Japan

In this briefing:

1. A Comparison of Recent Visitors Trend to Korea and Japan
2. Semiconductor Downturn Hurts Tokyo Electron; Stock Is Still Overvalued
3. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
4. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

1. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

2. Semiconductor Downturn Hurts Tokyo Electron; Stock Is Still Overvalued

• Tokyo Electron (8035 JP) is a semiconductor equipment manufacturer based in Japan. The company has been operating in the semiconductor space for several decades and generates nearly 90.0% of its revenue from the sale of semiconductor equipment.
• The company revenues are highly correlated with worldwide semiconductor revenues. The current softness in the semiconductor market has already caused a decline in company earnings for 3QFY03/19 and we expect the company earnings to deteriorate further as the market has just begun witnessing the demand decline.
• Even though IoT, cloud, big data, 5G and AI are expected to drive semiconductor revenues and make up for the declining demand from smartphones, tablets and PCs, we do not expect this to drive a significant change in semiconductor demand for another few years as the technologies are still not fully developed.
• Based on our valuation, the company share price is still overvalued despite the stock losing more than 20% to-date since the market started decelerating in mid-2018. As the current semiconductor cycle nears its worst, we feel the company share price will dip further with the earnings outlook deteriorating.

3. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)

If one were looking for evidence of the inherent dangers of risk concentration in the banking industry, one need only look to tiny secondary regional bank Tochigi Bank (8550 JP), which reported its earnings for the nine months to end-December 2018 on 31 January 2019.  Having made consolidated net profits of ¥1.57 billion in 1H FY3/2019, the bank plunged into the red in 3Q by ¥1.80 billion as a result of losses on disposing of fixed-rate US$-denominated securities.  Rather surprisingly, foreign investors own just over 21% of outstanding shares.  Tochigi Bank may not be the only small Japanese bank to run into trouble with its foreign securities portfolio in CY2019.  Caveat emptor!  (May the buyer beware)!

4. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

In this briefing:

1. Consumer Electronics Chains Set for Major Boost This Year – But It Will Be Temporary
2. Lasertec (6920 JP): Pricing in Long-Term Growth
3. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
4. Japanese Convenience Stores: Shorter Hours
5. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

1. Consumer Electronics Chains Set for Major Boost This Year – But It Will Be Temporary

Consumer electronics retailers have struggled since 2014, with 2018 proving a rare respite from decline as sales remained flat.

The consumption tax increase in October, along with some other factors, means the market is expected to grow this year, but it could be a while before that happens again.

2. Lasertec (6920 JP): Pricing in Long-Term Growth

Lasertec hit a new high in the semiconductor stock rally that followed Micron Technology’s March 20 earnings call. On Friday, March 22 (March 21 was a holiday in Japan), Lasertec was up 8.4% to ¥4,900. At this price, the shares are selling at 42x our EPS estimate for FY Jun-19, 36x our estimate for FY Jun-20 and 31x our estimate for FY Jun-21. On a 5-year view, earnings growth could bring the projected P/E multiple down to 21x, in our estimation.

Following strong 1H results, management left FY Jun-19 sales and profit guidance unchanged, but raised semiconductor-related orders guidance by 13% while cutting  orders guidance for FPD-related and other products by nearly 40%. Total new orders guidance was raised from ¥37 billion to ¥39 billion, compared with sales guidance of ¥28 billion, implying an increase in the order backlog from ¥39.9 billion to ¥50.9 billion.

With this in mind, we have raised our sales and profit estimates for FY Jun-20 and added new, higher estimates for FY Jun-21 and beyond. Rising demand for EUV mask blank and mask defect inspection equipment should drive an increase in total sales from ¥29 billion this fiscal year to ¥38 billion in FY Jun-21, and approximately ¥50 billion in FY Jun-23. Over the same period, operating profit should rise from ¥7.0 billion to ¥9.5 billion, and then to approximately ¥14 billion.

Risks for investors include the potential delay or reduction of orders and shipments (as just happened with FPD inspection equipment), high volatility in quarterly orders, sales and profits, and extended valuations.

3. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

4. Japanese Convenience Stores: Shorter Hours

Today almost all the 50,000 stores run by the big three convenience store chains operate 24-hours a day, but franchise owners everywhere are struggling to find enough staff.

Last month, the owners’ union of the biggest chain, Seven Eleven, issued a demand that each store be allowed to set its own hours.

This move has implications for a retail industry struggling with labour shortages and higher part-time wages.

5. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.

It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.

The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.

In this briefing:

1. Uniqlo Japan’s Most Valuable Retail Brand
2. After Zozo: Onward Sets Sights on Digital Renaissance
3. Japan Stock Weekly
4. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
5. Mercari (4385) A Great Business but over Priced

1. Uniqlo Japan’s Most Valuable Retail Brand

Interbrand’s annual valuation of top brands saw growing numbers of Japanese firms in retail and FMCG (Fast Moving Consumer Goods) enter its global brand ranking.

At home, online companies like Zozo and Mercari are also climbing the rankings.

2. After Zozo: Onward Sets Sights on Digital Renaissance

Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..

With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.

If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.

3. Japan Stock Weekly

Takamatsu Construction (1762)

It is possible that 3/19 results may fall a bit short of estimates but next year will see a decent bounce in earnings given the good orders currently being seen. The shares are very cheap on 2x 3/20 EV/ebitda so we do not see much down side risk here, but any such weakness should be views as a great buying opportunity. This is a well-run and conservative business in an otherwise often poorly run sector. Eventually there must also be the possibility of a higher payout ratio. In our view, however, this is later rather than soon but must come. A decent long term buy in the construction space.

Fujitec (6406)

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in long term investment. EV in our view is Y57bn vs the current market cap of Y110bn. With ebitda next year coming in at Y15bn, EV/ebitda is under 4x. The shares yield 3.4% and trade at book. They have slightly underperformed the market over the last 12 months. For now, we view this as a defensive buy. There remain many issues longer term as to its place in the global elevator world. A potential positive, however, is that in May the company will announce a new mid-term plan and in it, they will outline their view as regards to shareholder returns for the next three years. They are aware that they are very over capitalised, so greater returns are a real possibility.

Prored (7034) 

Good, first quarter results and in our view, an upward to come. 

4. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?

The news released on the 11^th of March, about Tesla Motors (TSLA US) choosing CATL (A) (300750 CH) as battery supplier has focused much attention on the two companies and other battery suppliers. CATL which grabbed Panasonic Corp (6752 JP)’s leading position in the industry last year now seems to be grabbing the latter’s key customer as well. The news circulating states that, CATL could power Tesla’s Model 3 cars which Tesla is planning to start assembling at Tesla’s new factory near Shanghai. Following the release of this supposed deal, the stocks of the two companies moved positively, with CATL surging by almost 6.7% while Tesla rose by almost 2.4% during the day.  However, both parties have not commented on this news yet or made any formal announcement regarding such a potential deal. In our Insight, Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, we mentioned that Tesla was looking to locally source its batteries in China and that CATL could potentially be one such supplier. However, in January this year, it was reported that Tesla had signed a preliminary agreement with China’s Tianjin Lishen to supply batteries for its new Shanghai car factory, making the current news look less believable. Although it seems like the ongoing news about a Tesla-CATL pair up lacks integrity, with CATL sort of denying its intend to work with Tesla (according to an updated news release), the news does look interesting and its effect upon the related companies seems noteworthy.

5. Mercari (4385) A Great Business but over Priced

Established in 2013, this has been a huge success story in Japan. The company operates the largest C to C mobile app that allows customers to trade in second hand goods with each other. Growth has been phenomenal. In the year to 6/15, Mercari had revenue of Y4.2bn, three years later (6/18) this had risen to Y35.7bn. This growth carries on, first half revenue this year to December 2018 rose 45% to Y23.7bn. It has begun an operation in the US, currently loss making, and has just introduced “Merpay”, a prepaid card incorporated into one’s mobile phone along the lines of Suica that allows users to purchase goods and pay bills. Funds can be deposited following a sale on Mercari’s site or transferred from a bank. Revenue will probably continue to grow at a rapid pace and whilst there are some that will jump on board, it is impossible to come up with any sensible valuation that can really justify a purchase here. There is no p.e.r. and the company will be loss making for the next couple of years. Its market cap of Y440bn means that it is trading on perhaps 6x 6/20 sales. On top of this, there are risks with regards to the viability of its US operation. Management appear to be aware to this and have set certain time limits for a turn around. There are many BUYS out on this name, thematically it has much going for it, but the valuation leaves us cold.

In this briefing:

1. Semiconductor Downturn Hurts Tokyo Electron; Stock Is Still Overvalued
2. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
3. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

1. Semiconductor Downturn Hurts Tokyo Electron; Stock Is Still Overvalued

• Tokyo Electron (8035 JP) is a semiconductor equipment manufacturer based in Japan. The company has been operating in the semiconductor space for several decades and generates nearly 90.0% of its revenue from the sale of semiconductor equipment.
• The company revenues are highly correlated with worldwide semiconductor revenues. The current softness in the semiconductor market has already caused a decline in company earnings for 3QFY03/19 and we expect the company earnings to deteriorate further as the market has just begun witnessing the demand decline.
• Even though IoT, cloud, big data, 5G and AI are expected to drive semiconductor revenues and make up for the declining demand from smartphones, tablets and PCs, we do not expect this to drive a significant change in semiconductor demand for another few years as the technologies are still not fully developed.
• Based on our valuation, the company share price is still overvalued despite the stock losing more than 20% to-date since the market started decelerating in mid-2018. As the current semiconductor cycle nears its worst, we feel the company share price will dip further with the earnings outlook deteriorating.

2. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)

If one were looking for evidence of the inherent dangers of risk concentration in the banking industry, one need only look to tiny secondary regional bank Tochigi Bank (8550 JP), which reported its earnings for the nine months to end-December 2018 on 31 January 2019.  Having made consolidated net profits of ¥1.57 billion in 1H FY3/2019, the bank plunged into the red in 3Q by ¥1.80 billion as a result of losses on disposing of fixed-rate US$-denominated securities.  Rather surprisingly, foreign investors own just over 21% of outstanding shares.  Tochigi Bank may not be the only small Japanese bank to run into trouble with its foreign securities portfolio in CY2019.  Caveat emptor!  (May the buyer beware)!

3. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

In this briefing:

1. ECB, BoJ Suck Wind – EA Threatened with Japanisation

1. ECB, BoJ Suck Wind – EA Threatened with Japanisation

By Charles Dumas, Chief Economist

• Monetary stimulus fails export-dependent savings glut countries
• Japan now accepts huge budget deficits and negative interest rates
• EA needs broad structural reform to avoid Japan’s deep malaise

In this briefing:

1. After Zozo: Onward Sets Sights on Digital Renaissance
2. Japan Stock Weekly
3. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
4. Mercari (4385) A Great Business but over Priced
5. TRADE IDEA – Amorepacific Stub (002790 KS): Buyback Helped, Close the Trade

1. After Zozo: Onward Sets Sights on Digital Renaissance

Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..

With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.

If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.

2. Japan Stock Weekly

Takamatsu Construction (1762)

It is possible that 3/19 results may fall a bit short of estimates but next year will see a decent bounce in earnings given the good orders currently being seen. The shares are very cheap on 2x 3/20 EV/ebitda so we do not see much down side risk here, but any such weakness should be views as a great buying opportunity. This is a well-run and conservative business in an otherwise often poorly run sector. Eventually there must also be the possibility of a higher payout ratio. In our view, however, this is later rather than soon but must come. A decent long term buy in the construction space.

Fujitec (6406)

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in long term investment. EV in our view is Y57bn vs the current market cap of Y110bn. With ebitda next year coming in at Y15bn, EV/ebitda is under 4x. The shares yield 3.4% and trade at book. They have slightly underperformed the market over the last 12 months. For now, we view this as a defensive buy. There remain many issues longer term as to its place in the global elevator world. A potential positive, however, is that in May the company will announce a new mid-term plan and in it, they will outline their view as regards to shareholder returns for the next three years. They are aware that they are very over capitalised, so greater returns are a real possibility.

Prored (7034) 

Good, first quarter results and in our view, an upward to come. 

3. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?

The news released on the 11^th of March, about Tesla Motors (TSLA US) choosing CATL (A) (300750 CH) as battery supplier has focused much attention on the two companies and other battery suppliers. CATL which grabbed Panasonic Corp (6752 JP)’s leading position in the industry last year now seems to be grabbing the latter’s key customer as well. The news circulating states that, CATL could power Tesla’s Model 3 cars which Tesla is planning to start assembling at Tesla’s new factory near Shanghai. Following the release of this supposed deal, the stocks of the two companies moved positively, with CATL surging by almost 6.7% while Tesla rose by almost 2.4% during the day.  However, both parties have not commented on this news yet or made any formal announcement regarding such a potential deal. In our Insight, Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, we mentioned that Tesla was looking to locally source its batteries in China and that CATL could potentially be one such supplier. However, in January this year, it was reported that Tesla had signed a preliminary agreement with China’s Tianjin Lishen to supply batteries for its new Shanghai car factory, making the current news look less believable. Although it seems like the ongoing news about a Tesla-CATL pair up lacks integrity, with CATL sort of denying its intend to work with Tesla (according to an updated news release), the news does look interesting and its effect upon the related companies seems noteworthy.

4. Mercari (4385) A Great Business but over Priced

Established in 2013, this has been a huge success story in Japan. The company operates the largest C to C mobile app that allows customers to trade in second hand goods with each other. Growth has been phenomenal. In the year to 6/15, Mercari had revenue of Y4.2bn, three years later (6/18) this had risen to Y35.7bn. This growth carries on, first half revenue this year to December 2018 rose 45% to Y23.7bn. It has begun an operation in the US, currently loss making, and has just introduced “Merpay”, a prepaid card incorporated into one’s mobile phone along the lines of Suica that allows users to purchase goods and pay bills. Funds can be deposited following a sale on Mercari’s site or transferred from a bank. Revenue will probably continue to grow at a rapid pace and whilst there are some that will jump on board, it is impossible to come up with any sensible valuation that can really justify a purchase here. There is no p.e.r. and the company will be loss making for the next couple of years. Its market cap of Y440bn means that it is trading on perhaps 6x 6/20 sales. On top of this, there are risks with regards to the viability of its US operation. Management appear to be aware to this and have set certain time limits for a turn around. There are many BUYS out on this name, thematically it has much going for it, but the valuation leaves us cold.

5. TRADE IDEA – Amorepacific Stub (002790 KS): Buyback Helped, Close the Trade

In my original insight on January 15, 2019 TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity, I proposed setting up a stub trade to profit from the mis-priced stub business of Amorepacific that was trading at its widest discount to NAV in at least three years. During the 65 calendar days that followed, Amorepacific Group (002790 KS) has gained 7.3% and the outperformed Amorepacific Corp (090430 KS) by 2.84%. The trade has reverted to average levels in a period of about two months and in this insight I will outline why I think the trade is over.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-trade analysis on the Amorepacific stub

In this briefing:

1. Lasertec (6920 JP): Pricing in Long-Term Growth
2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
3. Japanese Convenience Stores: Shorter Hours
4. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo
5. Uniqlo Japan’s Most Valuable Retail Brand

1. Lasertec (6920 JP): Pricing in Long-Term Growth

Lasertec hit a new high in the semiconductor stock rally that followed Micron Technology’s March 20 earnings call. On Friday, March 22 (March 21 was a holiday in Japan), Lasertec was up 8.4% to ¥4,900. At this price, the shares are selling at 42x our EPS estimate for FY Jun-19, 36x our estimate for FY Jun-20 and 31x our estimate for FY Jun-21. On a 5-year view, earnings growth could bring the projected P/E multiple down to 21x, in our estimation.

Following strong 1H results, management left FY Jun-19 sales and profit guidance unchanged, but raised semiconductor-related orders guidance by 13% while cutting  orders guidance for FPD-related and other products by nearly 40%. Total new orders guidance was raised from ¥37 billion to ¥39 billion, compared with sales guidance of ¥28 billion, implying an increase in the order backlog from ¥39.9 billion to ¥50.9 billion.

With this in mind, we have raised our sales and profit estimates for FY Jun-20 and added new, higher estimates for FY Jun-21 and beyond. Rising demand for EUV mask blank and mask defect inspection equipment should drive an increase in total sales from ¥29 billion this fiscal year to ¥38 billion in FY Jun-21, and approximately ¥50 billion in FY Jun-23. Over the same period, operating profit should rise from ¥7.0 billion to ¥9.5 billion, and then to approximately ¥14 billion.

Risks for investors include the potential delay or reduction of orders and shipments (as just happened with FPD inspection equipment), high volatility in quarterly orders, sales and profits, and extended valuations.

2. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

3. Japanese Convenience Stores: Shorter Hours

Today almost all the 50,000 stores run by the big three convenience store chains operate 24-hours a day, but franchise owners everywhere are struggling to find enough staff.

Last month, the owners’ union of the biggest chain, Seven Eleven, issued a demand that each store be allowed to set its own hours.

This move has implications for a retail industry struggling with labour shortages and higher part-time wages.

4. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.

It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.

The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.

5. Uniqlo Japan’s Most Valuable Retail Brand

Interbrand’s annual valuation of top brands saw growing numbers of Japanese firms in retail and FMCG (Fast Moving Consumer Goods) enter its global brand ranking.

At home, online companies like Zozo and Mercari are also climbing the rankings.

In this briefing:

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

In this briefing:

1. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
2. Japanese Convenience Stores: Shorter Hours
3. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo
4. Uniqlo Japan’s Most Valuable Retail Brand
5. After Zozo: Onward Sets Sights on Digital Renaissance

1. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

2. Japanese Convenience Stores: Shorter Hours

Today almost all the 50,000 stores run by the big three convenience store chains operate 24-hours a day, but franchise owners everywhere are struggling to find enough staff.

Last month, the owners’ union of the biggest chain, Seven Eleven, issued a demand that each store be allowed to set its own hours.

This move has implications for a retail industry struggling with labour shortages and higher part-time wages.

3. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.

It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.

The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.

4. Uniqlo Japan’s Most Valuable Retail Brand

Interbrand’s annual valuation of top brands saw growing numbers of Japanese firms in retail and FMCG (Fast Moving Consumer Goods) enter its global brand ranking.

At home, online companies like Zozo and Mercari are also climbing the rankings.

5. After Zozo: Onward Sets Sights on Digital Renaissance

Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..

With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.

If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.

In this briefing:

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?
2. Komatsu, HCM and CAT Tactical Recovery Targets and Macro Pivot Support

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

2. Komatsu, HCM and CAT Tactical Recovery Targets and Macro Pivot Support

We thought a technical view on these counters would help clarify where tactical rally targets come into play as well as more important macro support levels where a basing process is expected to begin.

Key resistance points can be used as short zones with key pivots stops and limit levels that reign in risk.

All three stocks display varying degrees of a macro descending corrective wedge formations that have yet to fully mature. 

CAT stands out as the more buoyant of the group and faces its own set of upside pivot resistance points with solid macro support to work with on weakness.

We wanted to fold in a technical view with Mio Kato, CFA and his insight Komatsu, HCM, CAT: The Stock Punishment Does Not Match the Outlook Deterioration Crime . This group may be ahead of the earnings curve and why we may see more gas in a corrective bounce cycle (CB easy policy and the hunt for value may be part of the rally) before more pressure points are hit to re test macro support targets.