Daily BriefsJapan

Japan: Japan Post Insurance, Tokyo Electron, Renesas Electronics and more

In today’s briefing:

  • The Delayed TOPIX FFW Rebalance: $32bn To Trade
  • Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead
  • Renesas – Auto Chip Shortage Could Drive Further Gains

The Delayed TOPIX FFW Rebalance: $32bn To Trade

By Travis Lundy

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 

There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update – Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).

For more on the rebalance, read on.

[A spreadsheet of all names and impacts is attached at the bottom of the insight]

Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead

By Scott Foster

The rapid growth of remote work and home entertainment caused by COVID-19, 5G mobile telecom, the industrial internet of things and vehicle electrification have pushed the semiconductor industry close to full capacity.

  • In recent weeks, Volkswagen, Bosch, Continental, Toyota, Nissan, Honda, Subaru, VW, Ford and Fiat Chrysler have announced production cuts or shipment delays due to a shortage of semiconductors. 
  • In December, Nvidia and AMD reported shortages of GDDR6 memory.
  • Samsung may invest more than $30 billion in its semiconductor business this year. On January 9, Japan’s Nikkei newspaper reported that Chipmaking equipment manufacturers say the company has provided order plans for 2021 that point to a further 20% to 30% increase in spending.

This should support semiconductor pricing, cash flow and capital spending, possibly lifting sales of semiconductor equipment above SEMI’s 4.4% growth forecast for 2021. It should also make concerns over December quarter results less relevant as market attention shifts to the year ahead.

Investors in Tokyo Electron (TEL) and other makers of semiconductor production, assembly and test equipment should benefit, even if the shares appear to be overbought.

TEL’s 1H results were well ahead of guidance and full-year FY Mar-21 guidance was raised. But the new guidance implies a weaker 2H. In our estimation, it too is likely to prove conservative. 

Renesas – Auto Chip Shortage Could Drive Further Gains

By Mio Kato

Automakers are starting to struggle with chip shortages as the Nikkei reports here, here and here. This is an extension of a broad chip shortage globally as WFH demand, the launch of new consoles, GPUs and CPUs and rapidly recovering auto sales pour some short-term fuel on the long-term fire of expanding electrification and digitalisation. No wonder then that TSMC is up 134% from its March lows, but Renesas is up an even more impressive 248% since its lows of 2020 and could continue to outperform.

Before it’s here, it’s on Smartkarma