“The Spread of COVID-19 and the Climate Change Summit”

3rd May, 2021

The Nikkei average which shifted within a narrow range focusing on the 29,600 point level since early April saw a growing downturn from the 20th and fell to 28,419 points on the 21st. After India, the 3rd country in the world for crude oil imports, exceeded 10,000 new infections (number of people tested positive) for the first time on the 5th of this month, the situation worsened as it exceeded 30,000 people on the 23rd. Under this state of affairs, it is believed that the direct trigger for the global stock market decline was the report by the U.S. Department of State on the 19th to increase the number of countries “advised to stop travel to”, which is the highest advisory level for U.S. citizens, to about 80% of countries in the world.      

Japan also issued a declaration of a state of emergency in 4 prefectures from 25/4 to 11/5. The Nikkei average’s weighted average P/B ratio (price-to-book ratio) was 1.30 times at the closing price of 22/4. Judging from the said P/B ratio having shifted in the range of roughly between 1.0 to 1.4 times in the past 5 years with the exception of the sharp decline in March last year, if the decline in the Nikkei average stops at around the 26,900 level, which is equivalent to 1.2 times of the said P/B ratio of that average level, it could be regarded as a healthy adjustment range for the Japanese stock market which saw a buying lead based on a lead in expectations since last autumn. 

U.S. President Biden kicked off the climate change summit held online over 2 days from the 22nd of this month which invited leaders from 40 countries and regions. Japanese Prime Minister Suga demonstrated the aim to reduce 46% of the amount of greenhouse gas emissions by FY2030 compared to FY2013, and said that efforts will be made to significantly speed up the pace of reduction from the previous aim of 26%. Japanese Minister of the Environment, Koizumi, is demonstrating his thoughts on focusing on “solar power generation that is attached on roofs” as the ace in accelerating the popularisation of renewable energy. This might be a good opportunity to reconsider buying corporations that handle solar panels, silicon for solar cells, cover glass and photo-voltaic module manufacturing apparatuses, etc.   

Also, there has been a growing trend in the increase in frequency of occurrences worldwide of El Niño phenomenon, which is a continued state of the sea surface temperature in offshore south Peru being higher than the average year, as well as of La Niña phenomenon, a continued state of it being lower than the average year, which is becoming a factor for abnormal weather worldwide. Furthermore, recently, with Western Europe being able to enjoy a warm climate despite high latitudes due to “the Atlantic north and south thermohaline circulation”, which causes the Atlantic seawater to circulate between north and south, a research paper is becoming a topic of interest regarding the possibility of almost all European regions becoming a lot colder than now due to a breakdown of the Atlantic north and south thermohaline circulation as a result of the accelerated speed of Arctic ice melting. Perhaps the cold wave that hit the U.S. state of Texas in February this year is not unrelated to this content. While natural disasters brought about by unseasonable weather and climate change cause great impact to daily life through the sudden rise in food supply prices that follow an insufficient supply in agricultural produce, on the other hand, it is believed that it will benefit corporations related to the agricultural business and grain trading companies that handle agricultural produce.          

In the 26/4 issue, we will be covering Yamazaki Baking (2212), Taiko Pharmaceutical (4574), Life Corporation (8194), and Nitori Holdings (9843).

 

  • Yamazaki Baking Co., Ltd. (2212)          1,712 yen (23/4 closing price)

・Founded in 1948 by Tojuro Iijima. Expands the foodstuff business (bread, Japanese and western confectionery, baked goods and rice products, confectionery, etc.), the distribution business (convenience store and foodstuff supermarket management) and other businesses (logistics, etc.). Possesses Fujiya and Tohato as its subsidiaries.

・For FY2020/12 results announced on 12/2, net sales decreased by 4.4% to 1.147 trillion yen compared to the previous year and operating income decreased by 29.8% to 779 million yen. Despite efforts in cost reduction such as in advertising expenses, etc., the decrease in revenue in the distribution business, such as in fresh bakeries, etc. and a decrease in transactions with convenience store chains have affected. In the previous quarter, 4Q (Oct-Dec), net sales recovered by increasing by 9.6%.

・For FY2021/12 plan, net sales is expected to increase by 2.2% to 1.37 trillion yen compared to the previous year and operating income to increase by 23.3% to 21.5 billion yen. Company’s policy is to focus on profit and loss improvement in the distribution business which had an operating deficit via thorough daily and weekly management. The takeaway-exclusive premium bread loaf, the “rich bread loaf that makes one can’t help but utter, ‘this might not even need butter’”, developed and manufactured by the company and currently in limited sale by Mos Burger, is becoming a hot topic. This is likely to raise the company’s brand value.

 

  • Taiko Pharmaceutical Co., Ltd. (4574)              1,213 yen (23/4 closing price)

・Established in 1946 and succeeded the rights to manufacture and retail Chuyu Seirogan (presently “Seirogan”). Expands 3 businesses, which are “pharmaceuticals”, which manufacture and retail general pharmaceutical products; “infection control”, which utilises chlorine dioxide gas patented technology, and “others”.  

・For FY2020/12 (Apr-Dec) results announced on 12/2, net sales was 17.582 billion yen and operating income was 5.65 billion yen. Comparison with the same period the previous year was not listed due to it being a transitional period in the change in accounting period. Compared to the previous quarter Oct-Dec, net sales increased by 27.4% to 6.615 billion yen and operating income decreased by 4.7% to 1.412 billion yen. “Cleverin”, a hygiene control product, had contributed to the increase in revenue.    

・For FY2021/12 plan, net sales is expected to be 22 billion yen and operating income to be 4.5 billion yen. Comparison with the previous year is not listed due to the company reverting to the 12-month accounting period from the previous year’s irregular accounting period. For the pharmaceuticals business, the impact from the decrease in opportunities to go out in the previous year is expected to ease. With concerns remaining on the reactionary fall from the sharp rise in demand for Cleverin in the infection control business, the company’s policy is to work towards growth expansion by tapping into the Chinese and Taiwanese market, as well as tests on the usefulness involving infection countermeasures which include COVID-19.  

 

  • Life Corporation (8194)      3,795 yen (23/4 closing price)

・After establishing in 1941, it merged with Life via absorption in 1978. Company is a general merchandiser of clothing products and lifestyle-related products with a main focus on foodstuff retail. Launched its first store as a foodstuff supermarket in Japan on Amazon “Prime Now” in Sep 2019.   

・For FY2021/2 results announced on 9/4, operating revenue increased by 6.2% to 759.146 billion yen compared to the previous year and operating income increased by 97.3% to 27.388 billion yen. Product measures in addition to the rise in demand for eating in as a result of the COVID-19 catastrophe as well as new store openings and renovation of existing stores have contributed to the increase in revenue, absorbing the increase in labour costs and investment expenditure in improving productivity, leading to a significant increase in profit.   

・For FY2022/2 plan, net sales is expected to increase by 0.1% to 758.9 billion yen compared to the previous year and operating income to decrease by 29.6% to 19.7 billion yen. In addition to predicting an increase in net sales in the e-commerce business, which expands an online supermarket, by 88.7% to 10 billion yen compared to the previous year, the company’s policy is to expand to a scale of 100 billion yen by 2030. In addition to having launched the provision of the online supermarket mobile app in March this year, they expanded the service area to 5 prefectures for home delivery of fresh foodstuff, etc. through Amazon “Prime Now”.  

 

  • Nitori Holdings, Co., Ltd. (9843)       19,870 yen (23/4 closing price)

・Established in 1972. Carries out the planning and retail, etc. of furniture and interior supplies. Its characteristic is its “manufacture and distribution retail business”, which creates product planning, raw material procurement to manufacturing and retail and even distribution functions as a whole. 

・For FY2021/2 results announced on 31/3, net sales increased by 11.6% to 716.9 billion yen compared to the previous year and operating income increased by 28.1% to 137.687 billion yen. Sales for both furniture and home fashion products performed strongly due to the increase in time spent at home by consumers who are staying at home. Digital sales from its e-commerce business grew, increasing by 59.2% to 70.5 billion yen compared to the previous year. 

・For FY2022/2 plan, net sales is expected to increase by 21.9% to 873.6 billion yen compared to the previous year and operating income to increase by 4.5% to 143.9 billion yen. The furniture and hardware store giant, Shimachu, became its wholly-owned subsidiary in January this year. In addition to a full-scale expansion of the company’s fashion brand for adult women, “N Plus”, it opened a new outlet, “Nitori Dining – Minna No Guriru”, in April this year. Chairman Nitori expressed “there being opportunities especially in a recession”, and its policy is to invest actively across all fields of food, housing and clothing via trading against the trend.

 

 

【Disclaimer and Notes relating to this report】

Issuer of this report:  Phillip Securities Japan, Ltd.    4-2 Nihonbashi Kabutocho, Chuo-ku, Tokyo 103-0026

TEL: 03-3666-2101 URL: http://www.phillip.co.jp/

 

Authors of this report:

Phillip Securities Research Department 

Kazuhiro Sasaki, Certified International Investment Analyst(CIIA®), Chartered Member of The Securities Analysts Association of Japan (CMA®)

 

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There is no serious conflict of interest between the analysts who wrote the reports and the corresponding companies.