Japan machinery sector: Points to watch in Apr–Jun results

Research evidence excerpt

Japan machinery sector: Points to watch in Apr–Jun results

sustainable, including

company-specific factors. We may well see rising expectations among stock market

participants for upward revisions to guidance at December year-end companies, as they

will be reporting H1 results. We think the key here will be not just whether companies

announce revisions, but also whether their revised profit guidance is higher than

consensus estimates or our forecasts. We see plenty of earnings upside for companies

with high exposure to the semiconductor industry or to China, where demand is currently

strong. That said, we note that monthly orders at SMC [6273] (Neutral) show a close

correlation with monthly sales at Airtac. We recommend Fanuc [6954] (Buy) for the

sustainability of its growth and solid orders, especially for robots, and Keyence [6861]

(Buy) for price hike benefits as well as its profit levels. For Amada [6113] (Neutral), our

attention is on orders at subsidiary Via Mechanics and on changes in the product mix,

which we expect to drive an earnings recovery in H2.

Focusing on profits minus one-time factors at construction machinery and heavy

machinery companies

For construction machinery companies, our focus is on refunds from so-called reciprocal

tariffs, while for IHI [7013] (Buy), our focus is on profit levels excluding the one-time boost

from gains on the sale of real estate (our Apr–Jun forecasts for Komatsu and IHI exclude

these one-time factors). We think the key for construction machinery companies will be

whether demand improves further in the key North American market and whether the

mining machinery market will undergo a positive change because of consistently high

prices for nonferrous metals, but we do not see any major changes at present. We think