30 November 2015 Asia Pacific/Japan Equity Research Product Marketing Japan Monthly Highlights Product Manager MONTHLY Daisuke Takato 813 4550 9671
[email protected] November 2015 ■ August may have been the bottom for machine tool orders, analyst Shinji Kuroda says, as he switches to a near-term bullish view on the subsector for the next six months, while maintaining a longer-term bearish view. He expects YoY order declines to contract in 2016 and for orders to turn positive around April 2016, with the help of substantial new subsidies in Japan, orders for robodrills for the iPhone 7, and business recovery in Europe and the US. He raised his rating on Okuma (6103) to OUTPERFORM and highlights SMC (6273), THK (6481) and Fanuc (6954) as short-term beneficiaries. ■ On the other hand, Kuroda remains bearish on the construction machinery sector. The CRB Index, a leading indicator for emerging economies and for construction machinery and other infrastructure stocks, has fallen to a 13- year low. Kuroda sees increased downside risk for Komatsu (6301) and Hitachi Construction Machinery (6305). ■ News that Apple's Asian suppliers have begun revising down their iPhone production plans (see our Asian technology sector report) could be a good buying opportunity for Japanese tech companies into next year as adjustments in the Jan–Mar production schedule could also exhaust the bad news for the iPhone 7. Our Japan tech team had been forecasting production of 82mn iPhones in Oct–Dec and 55–60mn in Jan–Mar, but the Asia team now expects around 10% less. ■ Elsewhere in tech, our view remains that integrated fan-out wafer level packages (InFO-WLP) are likely to be adopted in new iPhone products in 2016.