野村證券

The huge damage from the tsunami is likely to focus market attention on Penta-OceanConstruction [1893] (Neutral; ¥137, 11 March), which specializes in shoreline and riverprotection work, along with companies specializing in fixing damaged support pillars and paving on expressways, such as Sho-Bond Holdings [1414] (Buy; ¥1,744), Yokogawa Bridge Holdings [5911] (Buy; ¥479) and Nippo [1881] (Neutral; ¥549). Another focus will likely be Kajima [1812] (Neutral; ¥212), as the Tohoku region is historically its home market. With regard to recovery in the power supply, Yurtec [1934] (No rating; ¥372), a subsidiary of Tohoku Electric Power [9506] (Neutral; ¥1,886), will be principally responsible. However, it will clearly lack sufficient capacity, so companies in neighboring regions, such as Kandenko [1942] (Buy; ¥497), will probably see order growth as they help out.

• Minimal negative impact on general contractors: While the general contractors all have some projects in Tohoku, they are not engaged in any big projects in the region that are likely to impact earnings, so the negative effect should be minimal. Tohoku accounted for 5.0% of orders at Shimizu [1803] (Neutral; ¥336) in Apr-Dec 2010, and Hokkaido for 2.3%, while the respective figures for Kajima in Apr-Sep 2010 were 5.5% and 1.0% Other general contractors do not disclose the regional breakdown of orders.

• Expectations of reconstruction demand likely to mount for construction sector: As occurred just before the close of trading on Friday, expectations of reconstruction demand are likely to be heightened for the construction sector. General contractor stock prices generally rose in the month following the Great Hanshin (Kobe) earthquake in January 1995, with those of companies based in the Kansai region, including Obayashi [1802] (Neutral; ¥348), Okumura [1833] (Neutral; ¥305) and Kinden [1944] (Neutral; ¥724), rising most. Share prices also rose for Sho-Bond, a specialist in reinforcing work to improve earthquake resistance, and Penta-Ocean, which specializes in marine construction. However, general contractor share prices had fallen back to pre-earthquake levels by end-March 1995, while the prices of Kinden, Sho-Bond and Penta-Ocean remained firm. Stock prices reacted little to the earthquake off Niigata in July 2007, and at the time, construction sector prices were declining because of deterioration in profitability. The underlying earnings of mainly general contractors rose following the Kobe earthquake, mostly in civil engineering and building construction, but declined again in 97/3–98/3 because of a subsequent negative reaction. While some new demand can be expected this time, the difference in extent is likely to be minimal.

• Market reaction: The huge damage from the tsunami is likely to focus market attention on Penta-Ocean, which specializes in shoreline and river protection work, along with companies specializing in fixing damaged support pillars and paving on expressways, such as Sho-Bond Holdings, Yokogawa Bridge Holdings and Nippo. Another focus will likely be Kajima, as the Tohoku region is historically its home market. With regard to recovery in the power supply, Yurtec, a subsidiary of Tohoku Electric Power, will be principally responsible. If it lacks sufficient capacity, companies in neighboring regions, such as Kandenko, will probably see order growth as they help out. If however, the problems that Tokyo Electric Power [9501] (Buy; ¥2,121) has at its Fukushima nuclear power plants become as serious as those it experienced at Kashiwazaki-Kariwa nuclear power plant, it could be forced to reduce capital spending again, and this would hurt the earnings of Kandenko. Another concern is the regional broadband networks currently under construction by Comsys Holdings [1721] (Neutral; ¥780) and Kyowa Exeo [1951] (Neutral; ¥735). These optical fiber projects at local government level are led by the Ministry of Internal Affairs andCommunications, and both companies are involved in big projects in Hokkaido and Tohoku. Work has apparently already been delayed by heavy snow, and completion of the projects may be further delayed by the earthquake. Customers would normally accept delays that are due to a natural disaster, so this would simply mean that the recognition of sales is delayed until a subsequent fiscal year, but it could depress earnings in 11/3. (GH/NW)