Post tsunami Tohoku - 2017 - WordPress.com · Here are some photos outlining the sheer number of cranes and excavators in Minamisanriku, Ishinomaki, Kesennuma and Rikuzentakata. 71,1

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Post tsunami Tohoku - 2017

Looking 6 years after the tragedy

:;

Mike Newman

President & CEO

Analogica K.K.

May 23rd, 2017



16,000 lives lost 2,000 still

missing

400,000 homes damaged

Y25 trillion package

Equipment rental

companies

Tohoku

Executive Summary

Expect that activity in the reconstruction of Tohoku lasts at least another 5 years Six years after the Great East Japan Disaster we visited the devastated towns that were all but

wiped out by the tsunami that followed the M9.0 earthquake. Some 16,000 lives were lost and

another 2,600 missing due to the events of March 11, 2011 according the Reconstruction Agency.

More than 60% of casualties were over 60 years old. Over 400,000 homes were heavily damaged

or destroyed. 726,000 homes were partially damaged. 470,000 people were evacuated from their

homes. As of July 2016, the number of evacuees has decreased to less than 150,000 people,

among 50,000 are still in temporary housing.

The government deployed a Y25 trillion package in the first five years of clean up to be followed by

a Y3.6 trillion sum to rebuild. Having first visited Fukushima, Miyagi and Iwate prefectures in early

2012 the pace of progress is astonishing but the idea that it is even close to completion is a fiction.

It seems that workers are in short supply and the amount of work to be completed remains a

gargantuan task.

Heavy equipment rental companies like Kanamoto (9678) and Nishio Rent All (9699) would appear

to have a bright futures ahead given the scale of work and necessity of earth movers. Consensus

estimates are as follows.

Source: Custom Products Research, Consensus estimates

Here are some photos outlining the sheer number of cranes and excavators in Minamisanriku,

Ishinomaki, Kesennuma and Rikuzentakata.

71,1 73,3

148,7

115,9

168

138

0

20

40

60

80

100

120

140

160

180

Kanamoto Nishio Rent All

Fig.1: Revenue (¥bn)

FY3/13 FY3/17 FY3/20E

49,68

22,89

259,67 260,02

325,57

356,4

0

50

100

150

200

250

300

350

400

Kanamoto Nishio Rent All

Fig.2: EPS (¥)

FY3/13 FY3/17 FY3/20E

http://www.reconstruction.go.jp/english/topics/GEJE/index.html


Heavy trucks

Cement companies

Heavy truck makers would also seem to be in a prime position to benefit from the amount of work

left to be completed.


Cement companies would also seem to be set for an upturn in business. In fact on a pure visual

assessment cement growth is only starting to step up. Concrete blocks and sea wall construction

is only really starting up in earnest.

1242,7

1415,5

1683,7

1953,2

1797,7

2125

0

500

1000

1500

2000

2500

Hino Isuzu


FY3/13 FY3/17 FY3/20E

32,44

108,12

85,52

123,23 118,58

166,46

0

20

40

60

80

100

120

140

160

180

Hino Isuzu

Fig. 4: EPS (¥)

FY3/13 FY3/17 FY3/20E


Cement molds

Onagawa

Ishinomaki

2012 visits


Cement molds were a constant feature along 200km of coastline. While much concrete has been

made, much more will follow. Huge slabs will be required to lay on top of huge sand banks which

will form the base of the sea walls.

In our 2012 visit, we made clear that the consensus view was indeed way too optimistic regarding new build construction. We include some pictures of what the state of many towns were like on the following page.

217

727,8

234,1

798,6

248,3

849,8

0

100

200

300

400

500

600

700

800

900

Sumitomo Osaka Cement Taiheiyo Cement


FY3/13 FY3/17 FY3/20E

10,88 10,28

39,16 41,75

49,9

37,14

0

10

20

30

40

50

60

Sumitomo Osaka Cement Taiheiyo Cement

Fig.6: EPS (¥)

FY3/13 FY3/17 FY3/20E


Kesennuma

Minami-sanriku


Minami-sanriku

Ishinomaki

Kesennuma

Now looks like this


Tohoku economy

Falling population

The Tohoku Economy The Tohoku region had a population of 8.98 million in 2015, accounting for 7.1% of the national

total. Its population is projected to drop 23.6% between 2015 and 2040 to 6.86 million, or 6.4% of

the nation.

Fig.7 – Tohoku’s population set to fall 24% by 2040

Source: Ministry of Trade, Economy & Industry (METI)

The working-age population (15~64 yo) and the child population (0~14 yo) are projected to shrink

by 1.71 million and 400,000 respectively by 2040, while the elderly population (aged 65 or older) is

projected to increase by 100,000.

Fig. 9 : Working age population shrinking (unit: 10,000 people)

Source: METI


Employment in

the region

One of the bigger concerns for Tohoku is the sustainability of employment in the region. In our

report on Making Japan Great Again earlier this year we noted the acceleration of younger people

deserting their regional hometowns for opportunity in the big smoke. Tohoku is a mixed bag with

Miyagi Prefecture (Sendai) showing the only real strength relatively speaking vs Iwate and

Fukushima.

GDP growth in Tohoku is also being dominated by Miyagi Prefecture (Sendai) and Iwate

Prefecture (Morioka) which are the only two prefectures with GDP above 2008 levels.

Fig. 10: Tohoku GDP progression by prefecture

Source: Tohoku Bureau of Economy, Trade and Industry 2016

Not surprising is the almost double share of GDP that is construction related activity versus 2008.

Fig. 11: Tohoku GDP breakdown by industry

Source: Tohoku Bureau of Economy, Trade and Industry 2016


What happens

when construction

ends

What concerns us is once the construction winds down (still at least five years ahead) the vacuum

left by the fly-in, fly-out workers could dent GDP growth further. According to employment

insurance statistics, in fiscal year 2015, the business entry rate in the Tohoku region was 4.22%,

decreasing for the third consecutive year.

Fig. 12: Tohoku – % Change in Business Entry rate by Prefecture

Source: Tohoku Bureau of Economy, Trade and Industry (TBETI) 2016

According to the Tohoku Bureau of Economy, Trade and Industry (TBETI),

“In terms of the difference between the business entry rate and the business exit rate in fiscal year 2015, the business entry rate exceeded the business exit rate by 1.4 points for Japan and by 0.9

points in Tohoku. By prefecture, the business entry rate exceeded the business exit rate in Miyagi,

Yamagata and Fukushima, while the business exit rate was higher than the business entry rate in

Aomori, Iwate and Akita.”

We noted in our Make Japan Great Again report earlier this year that the exodus from prefectures

with higher percentages of elderly was accelerating. Akita Prefecture has over 1/3rd

of its

population aged over 65. It saw a 22% fall in high school enrolments over the past five years as

younger families seek their prospects in the bigger cities.

Tourism has been a welcome relief for Tohoku but the economy will not be able to rely solely on

the benevolence of tourists, especially Taiwanese who are three times more likely to visit than any

other foreign nationality. 608,000 foreign visitors stayed overnight in Tohoku in 2015, a 50%

increase on 2014. Of that Taiwanese visitors accounted for 30% of that.


Fig. 13: Tohoku overseas visitors (number in ‘000s who stayed overnight)

Source: Japanese Tourism Agency

Summary It is a testament to the resilience of the Japanese to see so much effort to bring Tohoku back to

life. While some may question the efficiency of spending billions on fortifying areas which are

heavily depopulating, the Japanese view it as a moral duty. We indeed have concerns that the

economic outlook of Tohoku once construction winds down could have profound effects if further

efforts are not made to stave off an aging population crisis that was present before the disaster.

Initial business confidence (start-ups) is waning as the stark reality falls on the region. In an

attempt to revitalise certain areas during the rebuild, many temporary facilities (shopping malls and

convenience stores) reflect exactly that – short termism. While there is no question the

convenience stores are making good returns in the makeshift premises, the ultimate departure of

the construction workforce may see a downsizing. It is not a question of commitment but ultimate

demand. For now we see that there is a good five years’ worth of construction activity left and to

that end it would appear heavy equipment rental businesses, truck makers and cement companies

will be best positioned to make the most out of the situation. We shouldn’t forget that the tailwind of the Olympics and Rugby World Cup will only provide a further lift to their businesses.


Important Disclosures:

This material was prepared for you and is for your information and use only. This material should only be distributed to other members of that organization on a need to know basis and should not be distributed or disseminated to any other person or entity.

This material is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. This material is based on current public information that Analogica KK ("Analogica") considers reliable, but we make no representation that it is accurate or complete, and it should not be relied on as such. No investment opinion or advice is provided, intended, or solicited. Analogica offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. This material is provided with the understanding that Analogica is not acting in a fiduciary capacity. Opinions expressed herein reflect the opinion of Analogica and are subject to change without notice.

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Office Locations

Tokyo Michael Newman President & CEO Analogica KK

+81-80-4446-8200 [email protected]

Contact

Headquarters 942 Win Aoyama 2-2-15 Minamiaoyama, Minato-ku, Tokyo Japan 107-0062

mailto:[email protected]

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Post tsunami Tohoku - 2017 - WordPress.com · Here are some photos outlining the sheer number of cranes and excavators in Minamisanriku, Ishinomaki, Kesennuma and Rikuzentakata. 71,1