9/28/2018
MACHINERY / MULTI-INDUSTRY
Machinery sector (China related) ¨C Leading indicators still positive for China infrastructure
stocks:
CS analyst Shinji Kuroda published the following in a note:
Leading indicator up 12% YoY in
August:
Revenue generated from the sale of land by local Chinese governments (which we focus on as
a viable leading indicator for China infrastructure demand stocks such as Komatsu (6301), Hitachi
Construction Machinery (6305) and Daikin Industries (6367) rose 12% YoY in August (+19% MoM). This
was the second straight month of double-digit growth (July: +20%) after growth bottomed out at +4% in
June. Signs of continued financing support for infrastructure investment projects is encouraging. Based
on our visit with Komatsu (China), we understand that PPP (public-private partnership) projects are
proceeding smoothly, with the Chinese government starting the selection process for infrastructure
investment projects that will be part of its economic stimulus measures. While we doubt this will have the
same impact as other major stimulus plans in the past, we think steady efforts to stimulate demand
should provide a sense of reassurance moving forward. (Link to Note)
Machinery sector (China FA) ¨C CIIF: Weaker FA demand, robotics in a lull, construction
equipment demand recovering:
Positive implications for construction machinery stocks, less
encouraging for FA stocks:
We attended the China International Industry Fair (CIIF) in Shanghai held
over 19¨C23 September. In this report, we discuss the highlights of our tours of the main companies
presenting at this year¡¯s convention. The market overall appears to be in risk-on mode, with a strong rally
in China-related stocks, thanks to an easing of US-China trade friction, expectations that the Chinese
government will introduce economic stimulus measures, and recent yen depreciation. The upturn in
China hydraulic excavator demand since September suggests a promising outlook for companies such
as Komatsu (6301) and Hitachi Construction Machinery (6305). FA stocks, on the other hand, face
continued weakness in smartphone-related demand, with companies still taking a wait-and-see approach
to capex due to US-China trade friction risk. China FA-related stocks had rallied somewhat of late, but
we see downside risk in the lead-up to what is likely to be disappointing 2Q (Jul¨CSep) results (Yaskawa
Electric [6506] is scheduled to report on 10 October).
SMC (6273, slightly positive):
China monthly
orders still trending higher YoY, in contrast to earlier market concerns; market share holding firm at 41%.
Fanuc (6954, slightly negative):
Likely to see a correction in China robot orders (particularly for
automotive applications) from 2H.
Keyence (6861, slightly negative):
China sales still trending higher
YoY, but below internal targets.
THK (6481, slightly negative):
Should achieve positive YoY growth in
China business sales for FY12/18, but orders likely to dip 20¨C30% YoY.
Nabtesco (6268, slightly
positive):
China gear reducer orders still trending higher YoY; market share appears to be holding firm
at approx. 90%.
Nachi-Fujikoshi (6474):
China robot orders still trending higher YoY, but clients
adopting a wait-and-see stance; orders environment should improve from summer 2019. (Link to Note)
KONE CMD ¨C Leafing through the slides ¨C Overall in-line:
CS analyst Andre Kukhnin published the
following in a note:
Bottom line.
Going through the CMD slides and having listened to first half of CEO
presentation, we see the messages so far as broadly in-line with our and market expectations and
reassuring on margin stabilisation in Q4 and mid-term market growth outlook. On FX, our interpretation is
that 2018 guidance is unchanged despite an incremental €10m headwind. We maintain our Outperform
rating with €52 TP.
Guidance, targets and 2018 end-markets outlook ¨C all unchanged (despite
slightly worse FX).
KONE has maintained all of the above with no change in language. In CFO
presentation, FX rate is calculated at €-45m vs the current guidance at €-35m. We interpret this as no
change in guidance despite a (well-anticipated) worsening in FX.
Positives vs Negatives for 2019.
The
positives highlighted are 1) growth in orders received with stabilised margin, 2) solid growth in services,
3) Accelerate programme savings and performance improvement. Against that, the highlighted
headwinds are 1) raw materials and FX headwinds, 2) trade and geopolitical uncertainties, 3) labour
shortages in Europe and North America. We see these as largely in-line with our expectations. Although
the added headwind of labour shortages in Europe is technically new, we see the above positives as
more significant. We currently discount a €40m headwind from raw materials and calculated a c-1% FX
headwind for 2019. Margin stabilisation market message remains for the end of 2018 and is specified as
Q4 (while Q3 is still expected to be impacted by the mix of raw materials and China pricing headwinds).
Mid-term market outlook - positive.
An illustrative slide points to growth outlook across both New
Equipment and Service for E&E market. For NE, the incremental growth is expected to come from
growth markets such as Asia while mature markets and China are expected to move with construction
cycles. Services are expected to grow with 1) aging installed base and 2) new services. Interestingly, the
changing customer needs (building becoming higher, more dense and mixed use) and new technologies
and services for that have become market growth drivers for KONE alongside urbanisation and installed
base. For China, the EVP China (Bill Johnson) presentation points to ¡®China NE market expected to stay
on high level¡¯. (Link to Note)
9/28/2018
AG EQUIPMENT
Germany¡¯s Potato Harvest Falls 25 Percent After Drought:
Per Reuters
: This summer's drought and
heatwave will cut Germany¡¯s potato harvest by around 25 percent on the year to about 8.7 million
tonnes, the country¡¯s agriculture ministry said on Wednesday. The reduced potato harvest is the latest in
a series of bad news after German crops wilted under the highest summer temperatures since records
began in 1881. Germany¡¯s Agriculture Ministry forecast in August the country's 2018 grains harvest
would fall 15.8 percent on the year after crops suffered from drought and hot weather. This could make
Germany, traditionally a grains exporter, into an importer. The smaller potato crop means a tighter
market supply at a time when other north-western European producers including France, Britain, the
Netherlands and Belgium also suffered from the heatwave, the ministry said. This is meeting high
demand from industry, such as for potato fries and crisps, the ministry said. This means producer
prices against this background are well above last year's very low levels.
Deere & Company Completes PLA Acquisition:
Deere & Company has completed its acquisition of
PLA. In July, Deere said it signed a definitive agreement to purchase the manufacturer of sprayers,
planters, and specialty products for agriculture. PLA is based in Argentina, with manufacturing facilities in
Las Rosas, Argentina, and Canoas, Brazil. Founded in 1975, the company has approximately 450
employees and currently markets products on four continents.
CONSTRUCTION EQUIPMENT
Hitachi Construction Machinery ¨C Briefing on Domestic Business Restructuring: Upbeat on
HCM¡¯s Steady Restructuring Stance:
CS analyst Shinji Kuroda published the following in a note:
Management focused on steady restructuring instead of taking credit for brisk earnings:
At 5:00
p.m. on 27 September, HCM held a briefing to discuss