Japan auto parts & tires monthly

Research evidence excerpt

Japan auto parts & tires monthly

ection in anticipation of shift to BEVs likely to become important too; we

recommend tire stocks and long-term theme-related stocks

When AI-related stocks were sold off in late June, funds flowed into highly undervalued

automotive stocks in the near term, but this did not last long. The WTI crude oil price has

fallen to around $70/bbl recently, but the outcome of ceasefire talks between US and Iran

remain uncertain. The decline in automobile sales at Japanese OEMs because of the shift to

BEVs also put a damper on the scenario for a recovery in output. We prefer tire producers

on the prospect of consistently weak output momentum. We also prefer stocks with

company-specific growth factors other than automobiles. Specifically, we recommend

Sumitomo Rubber Industries [5110] on the prospect of strong near-term earnings

momentum from Apr–Jun onwards thanks to increased sales of Dunlop products in Europe,

and GS Yuasa [6674] on the prospect of solid earnings thanks to increased demand for grid

storage batteries. We think GS Yuasa is likely to benefit as a pure Japanese battery

manufacturer if the public-private investment roadmap for 17 strategic areas promoted by

the Japanese government is fleshed out in mid-July (see our 26 June report Japanpower,

autoparts:Gridstoragebatterymarket).

The share price of Musashi Seimitsu Industry [7220] has returned to the level seen before

it rose sharply in April, making it look increasingly undervalued versus other AI-related

stocks. We attribute the decline in the share price primarily to concerns about fiercer

competition as a result of Panasonic Holdings and South Korean companies entering the

HSC market. While we expect Musashi Seimitsu to be overtaken in 27/3 as other companies