Japan Inc seen bracing for 25% drop in H1 profit
By Miki Shimogori
TOKYO, Sept 7 (Reuters) - Japan Inc's mighty profits may plunge 25 percent between April and September -- their biggest interim drop in six years -- and companies face a double-digit drop in profits for all of 1998/99, analysts said on Monday.
Current profits at major Japanese firms, which are being haunted by the spectre of deflation, are expected to fall a combined 25.4 percent year-on-year in the first half of the business year, Nomura Securities Co Ltd said.
''It's hard to find any bright spots on the corporate earnings front,'' said Takashi Ito, a strategist at Nomura. ''It seems that a resumption of exports from Asia played a big part in hurting corporate profits here.''
Nomura and other research institutes rushed to revise down earlier corporate profit estimates in the face of worse-than-expected sales slumps at home and in Asia.
They said companies would also be hit by an unexpectedly rapid fall in worldwide prices for goods such as steel and semiconductors caused by cheap Asian exports.
The stagnant business environment has already forced several big-name companies, notably electronics giant Hitachi Ltd to issue loss warnings for the full year.
Hitachi said on Thursday it would post a group net loss of 250 billion yen ($1.89 billion) in 1998/99 -- an announcement that sent shivers through Tokyo markets by raising the prospect of more downward revisions from other manufacturers.
The ''Hitachi shock'' was quickly followed by announcements from Japan's top six steel makers on Friday, which all said they would fall into the red on a group net basis for 1998/99.
Nomura said the forecast 25.4 percent year-on-year drop in current profits would be the biggest interim drop in profits by Japanese firms since the first half of 1992/93.
Other research firms predicted a similar drop.
Nomura said it now predicted a 11.2 percent drop in current profits, which are pretax and include gains or losses from non-operating activities, for the full year -- revising down a June estimate of a 6.6 percent drop.
The brokerage's report was based on a survey of 374 major Japanese companies and did not include financial institutions.
''We've never expected profits in the electronics sector would fall so far,'' Nomura's Ito said. ''We had thought chip prices would remain weak, but that gains such as from solid U.S. sales on the back of the weak yen would trim the loss.''
Ito said Sony Corp and Matsushita Electric Industrial Co Ltd appeared to have cut sales prices in the United States to compete with cheap exports from Korean producers. The price cuts were in turn eroding the benefits from a weak yen, which usually inflated their export returns.
Nomura said Japanese companies might enjoy a 4.3 percent rise in current profits in the second half, owing to the effects of the introduction of new car models and an expected recovery in personal computer output.
But such a rise was not assured, it said.
''The recent firm trend in the yen would not affect our profit estimates, we are more worried about the damage from possible declines in the global stock market,'' Nomura said.
Ito said a further dive in U.S. stocks would dampen U.S. consumers' appetite for Japanese cars and electronics products, which are expected to play a role as a pillar for corporate profits in the second half.
Nomura's profit estimates were based on an average dollar/yen rate of 133.9 yen for 1998/99. The dollar was at just below 132 yen in late Asian trade on Monday.
Nomura said it expected corporate current profit to grow 11.1 percent next business year.
($1=132 yen)
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