The Earnings Rush is Coming—How to Decide 'Where to Look' When Navigating Earnings Reports

[Click here for the earnings explanation articles Yell-chan has learned from so far]

(Yell-chan is holding her smartphone, staring at the screen with a serious expression)

Yell: "Cosmos-chan, I've learned how to read earnings reports, and I've acquired the weapon of looking at the PL for muscles, the BS for the skeleton, and the CF for blood flow. So, I thought it was finally time to dive into the earnings rush myself!"

Cosmos: "Oh, that's great. That motivation is very important."

Yell: "But first, I was wondering what kind of companies have earnings coming up. Lumo, what kind of companies are releasing earnings next week?"

Lumo: "Yes, yes! Leave it to me! Next week, there are 93 companies on April 28th and 114 on the 30th
. Let's see, among the famous ones I know... Shin-Etsu Chemical, TDK, Hitachi, Socionext, Tokyo Electron... And then... Mitsubishi Electric, NEC, Mitsubishi Heavy Industries... Others include... Oriental Land, JR Central, Japan Airlines... And there were trading companies too—Mitsui & Co., Mitsubishi Corporation, Itochu... ...Wait? Did I say NEC?"

Yell: "...Um, 93 companies and 114 companies? Wait a second, there are so many that my head feels like it's going to explode. What should I do? Cosmos-chan, help me."

Cosmos: "Haha, I see. If you try to look at everything all at once during your first earnings rush, anyone would drown. How about we start by thinking about them divided by 'investment themes'? Right now, the market is particularly focused on AI semiconductors, defense, inbound tourism, and decarbonization/GX. If you divide them into these four themes, I think the landscape will look much more organized."

Yell: "Divide them by theme... I think I can do that. Lumo, can you tell me the companies you mentioned earlier, but divided into those four themes again?"

Lumo: "Leave it to me! Okay, I'll sort them all at once!"

Four Themes to Watch in the Earnings Rush

Lumo has divided next week's major earnings announcements into four investment themes to make them easier for Yell to understand.

🔶 AI & Semiconductors
Advantest, Hitachi, Shin-Etsu Chemical, TDK, Socionext, Lasertec, Tokyo Electron

🔶 Defense
Mitsubishi Electric, NEC, Mitsubishi Heavy Industries, Kawasaki Heavy Industries

🔶 Inbound & Tourism
Oriental Land, JR Central, Tokyo Metro, Japan Airlines, ANA Holdings

🔶 Decarbonization & GX (Resources & Trading Companies)
Mitsui & Co., Mitsubishi Corporation, Itochu, Chiyoda Corporation

Yell: "Oh...! I feel like it's much easier to see now. It feels like everything that was cluttered has been put into four drawers. But, Cosmos-chan, this is where the problem starts. I understand how to look at the muscles, skeleton, and blood flow of individual companies' PL, BS, and CF because you taught me, but I don't know 'where' I should look for each investment theme."

Cosmos: "That's a good question, Yell-chan. Since you have the 'weapon' of knowing how to read financial statements, the next step is to decide 'where to look' for each theme. Instead of looking down and chasing numbers, you use the numbers the companies release to see the landscape of 'what this theme is currently reflecting in the market'. So, shall we think together about what to look for regarding the four themes of AI semiconductors, defense, tourism, and GX?"

By Theme: What to Look For

🔶 AI & Semiconductors—'Next Fiscal Year's Outlook' is Everything

Cosmos: "You see, for AI semiconductors, the focus is actually more on 'next term's outlook' than on 'this term's results'. For companies that make semiconductor manufacturing and testing equipment, their performance is determined by how much capital expenditure their customers, the semiconductor manufacturers, will make in the future. That's why the figures that Advantest and Tokyo Electron present, saying 'this is what next term will look like,' are the biggest checkpoints for predicting whether AI investment will continue."

Yell: "I see. Since semiconductors have 'seasons' called the silicon cycle, even if it's a hot summer now, we're most concerned about what happens next, right?"

Cosmos: "Exactly. Another supplementary checkpoint, in terms of seeing the impact of geopolitical risk, is how the sales ratio to China is changing. This shows how the impact of export restrictions is appearing in the numbers."

🔶 Defense—'Future Work' over 'Current Sales'

Cosmos: "For defense-related companies, while current sales and profits are important, 'the work that will come in from now on' often provides more hints. Since companies take years to record sales after receiving an order, the muscles of the P&L (sales and profits) are lagging indicators. To see how those muscles will grow, the figure called 'order backlog' found on the B/S is a good reference."

Yell: "I see. Like 'seeds for future muscles.' But until that really turns into money, couldn't the plans change along the way?"

Cosmos: "Good point. If you want to track that progress, you might want to check the figure called 'progress rate'. By seeing whether long-term contracts are being fulfilled as planned, you can understand the speed at which the order backlog is actually turning into sales."

Yell: "So, I look at the 'future muscles' with the order backlog, and see if 'it's really moving' with the progress rate. Then, when looking at Mitsubishi Heavy Industries or Kawasaki Heavy Industries, I should look at the B/S before the P&L, and then read the company's explanation, right?"

Cosmos: "That's right. That's proof that you've properly internalized how to look at muscles, bones, and blood flow."

🔶 Inbound/Tourism—Look at 'Quality' over 'Quantity'

Cosmos: "Next is inbound. This is the time when it shifts from the recovery phase to the quality growth phase. Whether it's airplanes, bullet trains, or theme parks, it's becoming harder to see things just by saying 'passengers and visitors have increased.' Figures like unit price per person, such as 'passenger unit price' or 'sales per person,' are often better clues."

Yell: "Inbound has tended to be news about 'a huge influx!', but from now on, 'what kind of people are spending money and how' will become important. To see the quality of tourism, it's 'unit price' over quantity, huh. It was important to look at the 'quality of muscles' by breaking down the contents, not just the top line of the P&L. For example, for Oriental Land, it's number of visitors × sales per person, and for JR Central or airlines, it's number of passengers × transport revenue per person, right?"

Cosmos: "That's amazing, Yell. You're already able to break it down yourself. If you get into the habit of breaking things down like that, you'll be able to see the reality behind the simple news of 'it's doing well' through the numbers."

🔶 Decarbonization/GX—Look at 'Resources' and 'Non-Resources' Separately

Cosmos: "Finally, the general trading companies that will line up on May 1st. While the impact of high resource prices and the weak yen is significant, what the market has been paying attention to for a long time is, actually, the sustainability of the 'profit margin of the non-resource segment'. Since resource prices will eventually fluctuate, whether a company is worth investing in for the long term with peace of mind is often hinted at by how stably they are earning in non-resource fields like food, information, and finance."

Yell: "Resources depend on 'the price at that time,' but non-resources are 'the company's true strength'. So, when looking at trading companies, it's important to first separate the total profit into resources and non-resources, and see if the non-resource part is growing properly, right?"

Cosmos: "Yes. And one more thing. Trading companies are industries with abundant cash flow. Checking the 'blood flow' in the CF statement to see the balance between investment and shareholder returns is also a very good place to look."

Yell: "So I look at not just the muscles (P&L), but also the blood flow (CF). I'll be sure to follow the numbers for Itochu's non-resource profit margin and Mitsubishi Corporation's shareholder returns next week."

Yell's 'Checkpoints for Next Week'

Yell: "I think I'm starting to get it. I feel like I can properly apply the weapons I have (P&L, B/S, CF) to these places I should be looking at."

Cosmos: 'You've organized that well. Keep it up.'

Lumo: 'Yell, that's amazing! Then, let's try looking at earnings reports next week using those points to watch!'

Yell: 'Yeah! I'll give it a try! Even if I can't cover everything, if I look at the points I've decided on, the way I see the news might change.'

Cosmos: 'That's right. No one understands everything. But when you have 'points to watch that you've decided on yourself', the view changes even for the same earnings report. So, take that perspective next week and go take a look at the actual earnings. And when you have the results, let's check our findings together.'

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*This article explains basic investment knowledge. It does not recommend buying or selling specific stocks. Please make investment decisions at your own risk.