Japan carmakers seen giving downbeat growth outlook
TOKYO (Reuters) -- Japan's top automakers are mostly set to report strong annual profit growth fuelled by brisk U.S. and European sales, but guidance for this year may be downbeat to account for the risk of a stronger yen and higher steel prices.
The business year ended on March 31 is likely to show effective double-digit growth for Toyota Motor Corp., Honda Motor Co., Mazda Motor Corp. and Suzuki Motor Corp., also lifted by a softer yen.
Third-ranked Nissan Motor Co. alone is set to suffer an 11 percent drop in operating profit as sales in its two main markets, the United States and Japan, slumped and failed to recover enough despite the launch of an array of new models.
Consensus forecasts from 18 brokerages have Nissan's profit rebounding 8.5 percent from last year's low base in 2007/08, but still almost $252.7 million (30 billion yen) short of the 871.8 billion yen booked two years ago.
Credit Suisse Securities auto analyst Koji Endo said Nissan may release forecasts for only a marginal rise to avoid any downward revision later.
That phenomenon could be seen across the board. Carmakers, generally cautious in their profit outlooks, could assume a weaker dollar rate of 115 yen for the new year, versus an average 117-118 yen for the just-ended term and around 118 yen now.
"The difference between an assumption of 120 yen and 115 yen could be the difference between a profit rise or fall for some," said UBS Securities analyst Tatsuo Yoshida.
SUZUKI ON TOP
Apart from Nissan, which faces easy year-over-year comparisons in 2007/08, Suzuki is also likely to post a convincing rise even with the stronger yen, he said.
"Structurally, Suzuki is in the best position," Yoshida said, referring to its relatively small exposure to the shrinking domestic market. Suzuki builds half of its vehicles in Japan, a third of which are exported.
Other analysts also singled Suzuki out as their top pick given the compact car maker's aggressive expansion plans -- in India, Hungary, Pakistan and Japan -- as consumer interest in small, fuel-saving cars spreads.
"The company that will look good all-around is Suzuki," said Credit Suisse's Endo.
A survey of 16 brokerages by Reuters Estimates has Suzuki's operating profit growing 13 percent to a record $1.28 billion (151.8 billion yen), Japan's only top-five carmaker likely to again post a double-digit rise.
"Even Toyota will probably see profit growth of just 5 percent or so after more than a 20 percent jump last year. That may be interpreted as a break in its run," Endo said.
AUTO STOCKS UNDER PRESSURE
The transport sector lost 7.4 percent during January-March to underperform the broader Japanese stock market, partly because of worries about the U.S. economy and currency rates.
"I expect auto stocks to lack lustre at least through the first quarter," said UBS's Yoshida, noting that market bears would want proof of healthy fundamentals that may come only in the summer with expected brisk U.S. sales figures.
While the rate of profit growth will slow, analysts said auto stocks had room to rise given their firm longer-term prospects.
"We think there is average upside potential of 15 percent in the auto sector through March 2008," JPMorgan Securities analyst Takaki Nakanishi wrote in a report last week. "The recent share price correction has gone too far, and we expect stocks to start to rally in mid-May after the end of results announcements and associated guidance risk."
Nikko Citigroup's Noriyuki Matsushima said demand for Japanese cars should continue to grow around the world as long as fuel prices stay high.
"Japanese automakers are much more resilient to a stronger yen than they were five years ago," he said. "If the dollar averages around 115 yen, I expect most will be able to book a rise in profits."
Honda will kick off the earnings season on Wednesday, April 25. Operating profit at Japan's second-ranked automaker is estimated to fall 4.8 percent in 2006/07 after results were inflated by one-off pension-related gains the previous year. Stripping out that factor, profit is seen rising 13 percent.
Nissan reports on Thursday, April 26, followed by Mazda and Suzuki on Friday, April 27, and Toyota on May 9.
