Modern) were at $29,036/day, up 31.0% from the preceding weekĄ¯s $22,162. Midsize oil tankers (Aframax, Average Earnings Modern) fell 22.0% from $11,177/day to $8,723/day. Product tankers (MR, Clean, Average Earnings Modern) were $3,935/day, up 16.4% from $3,380/day but still fairly low. Valuation and risk Our TPs are ¥427 for Nippon Yusen, ¥550 for Mitsui O.S.K. Lines and ¥297 for Kawasaki Kisen. We base our maritime transport sector target prices on target P/Bs (1.00x for Nippon Yusen, 0.94x for Mitsui O.S.K. Lines, 0.67x for Kawasaki Kisen), which are in turn the product of sustainable ROE (6.9% for Nippon Yusen, 6.5% for Mitsui O.S.K. Lines, 4.6% for Kawasaki Kisen) and the TOPIX average P/E (14.5x). Upside risks for the sector include a weak yen, declining fuel prices, and an unexpectedly strong recovery in the global economy. Downside risks include a strong yen, higher fuel prices, and unexpectedly strong growth in vessel supply. Downside risks for Nippon Yusen include a drop in airfreight rates due to sharply declining demand, yen appreciation, higher fuel costs, and a steeper-thanexpected fall in container freight rates. Upside risks for Mitsui O.S.K. Lines include a recovery in car transport volume significantly above our forecast. Downside risks include a greater-than-expected decline in container freight rates. Upside risks for Kawasaki Kisen include stronger-than-expected earnings in the car carrier business due to a sharp recovery in transport to North America. Downside risks include a recovery significantly slower than we expect in Aframax rates.
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Deutsche Securities Inc.
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10 November 2010 Strategy Asia Equities Daily Focus
Japan Machinery
09 Nov 2010 - 08:39:43 PM JST
COMPANY ALERT
SMC
Results Hold
FY3/11 guidance raised on higher-than-expected 1H earn- Reuters:6273.T Exchange:TYO Ticker:6273 ings; QoQ growth rate to slow
Price (¥) Price target - 12mth (¥) 52-week range (¥) Market cap (¥bn) Shares outstanding (m) Foreign shareholding ratio (%) TOPIX 13,140 13,000 13,530 9,500 901 69 47.7 842
2Q FY3/11 earnings highlights SMC announced 2Q FY3/11 results on 9 November and raised its full-year guidance as 1H earnings outstripped management targets. 1H results included sales of ¥161bn (+75% YoY) (previous forecast: ¥147bn), OP of ¥43bn (+896.3%) (¥30bn), and EPS ¥389.23 (¥284.3). New full-year guidance: Sales ¥305bn (+38.1% YoY) (previous forecast ¥280bn), OP ¥75bn (+193.3%) (¥53bn), and EPS ¥685.24 (¥510.28). Forex assumptions are now ¥85/$ (initially ¥90) and ¥112/ (¥120). Our view For 2Q, consolidated sales reached ¥81.4bn (+64.1% YoY, +2.3% QoQ). Consolidated OP was ¥21.1bn (+469.4% YoY or 5.7x the prior-year level, -3.5% QoQ) and operating margin reached 26.0% - 1.5ppt lower than 1Q's 27.5%. Operating margin fell because 1Q expenses were reduced via streamlining efforts while 2Q expenses rose due to overtime pay, etc. 1H operating margin reached 26.7% but SMC is forecasting 2H margin of 22.2%. We think this is partly due to costs returning to normal (as was the case in 2Q), but also think management is being somewhat conservative. The parent company's domestic sales in 2Q reached ¥28.4bn (+2.5% QoQ), including automotive applications +4% QoQ, IC applications -1%, non-IC electronics applications -2%, and machine tool applications +6%, etc. Monthly sales in 2Q showed highest sales in July, followed by a MoM decline in August and flat sales in September. Monthly sales seem to have increased in October. We expect sales levels to remain high for now.
FYE 3/31 Sales (¥bn) OP (¥bn) RP (¥bn) NP (¥bn) EPS (¥) P/E (x)
2010A 220.9 25.6 30.5 19.6 286 36.9
2011E 318.0 80.0 81.5 50.9 742 17.7
2012E 300.0 70.0 73.0 45.6 665 19.8
Toshiharu Morota, CMA
Research Analyst (+81) 3 5156-6721 toshiharu.morota@db.com
Yukiko Nagatomo
Research Associate (+81) 3 5156-6722 yukiko.nagatomo@db.com
Page 44
Deutsche Bank AG/Hong Kong
10 November 2010 Strategy Asia Equities Daily Focus
Company
Japan Telecommunications
10 Nov 2010 - 01:11:46 AM JST
Global Markets Research
COMPANY ALERT
NTT
Strong fixed-line operations reconfirmed
Price (¥) Price target - 12mth (¥) 52-week range (¥) Market cap (¥bn) Shares outstanding (m) Foreign shareholding ratio (%) TOPIX 3,750 4,460 4,030 - 3,585 4,962 1,323 22.8 840
Results Hold
Reuters:9432.T Exchange:TYO Ticker:9432
FYE 3/31 Sales (¥bn) OP (¥bn) RP (¥bn) NP (¥bn) EPS (¥) P/E (x)
2010A 10,181.4 1,117.7 ¨C 492.3 372 10.4
2011E 10,336.2 1,200.7 ¨C 518.2 392 9.6
2012E 10,611.2 1,267.5 ¨C 548.6 423 8.9
Fixed-line sales bottom out; small upward revision made NTT has raised its OP guidance from ¥1.165trn to ¥1.180trn. Instead of the expected downward revision, NTT Data has revised its forecast upwards. 2Q OP (3 months) rose 21% YoY to ¥387.3bn. As there was a reversal of provisions for doubtful receivables of nearly ¥60.0bn at DoCoMo, NTT's forecast for the annual progress rate was high at 62% even after the upward revision. OP at the 3 fixed-line telecom companies is strong with a post-revision progress rate of 67%, ranking NTT behind SoftBank in terms of momentum. Long-term earnings deterioration at NTT Data also appears to have ended, and 2Q sales at NTT-East were in an uptrend. Although we have not changed our rating, TP or earnings forecasts, NTT is our second choice in the telecom sector given its PBR of 0.6x. The sluggish share price is a result of un-proportionally negative news regarding the taskforce debate, thus it appears somewhat undervalued. We believe a share buyback is likely next year, taking advantage of the disposal of government-owned shares. At the meeting today NTT decided that half of the treasury shares would be cancelled (16% of issued shares are held) in November. At the taskforce meeting today the following issues were raised as current priority issues among all NTT companies: Regulation of general market dominance, 3 companies; open networks, 1 company; NTT's position, 1 company; and no problems, 1 company. The chairperson made no noteworthy statements. Our target price for NTT is ¥4,460, based on a DCF model that uses cost of equity of 8.7% and four years of earnings forecasts. We also use PEG to reflect the value of near-term earnings momentum. Risks include the potential for group restructuring and the possibility that NTT's drive to boost earnings might weaken.
Yoshio Ando, CMA
Research Analyst (+81) 3 5156-6681 yoshio.ando@db.com
Deutsche Bank AG/Hong Kong
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10 November 2010 Strategy Asia Equities Daily Focus
Appendix 1
Important Disclosures Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at ger/disclosure/DisclosureDirectory.eqsr.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Ching-Li Teo
Equity rating key Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of 10% or worse over a 12-month period
Equity rating dispersion and banking relationships
400 300 200 100 0
58% 33% 16% 16%
Hold
9%
13%
Buy Companies Covered
Sell
Cos. w/ Banking Relationship
Asia-Pacific Universe
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Deutsche Bank AG/Hong Kong
10 November 2010 Strategy Asia Equities Daily Focus
Regulatory Disclosures 1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at /globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered as rating agency in Japan unless specifically indicated as Japan entities of such rating agencies. New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.
Deutsche Bank AG/Hong Kong
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