259 JP), Toyota Industries (6201 JP), Toyota Boshoku (3116 JP), and Toyoda Gosei (7282 JP).

The 1Q trend continues for 1H, where Denso and Aisin were the only companies to report significant OP declines alongside a decline in revenue both failing to meet consensus estimates. The other companies, however, managed to enjoy low single-digit growth in auto parts sales. Toyoda Gosei and Toyota Industries emerged the only Toyota suppliers to see an increase in OP, mainly due to their 1H FY03/19 OP comparison being relatively easy.
The slowdown in China is still the key reason for the decline in sales and profit for most of the auto and auto part related companies, as we also highlighted for Koito, Stanley, Nidec, Panasonic, and some of the key MLCC players. However, the decline in profits for Denso and Aisin also seems to stem from their increasing capex for CASE growth. It is a fact that the Toyota suppliers are pushing themselves towards investment for future growth given Toyota’s comprehensive approach to CASE technology development and Denso and Aisin could face the heaviest burden and the biggest long-term upside.
Except for Toyoda Gosei, the other Toyota Suppliers have all revised their guidance. We believe that Toyota Boshoku’s guidance looks realistic and also attractive out of the five and the company is on track to achieve guidance.
Our thoughts summarised: 
Denso, as Toyota’s key supplier, is in the process of securing long-term opportunities by aligning its business model to market changes. Although weak earnings are likely for this FY the company should outperform over the medium term.
Our key concern for Aisin Seiki remains its significant decline in profitability due to collapsing 6AT demand in China despite working towards long term growth prospects which are similar to that of Denso.  We feel that weaker earnings momentum is likely to continue, but like the company on the long side for its long-term growth prospects
Toyota Boshoku appears attractive now given its focus on Oceania and lower exposure to China relative to Aisin and Denso. Despite disappointing revenue growth, the company seems to be on track to achieve its FY target. We felt the company was at a good entry point upon its 1Q earnings having healthy growth prospects. The stock has moved up almost 14% since then.  
Toyota Industries has an increasingly attractive outlook when compared to the other key suppliers like Denso and Aisin. We feel the stock could see some outperformance over the financial year.
Toyoda Gosei’s continued weakness earnings (despite incremental improvement) alongside multiples similar to peers, reduces our favour for the company among its peers.




1H Toyota Suppliers: A Mix of Disappointments and Improvements

Japan

Toyoda Gosei Co Ltd manufactures resin and rubber parts for automobiles. The Company's products include instrument panel modules, spoilers, weather-strip brake hoses, air bag systems, and steering wheels. The Company has offices in the US, Canada, China, Taiwan, and the UK. Toyoda Gosei also produces lightemitting diode (LEDs) for cellular phones and digital cameras.

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Toyoda Gosei (7282 JP)

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