Weak China demand short-circuits rally in Japan robot stocks

Hitachi Construction Machinery

04/10/2018 01:25

(Repeats story first published on Wednesday; no change to text)
    By Ayai Tomisawa
    TOKYO, Oct 3 (Reuters) - Shares of Japanese industrial
equipment makers have slumped sharply this year, defying a rally
in the country's benchmark indexes, as investors grow
increasingly worried about slowing demand in China as the U.S.
piles on more tariffs.
    The Nikkei share average  .N225  is at 27-year highs and up
6 percent this year, while the broader Japanese Topix index
 .TOPX  is trading at eight-month highs.
     But shares of Fanuc Corp  6954.T , a manufacturer of
industrial robots and counts on China for a big chunk of its
sales, have plunged 20 percent so far this year, after gaining
37 percent in 2017.
    Equipment makers Yaskawa Electric Corp  6506.T  and Nabtesco
Corp  6268.T  are both down 28 percent so far in 2018.
    "These companies' clients, especially those in China, have
become cautious and reduced orders since June," said Sho
Fukuhara, the senior vice president at Jefferies Japan.
    Fukuhara said these manufacturers will likely remain
hesitant about investment as the Sino-U.S. trade dispute drags
on.
    Demand for factory automation equipment grew sharply in
China in 2017, helping Japanese machinery suppliers post strong
earnings. But faltering demand this year is likely to hurt their
profits.
    U.S. President Donald Trump's administration slapped tariffs
on $200 billion worth of Chinese goods last month and is
threatening to impose duties on virtually all of the goods China
exports to the United States. Beijing has retaliated with
tariffs of its own on American imports.  urn:newsml:reuters.com:*:nL2N1WH11W urn:newsml:reuters.com:*:nL3N1VD1NM
    
    
 

    According to Nomura Securities, orders from the general
machinery sector in China in August dropped 16 percent from a
year earlier to 5.1 billion yen in August, after a 14 percent
drop in July.
    Hit by weaker smartphone investment, orders from Chinese
electronics and precision machinery makers fell 79 percent in
August to 3.0 billion yen, after a 30 percent falloff in July,
Nomura said.
    "Smartphone investment was strong in 2017, so companies
suffered from a drop in demand for the first half of this year
in the electronics and precision machinery sector," said You
Zhou, an analyst at Nomura Securities. 
    "For the second half of the year, we are seeing that
companies are becoming cautious in investment in the general
machinery sector due to U.S.-China tariff war."
    But machinery stocks are still expensive. Fanuc, Yaskawa and
Nabtesco are trading at price-earnings (PE) ratios of 24.84,
18.07 and 15.55, respectively, compared with the Topix's 14.
   
 
    "I am heavily shorting these stocks," said Makoto Kikuchi,
chief executive of Myojo Asset Management.
    Share prices of these firms have roughly given up half of
their rapid gains made between mid-2016 and early 2018, analysts
said.
    "Once more traders become aware that their orders and
earnings actually start showing a slowdown in the next few
months, the share prices will likely fall further."


($1 = 113.8700 yen)

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Factory automation stock prices    https://reut.rs/2Qrawit
Japan equipment maker shares and earnings    https://reut.rs/2QphQeo
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 (Editing by Vidya Ranganathan and Kim Coghill)
 ((ayai.tomisawa@thomsonreuters.com; 81-3-6441-1875; Reuters
Messaging: ayai.tomisawa.thomsonreuters.com@reuters.net))