31 August 2015 Asia Pacific/Japan Equity Research Product Marketing Japan Monthly Highlights Product Manager MONTHLY Daisuke Takato 813 4550 9671 [email protected] August 2015 ■ August saw a rout in global equities triggered by concerns over China's economic stability. This came on the back of a prolonged commodities slump, an emerging markets slowdown, and increased currency fluctuations. It is precisely in times of volatility that investment opportunities are created, we highlight stocks that look to have been oversold despite solid fundamentals and that we think investors should hold. Examples include Lion (4912), Shinsei (8303), Nomura Real Estate (3231), Japan Airlines (9201), Fuji Heavy (7270), DaikyoNishikawa (4246), and Murata (6981). ■ The construction sector is poised for long-term growth, owing to the repatriation of Japanese manufacturing capacity amid a weaker yen, the rising need to renovate old buildings, and a slate of large infrastructure projects including the 2020 Summer Olympics. Construction order prices could also rise given the dearth of skilled workers. These factors should lift share prices for construction, cement and steel, writes analyst Masahiro Mochizuki in a Connection Series report with materials analyst Jun Yamaguchi and Shinya Yamada. We upgraded our stances on the construction and cement sectors from Market Weight to OVERWEIGHT and maintained our OVERWEIGHT on the steel sector. We added Shimizu (1803) and Taiheiyo Cement (5233) to the Japan Focus List. ■ Hideyuki Maekawa says semiconductor capacity utilization is at the lowest levels in the post-Lehman era, as additional production cutbacks have been made in August across all applications and process nodes. Moreover, he sees no signs of new large SPE orders over the next four quarters and recommends investors wait to see a clear rebound in foundry utilization rates before attempting to bottom-fish. Maekawa cut target prices on SPE names: Tokyo Electron (8035), Disco (6146), Hitachi Kokusai (6756), SCREEN (7735), Advantest (6857). In a separate report, Maekawa and Akinori Kanemoto point out that global inventory at technology companies remains at elevated levels. ■ The weakness in tech has been felt across the supply chain with silicon wafers continuing their weakness. Masami Sawato cut his target prices for both SUMCO (3436) and Shin-Etsu Chemical (4063), as shipments are still declining, inventories at a historical high, and price hikes being pushed back to early/mid-2016. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 31 August 2015 ■ Amid the rising macro concerns, our autos, retail and trading companies analysts each did a scenario analysis of how their respective sectors are impacted by a China slowdown, exchange rate fluctuations, and/or a commodities slump. ■ Fumiyoshi Sakai upgraded M3 (2413) to OUTPERFORM as he assumed coverage of the medical information portal operator. He sees the MR-kun Family (marketing support for drugmakers) and M3 Career (job-change support for medical professionals) driving growth as adds customers and expands overseas. One risk is stricter regulations, such as revision of the Pharmaceutical Affairs Law, that impact drugmakers' provision of information and services to physicians and medical institutions via M3. Sakai also upgraded medical equipment maker Sysmex (6869) to OUTPERFORM. ■ With all the focus on inbound tourism, analyst Taketo Yamate started a databook series to stay on top of the trends. The latest figure shows that in Apr–Jun 2015, the number of Chinese visitors to Japan grew 2.4x YoY to 1.24mn. Per-capita expenditure on shopping averaged ¥173,000 (+44% YoY, of which we estimate yen devaluation contributed +18%). ■ The Apr–Jun quarter earnings came to a close, with companies beating consensus by 17% at the net profit level. Japan Monthly Highlights 2 31 August 2015 Japan Focus List We added Softbank (9984), Shimizu (1803) and Taiheiyo Cement (5233) to the Japan Focus List, and removed NTT (9432) and NGK Insulators (5333). Performance held up well with companies such as Toray (3402) and Ono Pharmaceuticals (4528) leading the way along with the newly added stocks. Figure 1: Japan Focus List and performance as of 28 August; relative performance is vs. TOPIX #Focus_List_Japan RELATIVE PERFORMANCE (%) Perf since Target Company Analyst 1w 1m 3m 6m 12m Ticker inception Price 4922.T KOSE Masashi Mori 41.3 13,000 8.7 5.5 46.5 95.8 141.3 6762.T TDK Akinori Kanemoto 37.9 10,300 2.2 (5.0) (16.3) (10.3) 27.0 9201.T Japan Airlines Timothy Ross 31.6 6,700 1.5 (0.7) 12.4 13.7 27.1 4528.T Ono Pharmaceutical Fumiyoshi Sakai 30.2 18,000 3.2 10.7 22.9 17.0 46.4 3382.T Seven & i Holdings Taketo Yamate 26.5 6,000 (2.2) 0.5 13.3 19.6 7.5 8750.T Dai-ichi Life Insurance Takehito Yamanaka 25.9 2,990 5.2 (5.1) 8.0 23.8 28.0 8801.T Mitsui Fudosan Masahiro Mochizuki 9.3 4,000 (1.2) 3.9 2.8 3.1 (17.7) 3402.T Toray Industries Masami Sawato 5.6 1,470 1.3 16.9 10.4 8.8 32.1 1803.T Shimizu Corporation Masahiro Mochizuki 4.1 1,500 1.9 15.1 29.5 39.8 15.9 9984.T SoftBank Group Corp. Hitoshi Hayakawa 4.0 8,600 (4.8) 10.2 3.8 (1.6) (26.3) 5233.T Taiheiyo Cement Jun Yamaguchi 3.6 550 0.7 7.8 18.7 2.1 (26.1) 8306.T Mitsubishi UFJ Financial Group Takashi Miura (1.8) 1,190 5.1 (2.3) (2.8) 7.9 15.8 6201.T Toyota Industries Masahiro Akita (5.0) 8,200 5.3 (3.7) (9.1) (9.4) 2.1 6367.T Daikin Industries Shinji Kuroda (7.4) 11,000 (2.5) (1.0) (14.6) (5.8) (18.0) 7203.T Toyota Motor Masahiro Akita (12.5) 10,500 0.4 (4.4) (6.3) (11.6) 2.6 5406.T Kobe Steel Shinya Yamada (28.8) 290 2.4 (5.9) (21.1) (29.7) (21.9) 1605.T INPEX Corporation David Hewitt (62.1) 1,670 2.3 (2.3) (11.3) (15.9) (38.8) Source: Credit Suisse estimates Previous Monthly Highlights reports Monthly Highlights Monthly Highlights Monthly Highlights Monthly Highlights (2015) (2014) (2013) (2012) Dec Jun Dec Jun Dec Jun Dec Jun Nov May Nov May Nov May Nov May Oct Apr Oct Apr Oct Apr Oct Apr Sep Mar Sep Mar Sep Mar Sep Mar Aug Feb Aug Feb Aug Feb Aug Feb Jul Jan Jul Jan Jul Jan Jul Jan Japan Monthly Highlights 3 31 August 2015 Figure 2: Target price and rating changes since previous month-end TP N ew O ld Rating Ticker C om pany D ate Analyst N ew TP O ld TP C hange Rating Rating C hange 6268 Nabtesco Corporation 08/04 Shinji Kuroda 2,800 3,100 -10% N N - 6806 Hirose Electric 08/04 Akinori Kanemoto 14,300 15,300 -7% N N - 3092 Start Today 08/06 Taketo Yamate 4,800 3,700 30% O/P O/P - 6301 Komatsu 08/07 Shinji Kuroda 2,400 2,500 -4% N N - 1928 Sekisui House 08/10 Masahiro Mochizuki 2,500 2,300 9% O/P O/P - 4540 Tsumura & Co 08/10 Fumiyoshi Sakai 3,000 2,900 3% N N - 7011 Mitsubishi Heavy Industries 08/11 Shinji Kuroda 800 900 -11% O/P O/P - 3231 Nomura Real Estate Holdings 08/12 Masahiro Mochizuki 3,500 3,100 13% O/P O/P - 7013 IHI 08/12 Shinji Kuroda 600 700 -14% O/P O/P - 6141 DMG Mori Seiki 08/13 Shinji Kuroda 2,200 2,600 -15% N N - 6471 NSK 08/14 Shinji Kuroda 2,000 2,400 -17% O/P O/P - 8303 Shinsei Bank 08/14 Takashi Miura 330 320 3% O/P O/P - 6146 DISCO 08/17 Hideyuki Maekawa 8,900 9,350 -5% N N - 6756 Hitachi Kokusai Electric 08/17 Hideyuki Maekawa 1,550 1,640 -5% N N - 6857 Advantest 08/17 Hideyuki Maekawa 855 1,140 -25% U/P U/P - 8035 Tokyo Electron 08/17 Hideyuki Maekawa 6,170 7,300 -15% N N - 8572 ACOM 08/17 Takehito Yamanaka 422 325 30% U/P U/P - 2413 M3, Inc. 08/18 Fumiyoshi Sakai 3,600 1,600 125% O/P N up 3281 GLP J-REIT 08/18 Masahiro Mochizuki 139,638 144,625 -3% O/P O/P - 4543 Terumo 08/18 Fumiyoshi Sakai 3,400 3,100 10% N N - 6273 SMC 08/18 Shinji Kuroda 39,000 44,000 -11% O/P O/P - 6841 Yokogawa Electric Corporation 08/18 Shinji Kuroda 1,700 1,500 13% N N - 7735 SCREEN Holdings 08/18 Hideyuki Maekawa 635 740 -14% N N - 5975 Topre 08/19 Koji Takahashi 2,900 2,700 7% O/P O/P - 6869 Sysmex 08/19 Fumiyoshi Sakai 9,500 6,600 44% O/P N up 7211 Mitsubishi Motors 08/19 Masahiro Akita 1,400 1,350 4% O/P O/P - 7270 Fuji Heavy Industries 08/19 Masahiro Akita 5,950 5,750 3% O/P O/P - 8202 Laox 08/19 Taketo Yamate 700 560 25% O/P O/P - 1801 Taisei Corporation 08/20 Masahiro Mochizuki 900 740 22% N N - 1802 Obayashi Corporation 08/20 Masahiro Mochizuki 1,280 1,000 28% O/P O/P - 1803 Shimizu Corporation 08/20 Masahiro Mochizuki 1,500 1,200 25% O/P O/P - 1812 Kajima Corporation 08/20 Masahiro Mochizuki 760 490 55% U/P U/P - 4246 DaikyoNishikawa 08/20 Koji Takahashi 6,900 4,600 50% O/P O/P - 5713 Sumitomo Metal Mining 08/20 Shinya Yamada 1,800 2,100 -14% N N - 5714 Dowa Holdings 08/20 Shinya Yamada 1,100 1,050 5% N N - 7915 Nissha Printing 08/24 Akinori Kanemoto 2,200 2,100 5% U/P U/P - 9201 Japan Airlines 08/24 Timothy Ross 6,700 6,100 10% O/P O/P - 1808 HASEKO Corporation 08/25 Masahiro Mochizuki 1,800 1,700 6% O/P O/P - 5232 Sumitomo Osaka Cement 08/25 Jun Yamaguchi 610 510 20% O/P O/P - 5233 Taiheiyo Cement 08/25 Jun Yamaguchi 550 460 20% O/P O/P - 3436 SUMCO 08/26 Masami Sawato 1,000 1,370 -27% U/P U/P - 4063 Shin-Etsu Chemical 08/26 Masami Sawato 7,100 8,400 -15% N N - 5486 Hitachi Metals 08/26 Shinya Yamada 1,840 1,950 -6% N N - 5801 Furukawa Electric 08/26 Shinya Yamada 180 200 -10% U/P U/P - 4578 Otsuka Holdings 08/27 Fumiyoshi Sakai 4,200 4,200 0% N U/P up 4581 Taisho Pharmaceutical Holdings 08/27 Fumiyoshi Sakai 7,600 7,800 -3% N N - 6767 Mitsumi Electric 08/27 Akinori Kanemoto 800 870 -8% N N - 6770 Alps Electric 08/27 Akinori Kanemoto 5,200 4,600 13% O/P O/P - Source: Credit Suisse estimates Japan Monthly Highlights 4 31 August 2015 Companies Mentioned (Price as of 31-Aug-2015) Advantest (6857.T, ¥1,021) DISCO (6146.T, ¥9,450) DaikyoNishikawa (4246.T, ¥5,870) Fuji Heavy Industries (7270.T, ¥4,294) Hitachi Kokusai Electric (6756.T, ¥1,530) Japan Airlines (9201.T, ¥4,340) Lion (4912.T, ¥1,056) M3, Inc.