Summer is here. But given the great uncertainties over geopolitics, only a fool would "sell in May and go away." You simply don't know what's going to happen week to week.
For north Asia, next summer will of course be dominated by the Olympics in Tokyo. The organizers are holding a ceremony today to mark one year until the opening ceremony on July 24, 2020, on Wednesday revealing the medals that will be up for grabs.
Meantime, for this summer, it seems young Japanese people are heading to the movie theater. That appears to put paid to the debate over whether the summer blockbuster still holds any sway.
One of my very first memories is an early birthday party that I held at a showing of Star Wars. My Mum came along to chaperone my buddies and me, but I was so young I didn't care. It was all so cool. I was a little young for Jaws, but recall a kids' trip to see Jaws 3-D a little later.
Streaming, YouTube and smartphone apps have (the theory goes) spelled doom for the summer "movie to see." Despite the distractions of novels distributed by text, Japanese citizens still appreciate a trip out to see a film.
Toho T:9602 is close to a pure play on the Japanese box office, a studio that owns movie theaters, too. It's the epicenter of Japanese film creativity, the studio that created Godzilla, as well as the producer of the movies of Akira Kurosawa and Hayao Miyazaki. I highlighted it in January as a Japan stock to target in 2019. It's up by more than a third in the last year.
Real estate is also a hefty component of the business. It bought out the cinemas started with backing from the Virgin Group in 2003, making it the second-biggest chain behind the former Warner affiliate Aeon Entertainment, part of Aeon T:8267, which is accessible to U.S. investors through its ADR (AONNY) .
Toho raised ticket prices on June 1 by ¥100, around $1, and it seems to have got away with the revenue boost. A normal ticket went up by 5.6% to ¥1,900 ($17.50). Concessionary tickets for first-day, ladies'-day, and senior sales rose by 9.1% to ¥1,200 ($11.10). Japan offers deals for couples, too, and those went up ¥200, to ¥2,400 ($22.20), also a 9.1% rise.
Toho is distributing the biggest smash so far this summer. It's an anime flick, Weathering with You, made by CoMix Wave Films. Its first three days generated ¥1.64 billion ($15 million) in box-office revenue, a soaring 28.6% rise over the previous movie from the same director, Makoto Shinkai. That film, Your Name, went on to generate total ticket revenue of ¥25 billion ($231 million).
Weathering with You, a love story with an environmental theme and hints of Shinto rain ceremonies, is getting 59% of its sales from 20-somethings and teens. Another 25% comes from folks in their 30s and 40s, which represents a broader base than the previous film.
Japanese anime typically has a cult following, but doesn't do great international sales. The Japanese studio has launched the Toho Global Project to promote its productions overseas -- and this is part of a strong string of upcoming movies.
Business is also brisk within Japan for international films. Toy Story 4 is a big hit for Walt Disney (DIS) subsidiary Pixar, with a first-weekend take of ¥1.4 billion ($12.9 million), which is 40% higher than for Toy Story 3. The latter eventually took in ¥10.8 billion ($99.8 million) in Japan.
In fact, the three-day opening of ¥1.7 billion is higher than for Frozen, which eventually reached a massive final box-office tally of ¥25.5 billion ($235 million).
"It is still too early to tell from the initial trends if Toy Story 4's box office revenue will top that of Frozen, but the movie is indeed off to an encouraging start," Nomura analyst Yoshitaka Nagao, who covers internet and media in Japan, says.
Toho is also distributing Pokémon the Movie: Mewtwo Strikes Back: Evolution, a second sequel with three names. Its two-day box office take of ¥600 million ($5.6 million) is up 10% on Pokémon the Movie: The Power of Us, which came out last July and captured ¥3.09 billion ($28.6 million) in ticket sales.
We're still early in the season, but Nomura notes that final box-office figures for major movies tend to exceed the initial take by more than 10x in magnitude.
Toho's shares are up 7.5% so far this year. But they have fallen 11.8% in the last week, as they suffered a downgrade from the brokerage Jefferies. But Jefferies made its move mainly because the stock had gained 37% in a year, enough to be approaching its target price. That advance was well ahead of the Topix, which is up a modest 5.4% year to date.
Jefferies was positive after Toho released earnings for the quarter through May on July 12, with recurring profits up 24.8%, and revenue up 2.3%. Both numbers declined the same time last year. If Weathering with You is the hit it seems to be, Jefferies predicted operating profit for the next quarter would be up 11%. In other words, the early signs are that the stock could start to rise again.
Japan is enjoying an economic resurgence under Prime Minister Shinzo Abe, soon to become the longest-serving leader the country has seen. That stability is finally removing the legacy of the "lost years" after the 1980s bubble burst. Higher wages and greater leisure time for younger people seem to be creating a feel-good factor that's creating a fundamental uplift for the film industry.
If its international push works well and Toho is able to continue adding to earnings with successful real-estate development, its stock could get a decent boost in the second half of the year from a strong summer in front of the screen.