In this briefing:
- U.S. Equity Strategy: Upgrading Manufacturing Sector
- Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q
1. U.S. Equity Strategy: Upgrading Manufacturing Sector
The S&P 500 continues to hover below critical resistance at its 200-day moving average while market participants remain in a wait-and-see mode for new developments on U.S.-China trade and details on the latest border security proposal. At the same time, breadth improvements have extended to our Manufacturing Sector – a welcomed sight given its cyclical nature. We are Upgrading Manufacturing to market weight from underweight. Our cap-weighted Manufacturing Sector has steadily improved in our RSR ranks due in large part to strength in Aerospace & Defense Groups. In today’s report we highlight attractive Groups within Manufacturing and Technology..
2. Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q
Fujimi’s sales and operating profit increased by only 1.2% and 2.3% year-on-year, respectively, in the three months to December. Sales of hard disc and industrial polishing materials declined. Sales of silicon wafer lapping and polishing materials, and CMP slurry, continued to rise, but at slower rates than in 2Q.
Full-year FY Mar-19 guidance was left unchanged, implying year-on-year declines in both sales and profits in 4Q. We believe that guidance is conservative, but we also expect the slowdown to continue.
At ¥2,368 (Wednesday, February 13, closing price), the shares are selling at 13.3x our EPS estimate for FY Mar-19 and 12.7x our estimate for FY Mar-20. These and other projected valuations are not at the bottom of their historical ranges, but should be low enough to support the share price as long as a U.S.-China trade deal – and, therefore, the implementation of deferred investment plans – seems likely.
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