Japanese Tech Stock Weekly Summary (May 11 - May 17, 2009)

by: IRG Ltd

The following is excerpted from IRG's weekly stock report:

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eAccess benefitting from improving conditions in DSL and mobile segments. eAccess (OTC:ECLTF) announced results that were in line with the Company's April 21 revisions. Progress with cost reductions related to the integration of Acca Networks contributed to operating profit of ¥16.7 bn (US$174 mm). The Company is planning on launching full WiMAX services in July.

Kakaku.com announced Q4 sales totaled ¥2.79 bn (US$29 mm) up over 36% YoY, and operating profit of ¥1.29 bn (US$13.4 mm), up over 64% YoY. For fiscal year March 2010, Kakaku expects sales of ¥12 bn (US$124.8 mm) and operating profit of ¥4.9 bn (US$51 mm). CCC acquired 20.31% of kakaku.com stock from Digital Garage to form a capital alliance with Kakaku.com which provides Kakaku.com with access to CCC's 32.3 million point card members.

Rakuten reports improving results with first quarter operating profits of ¥9.82 bn (US$102 mm) over 36% increase YoY on strength in the ecommerce business. Operating profits of Rakuten Ichiba (OTCPK:RKUNF) rose 54% YoY to ¥8.87 bn (US$92.2 mm). Sales rose 24% YoY and operating margin increased to 51.4% from 41.4% in the prior quarter. Losses at eBank were ¥290 mm (US$3 mm) versus a loss of ¥970 mm (US$10.1 mm) in the prior quarter.

Media, Entertainment and Gaming

Fuji Media Holdings announces results and provides guidance, expects profit decline. Fuji Media reported fiscal year March 2009 operating profit decreased 18.6% YoY to ¥19.8 bn (US$205.9 mm). Broadcasting spot revenues fell 12.9% while time revenues were down 2.2%. The Company expects fiscal year March 2010 operating profit to decrease 35.5% to ¥12.8 bn (US$133.1 mm). Fuji
stated that it does not plan to significantly lower production costs, so broadcasting profits are likely to drop sharply. It also announced that it would lower its dividend to ¥1,600 (US$16.64) from ¥3,600 (US$37.44). Fuji projects spot revenues will fall about 9% and time revenues about 8%.

• Hakuhodo DY Holdings announced operating profits decreased 40% YoY to ¥15 bn (US$15.6 mm) which was expected given the Company earlier guidance. Lower advertising revenues were the main driver of the decrease in profits, while higher office moving expenses were offset by other cost reductions. The Company expects operating profit to fall 43.4% YoY to ¥8.5 bn (US$88.4 mm) due to an anticipated drop in revenues and higher SGA expenses. It expects a 2.6% increase in SGA expenses on an increase in severance benefits.

• Nippon Television Network announces fiscal year March 20099 results and guides for challenging 2010. Nippon TV reported operating profit of ¥12.2 bn (US$126.9 mm), down 47.1% YoY. Spot revenues decreased 11.5% while time revenues were down 2.7%. For fiscal year March 2010, the Company is expecting operating profit of ¥10.5 bn (US$109.2 mm), a decrease of 14.0%
YoY. Nippon TV expects spot revenues to decrease 10.5% YoY with time revenues decreasing 13.5%.

• Opt announced results in line with expectation but vague advertising outlook. The Company announced that sales rose 35.8% YoY to ¥14.2 bn (US$147.7 mm) while operating profit rose 6.0% to ¥0.3 bn (US$3.1 mm). More stringent credit control led to a greater-than-expected decline in bad debt reserves. Sales through the collaboration with Dentsu rose 2.6% YoY, but otherwise advertising sales fell 0.8%. Net ad revenue declined due to lower ad submissions from the financial sector while search listing ad sales growth was limited to single digits. Sales at the technology business (which includes advertising impact measurement tools, etc.) grew 3.9%.

• Konami (NYSE:KNM) announced profit guidance of ¥30.0bn (US$312mm) for fiscal year March 2010, below street consensus of ¥33.7 bn (US$350.5 mm). The Company is expecting revenue declines due to soccer game sales declining in unit terms, yen strength, and arcade machines revenue falling short. Soccer games had historically been a stable source of earnings but sales fell 10% in unit terms in fiscal year last 2009.

• Tokyo Broadcasting System Holdings (TBS) announces 2009 results and 2010 guidance and planned dividend cut. TBS announced operating profit of ¥18.5 bn (US$192.4 mm) a YoY decline of 10.5% and in line with the Company’s revised guidance. For fiscal year 2010, the Company anticipates operating profit of ¥7 bn (US$72.8 mm), a decline of 62.1% YoY. The decline was primarily attributable to weakness in the broadcasting segment due to a decline in time ad revenues, and a steep decline in multivisual ventures and cultural events profits. The Company announced plans to cut the dividend to ¥4 from ¥10. For fiscal year 2010, TBS forecasts steep declines in spot ad revenues of 8.8% YoY and time ad revenues declines of 14.1%.

Sankyo announced results in line with market expectations and provided guidance for FY3/10. The Company’s fiscal year 2009 operating profit fell 43.8% to ¥40.6 bn (US$422.2 mm), in line with guidance and market expectations. The drop in profit was a result of weak Sankyo brand pachinko machine sales as well as delays in launching the Bisty brand pachinko title Evangelion. Pachinko sales fell 37.7% YoY to 452,000 units. The company launched two major titles under the Sankyo brand and sales for both fell short of 100,000 units, indicating that the Sankyo brand needs improvement. For FY3/10 Sankyo is targeting operating profit of ¥67.0 bn (US$696.8 mm) an increase of 64.9%, driven
by higher pachinko sales volume due to the launch of Evangelion. Pachinko sales are expected to increase to 705,000 units from 452,000 units, with Sankyo brand sales rising to 395,000 units from 285,000 units and Bisty brand sales to 310,000 units from 167,000 units.

• Sega Sammy Holdings returns to profitability. Sega Sammy (OTCPK:SGAMY) moved into the black with ¥8.4 bn (US$87.4 mm) operating profit for fiscal year 2009, in line with previously revised up guidance. Operating profit at the former Sega side was hampered by losses of ¥7.5 bn (US$78 mm) in the arcade facilities business and ¥0.9 bn (US$9.4 mm) in the consumer business. Pachinko machine shipments rose 3.6x YoY to 391,000 units as the Company was able to establish its pachinko brand on the success of Fist of the North Star with sales of 213,000 units. For fiscal year 2010, Sega Sammy expects operating profit to increase 3.2x YoY to ¥27 bn (US$280.8 mm) driven by improvement on the former Sega side and gaming machine business. Sega expects shipments of 450,000 pachinko machines, up from 391,000 last year and 180,000 pachislo machines, up from 123,000.

• SKY Perfect JSAT Corp announced fiscal year 209 operating profit of ¥16.9 bn (US$175.8 mm), a 50% YoY increase, which topped consensus estimates of ¥14.5 bn (US$150.8 mm). The Company also announced fiscal year 2010 operating profit guidance of ¥10.0 bn (US$104 mm) based conservative assumption of sluggish FY3/10 net growth of 12,000 subscribers, a slight increase of 0.3% from end of last fiscal year.

• Asatsu-DK results hit by bad debt reserves. For Q1 operating profit was ¥21 mm (US$218,400), down 98.8% YoY mainly due to an increase in bad debt reserves of ¥170 mm (US$1.77 mm) for customers in the real estate industry. Personnel costs remained flat despite announced plans for a reduction. The Company previously announced a plan to buy back 500,000 shares (1.16% of
outstanding and as of the end of April it had acquired 397,000 shares

• Dentsu expects continued difficult operating environment. Dentsu announced fiscal year March 2009 operating profits of ¥43.2 bn (US$449.3 mm), a decline of 23% and in line with the Company’s May 7 revised guidance. The Company announced fiscal year 2010 operating profit guidance of ¥15.8
bn (US$164.3 mm) a decline of 63% YoY. The Company expects that it will be negatively affected by: (1) 2010 sales projected down 13% on the continuing ad market slump; (2) cost cuts are expected to stall as personnel expenses remain high; and (3) deterioration not only at parent level/ad subsidiaries but also at Information Services International-Dentsu (ISID).

• Capcom (OTC:CCOEF) posted fiscal year March 2009 operating profit of ¥14.6 bn (US$151.8mm) up 11.4% YoY and in line with the Company’s announced estimate. Among marquee titles, Street Fighter 4 sold 2.5mn units and Resident Evil 5 4.4mn, indicating increasing brand power on a global basis. The Company forecasts operating profit to increase 6.0% YoY to ¥15.5 bn (US$161.2 mm) year.

Information Technology

• NTT Data announces disappointing fiscal year March 2009 earnings and 2010 guidance. The Company announced operating profits of ¥98.5 bn (US$1.02 bn) which fell short of the Company’s previously announced guidance of ¥105.0 bn (US$1.09 bn) and Bloomberg consensus of ¥101.7 bn (US$1.06 bn). The Company also announced disappointing FY3/10 operating profit guidance of ¥90.0 bn (US$936 mm) as a result of negative factors include price demands from current customers and a decline in high-margin public-sector projects. Past acquisitions so far have made little profit contribution they have boosted revenues. Management indicated that fiscal year 2011 profits will be
little different from 2010 levels, and the company is lowering its 10% operating margin target and aiming to increase the absolute profit level instead.


• Panasonic Corporation announced results in line with expectations, predicts continued difficult operating environment. Panasonic (PC) announced that slack demand and hefty restructuring costs led to its second biggest annual loss and that it expects to stay in the red this fiscal year. For 2009, Panasonic reported a ¥378.9 bn (US$3.9 bn) net loss, a loss second only to the ¥427.8 bn (US$4.45 bn) loss it reported in fiscal year 2001. Panasonic has suffered from the economic downturn-induced slump in demand for electronics and resultant price competition. The company also booked reform-related expenses totaling ¥367.4 bn (US$3.82 bn) and securities valuation losses of ¥92 bn (US$956.8 mm). To adjust to the continued falloff in sales, it lowered its inventory assets, including its finished products and raw materials, by 17%. For fiscal year 2010, Panasonic expects a net loss of ¥195 bn (US$2.0 bn) but an operating profit of ¥75bn (US$780 mm), up 2.9%, despite projecting a steep 9.9% fall in revenue to ¥7 trillion (US$72.8 bn). While it plans to sell 15.5 million TV sets this fiscal year, up from 10.05 million units in the previous year, it expects its TV business to remain in the red. The Company also announced plans to close 40 manufacturing sites in the two-year period to next March and reaffirmed that it would cut 15,000 jobs as previously announced in February.

• Mitsumi Electric announced sales of ¥247.7bn (US$2.58 bn) and net profits of ¥11.2 bn (US$116.5 mm) as a result of continued strong sales of Nintendo’s Wii. The Company also provided fiscal year 2010 operating profit guidance of ¥12.0 bn (US$124.8 mm).

• Sony (NYSE:SNE) to close manufacturing production facilities. After closing three plants in the USA, France and Japan, Sony will close an additional five plants in 2009 - 1 in Mexico, 1 in Indonesia and 3 in Japan. Amongst the 8 plants which have been/will be shut down, three LCD TV manufacturing sites are included as the Company increases outsourcing of LCD TVs. Sony targets to ship 15mn LCD TV this year.

• Sanyo Electric announces fiscal year March 2009 results and expects to return to profit in 2H 2010. Sanyo (OTC:SANYY) reported that operating profit came in at ¥8.2 bn (US$85.3 mm), down 89.1% YoY, as first half operating profit of ¥23.9 bn (US$248.6 mm) was offset by a second half operating loss of ¥15.6 bn (US$162.2 mm). The Company was hit by the downturn in the economy and all segments saw lower sales, with deterioration particularly pronounced in electronic components and AV/IT equipment, as well as rapid deterioration in rechargeable batteries and solar cells. For 2010, the Company expects an operating loss of ¥20 bn (US$208 mm) and 2H operating profit of ¥45 bn (US$468 mm). The markets in rechargeable batteries and solar cells are weak and in a period in which capex is coming first.

• Sony results slightly below expectations. Sony announced a fiscal year 2009 operating loss of ¥227.8 bn (US$2.37 bn), about 10% below the ¥260 bn (US$2.7 bn) in guidance. Above-guidance electronics earnings offset weakness at SEMC and restructuring costs. The Company also announced fiscal year 2010 operating loss guidance of ¥110.0 bn (US$1.1 bn).

• Elpida Memory announced results in line with expectations; surprises with change in depreciation policy. Elpida (OTC:ELPDF) announced fiscal year March 2009 earnings which were in line with previously announced guidance, but surprised the market by announcing that it was extending its depreciation period to nine years from five in 4Q. It is estimated that without the change in depreciation policy, which boosted 4Q operating profits by ¥5 bn (US$52 mm), Elpida would have barely met its financial covenants.

• Olympus results above expectations. Olympus (OTCPK:OCPNY) announced 4Q operating profits of ¥4.6 bn (US$47.8 mm), down 78% YoY, but topping consensus of a loss of ¥5.2 bn (US$54.1 mm) as a result of aggressive cost cutting. The shareholders' equity ratio fell to 15.3% and debt/equity ratio rose to 3.1x. The Company also announced fiscal year 2010 operating profit guidance of ¥59 bn (US$613.6 mm) exceeding consensus for losses of ¥6.2 bn (US$64.5 mm). The guidance mainly reflects reductions in goodwill charges following lump-sum amortization in fiscal year March 2009 and forecast reductions in personnel, R&D, and sales promotion costs.

• NEC Electronics (OTC:NELTY) announced issued fiscal year March 2010 sales guidance of ¥480bn (US$4.9bn), a decrease of 12% YoY, and breakeven operating profit based on a ¥90 bn (US$936 mm) cut in fixed costs, which will likely also result in a contribution for fiscal year March 2011. The Company is anticipating a rebound in semiconductor sales in the latter half of 2009.

• Sony to raise US$1 billion in bonds. Sony issued a statement that it is looking to raise US$1 billion from capital markets next month by issuing corporate bonds. It is expected that some of the money raised would be injected into Sony Ericsson, the Company's handset joint venture with Ericsson. Sony said it is issuing the corporate bonds to raise money for investments and to repay part of an existing bond issue that will mature in March 2010. The Company declined to provide specifics, or comment on where else it might spend the money. In a Financial Times article, Sony declined to speculate on investing more money at Sony Ericsson, but indicated it would provide such funds if necessary.


• Nippon Telegraph & Telephone announces results and dividend increase increase to ¥120 for fiscal year 2010 from ¥110 for fiscal year 2009 (NYSE:NTT) and may consider undertaking share buybacks, including retiring treasury stock. The Company announced fiscal year March 2009 operating. profits of ¥1,109.8 bn (US$11.5 bn), below market consensus of ¥1,188.8 bn (US$12.4 bn). NTT's fiscal year 2010 also issued operating profit guidance of ¥1,110 bn (US$11.5 bn) but refrained from commenting on medium-term business targets, including detailed plans for a turn to profit in fiber- optic services. The Company expects that its ability to achieve operating profit targets would depend on economic recovery, cost cuts, and growth on a global basis, including M&A.

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