Toyo Keizai Issues Revised Sector Outlook
Toyo Keizai has issued its revised Kaisha Shikiho, which has yearly profit forecasts for key sectors (paid subscription required). According to the summer edition published on June 15, operating profits of all Japanese companies (excluding financials) are expected to be up 5.0% in fiscal 2006, compared with a 10.4% increase for fiscal 2005, while net income is slated to rise 7.9% versus 42.8%. The anticipated advances also represent a significant softening from the previous forecasts in March, which were 7.2% for operating profits and 12.4% for net income.
Overall, although the benefits from high natural resource prices that "upstream" (production) sectors have enjoyed should taper off, mid- and lower stream (refining and processing) sectors are expected to show stability. High oil prices and yen appreciation, as well as the expected termination of the BOJ's zero-interest rate policy, are minuses for the majority of sectors. Nevertheless, strong capital investment, higher consumption, and expanded exports continue to bode well for steady profits in many industries. Although the recent weakness in the market has invited some nervousness, looking at company results alone, the path ahead seems stable.
Notably, most of the deterioration has been in the manufacturing sector, whose operating profits are now expected to be up 4.6% versus 13.2% previously. In contrast, the nonmanufacturing forecast has remained about the same, dropping only slightly to 5.6% from 6.1%.
Within the TSE's 33 sectors, eight are expected to show operating profit decreases: mining, medical supplies, oil and coal, rubber, steel, land transportation, marine transportation, and electric and gas. The decrease in oil and coal reflects lower expected profits from inventory valuations, while the fall-off in steel is due to decreased raw material inventory profits as well as less robust business conditions. Similar reasons will limit profits for nonferrous metals. Rubber products will be hurt by higher costs for natural rubber and oil. There are industry-specific reasons for the declines in land transport, marine transport, and electric/gas, but all will be negatively affected by higher oil prices. In medical supplies, the biannual reduction in prices occuring this year will impair results.
On the other hand, the airline, glass and ceramics, fisheries and agriculture, real estate, financials, textiles, machinery, retail, precision instruments, electrical goods, and wholesale sectors are expected to do well. Operating profits for airlines are expected to rise 44%, although much of that is due to the return to profit of JAL, which recorded a big loss in the previous year. Fisheries and agricuture similarly reflect better comparisons from the previous year, when fish costs were high and market conditions weak.
On the other hand, an anticipated 23.5% advance for glass and ceramics is due to greater demand for flat-screen TVs; the purchase of Britain's Pilkington by Nippon Sheet Glass is another special factor in the mix. In textiles, materials with high functionality and product for cars create favorable conditions for the industry. Healthy capital investment brightens the picture for real estate, financials, machinery, and precision instruments. Electrical instruments and retail will be supported by strong personal consumption, and the wholesale sector will benefit from continued strong demand for energy resources.
However, the auto sector will be sluggish, with only a 0.6% gain expected. While in the last term the sector boosted the economy with an 18.4% increase, this year a higher yen and greater raw material costs, as well as bigger customer rebates, will damp down profit growth. Nevertheless, car companies are using a Y110 to $1 rate, and that may be conservative. The financial sector is expected to remain solid, rising 3.4%.
Currently, the forecast for operating profits for all firms (excluding financials) for fiscal 2007 is +9.0%, representing a return to stronger profit increases. Fiscal 2005 earnings were unusually good, leading to expected difficult comparisons for 2006, which are also unusually affected in some sectors by a high-cost environment. With the return of more normal profit levels, and likely higher revenues and lower costs, comparisons for fiscal 2007 should be easier. All sectors in 2007 are expected to post gains.
(Please note that the original Japanese version contains tables for March 2006 results and March 2007 and March 2008 estimates, as well as the traditional "weather map" showing clear or cloudy skies for each sector.)
Toyo Keizai has issued its revised Kaisha Shikiho, which has yearly profit forecasts for key sectors (paid subscription required). According to the summer edition published on June 15, operating profits of all Japanese companies (excluding financials) are expected to be up 5.0% in fiscal 2006, compared with a 10.4% increase for fiscal 2005, while net income is slated to rise 7.9% versus 42.8%. The anticipated advances also represent a significant softening from the previous forecasts in March, which were 7.2% for operating profits and 12.4% for net income.
Overall, although the benefits from high natural resource prices that "upstream" (production) sectors have enjoyed should taper off, mid- and lower stream (refining and processing) sectors are expected to show stability. High oil prices and yen appreciation, as well as the expected termination of the BOJ's zero-interest rate policy, are minuses for the majority of sectors. Nevertheless, strong capital investment, higher consumption, and expanded exports continue to bode well for steady profits in many industries. Although the recent weakness in the market has invited some nervousness, looking at company results alone, the path ahead seems stable.
Notably, most of the deterioration has been in the manufacturing sector, whose operating profits are now expected to be up 4.6% versus 13.2% previously. In contrast, the nonmanufacturing forecast has remained about the same, dropping only slightly to 5.6% from 6.1%.
Within the TSE's 33 sectors, eight are expected to show operating profit decreases: mining, medical supplies, oil and coal, rubber, steel, land transportation, marine transportation, and electric and gas. The decrease in oil and coal reflects lower expected profits from inventory valuations, while the fall-off in steel is due to decreased raw material inventory profits as well as less robust business conditions. Similar reasons will limit profits for nonferrous metals. Rubber products will be hurt by higher costs for natural rubber and oil. There are industry-specific reasons for the declines in land transport, marine transport, and electric/gas, but all will be negatively affected by higher oil prices. In medical supplies, the biannual reduction in prices occuring this year will impair results.
On the other hand, the airline, glass and ceramics, fisheries and agriculture, real estate, financials, textiles, machinery, retail, precision instruments, electrical goods, and wholesale sectors are expected to do well. Operating profits for airlines are expected to rise 44%, although much of that is due to the return to profit of JAL, which recorded a big loss in the previous year. Fisheries and agricuture similarly reflect better comparisons from the previous year, when fish costs were high and market conditions weak.
On the other hand, an anticipated 23.5% advance for glass and ceramics is due to greater demand for flat-screen TVs; the purchase of Britain's Pilkington by Nippon Sheet Glass is another special factor in the mix. In textiles, materials with high functionality and product for cars create favorable conditions for the industry. Healthy capital investment brightens the picture for real estate, financials, machinery, and precision instruments. Electrical instruments and retail will be supported by strong personal consumption, and the wholesale sector will benefit from continued strong demand for energy resources.
However, the auto sector will be sluggish, with only a 0.6% gain expected. While in the last term the sector boosted the economy with an 18.4% increase, this year a higher yen and greater raw material costs, as well as bigger customer rebates, will damp down profit growth. Nevertheless, car companies are using a Y110 to $1 rate, and that may be conservative. The financial sector is expected to remain solid, rising 3.4%.
Currently, the forecast for operating profits for all firms (excluding financials) for fiscal 2007 is +9.0%, representing a return to stronger profit increases. Fiscal 2005 earnings were unusually good, leading to expected difficult comparisons for 2006, which are also unusually affected in some sectors by a high-cost environment. With the return of more normal profit levels, and likely higher revenues and lower costs, comparisons for fiscal 2007 should be easier. All sectors in 2007 are expected to post gains.
(Please note that the original Japanese version contains tables for March 2006 results and March 2007 and March 2008 estimates, as well as the traditional "weather map" showing clear or cloudy skies for each sector.)
posted by Bob at 9:37 PM
0 Comments:
Post a Comment
<< Home