Japan machine tool orders: weak but stable

by SR on September 11, 2012

Japan machine tool orders up to August 2012, billion yen

Neither better nor worse – and that’s something in itself

Conclusion: we want to see a few more figures, like this August machine tool order number (see details below), that hint at a bottoming-out of the machinery market before we start buying machinery stocks. We’re maybe not quite there yet, but you should be doing your homework on which machinery names to buy when the time comes to pull the trigger.

For my part, though it may seem too obvious, I think Komatsu is looking interesting as a long: the bad news on China is probably all out and US housing starts are getting attention. And it never hurts that the stock is liquid and well-followed by the market. On the short side, Keyence has held up remarkably well while other factory automation plays have plummeted in 2012 – see chart below. Sure, Keyence is a good company, but maybe it’s time to bet against the stock for a while. (Why not Fanuc, the share price of which has been equally strong? Fanuc has more auto industry exposure and that’s an area of strength right now. Keyence relies more on general machinery, electronics and semiconductor-related demand.)

Japan machinery stocks share price performance year-to-date (%)

What just happened

The Japan Machine Tool Builders Association (JMTBA) announced orders for August after 3pm this afternoon, the 11th September 2012. Total machine tool orders came to 96.33 billion yen, falling 2.6% year-on-year and 8.9% month-on-month. Overseas orders actually rose 9% YoY and fell 8.8% MoM to 66.88 billion yen, but domestic was down both year-on-year (by 21.6%) and month-on-month (by 9.2%) to 29.46 billion yen.

For the January to August 2012 period, total machine tool orders have reached 838.5 billion, which is a decline of 5.4% over the same period in 2011. Year-to-date, overseas orders have contracted 4.7% and domestic orders have fallen by 7%. The chart below shows that the red line (2012 orders) is still tracking well below the blue line of 2011. It may appear to be widening, but the reality is that over the past three months the gap has been stable: -5.6% YoY in June, -5.8% YoY in July and -5.4% YoY in August. If you break the August figure down further, the gap narrowed for overseas orders and widened for domestic orders, for a net change of close to zero. Maybe this stability means that we are coming to the beginning of the end of this downturn, or at least coming within sight of the same.

JMTBA Japan machine tool orders, cumulative year-to-date (billion yen)

(For more information on this JMTBA data and the composition by sales and region, see this post.)

Recent trading

The previous JMTBA figure was released on 9 August 2012. Since then Topix is down 2.6% and most machinery stocks have underperformed. It is noticeable that the factory automation and machine tool stocks (shaded grey in the chart below) are way down over the past month: bearing supplier NSK, Mori Seiki, Makino, Amada and even JTEKT, which also manufactures bearings but is primarily a steering systems supplier. Top of the pile was nondescript quasi-conglomerate Ebara, although some of the heavy machinery plays had a good month, as did Fanuc. It’s noticeable that Keyence – very much a factory automation stock – has outperformed large peers in the FA like SMC by a sizeable margin. I wonder how sustainable that is.

Japan machinery stocks share price performance since last month's order announcement

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