TOKYO/SEOUL Japanese automakers are set to post another fall in quarterly earnings on the lingering impact of the March 11 earthquake, while a shortage of parts due to flooding in Thailand has clouded their annual outlook.
In contrast, neighboring South Korea's Hyundai Motor Co (005380.KS) and affiliate Kia Motors Corp (000270.KS) are expected to continue reporting solid earnings, driven by sales gains in the United States and other markets.
Japan's top three automakers, Toyota Motor Corp (7203.T), Nissan Motor Co (7201.T) and Honda Motor Co (7267.T), were just beginning to ramp up production to make up for tsunami-related losses earlier this year, but the Thai floods have put the brakes on those plans. Thai factories of all three have been closed for weeks with no sign yet of a restart.
Even more painful is the strong yen, which hit a record high against the dollar of 75.73 yen on Tuesday, a 17-yen drop from last business year.
For Toyota, which assumed an average rate of 80 yen for the year to next March, every 1-yen fall in the dollar pushes annual operating profit down 34 billion yen ($450 million) because a strong yen makes exports less profitable and diminishes the value of earnings made overseas.
Second-quarter earnings will likely overshoot the guidance given by top Japanese automakers thanks to a faster-than-expected recovery in production. The focus will be on whether and how much they lift their forecasts amid all the negatives. Honda kicks off the Japanese reporting season on Monday.
"First-half earnings are likely to be well ahead of company plans, but we believe that full-year projections will probably be left unchanged," said Bank of America Merrill Lynch analyst, Takaki Nakanishi. "Market sentiment is likely to be dampened by the implicit downward revision to second-half earnings."
Among the three, Nissan is seen posting the biggest operating profit for July-September thanks to its brisk sales momentum in most major markets and a swifter comeback from the post-quake supply disruption.
Honda's second-quarter profit is forecast to fall 61 percent, according to a Reuters survey of 13 analysts, as a supply shortage dragged on longer than its peers. Its outlook has become shakier with its Thai car factory under water.
Thailand is a major regional hub for car and parts production for Japanese automakers, which dominate the Southeast Asian market. The country's worst floods in 50 years have forced the closure of seven industrial estates, including Ayutthaya, where Honda has a 240,000-vehicle-a-year factory.
Toyota's three factories were undamaged, but the broken supply chain began affecting its production in Japan and other Southeast Asian factories this week.
Nomura Securities analyst Masataka Kunugimoto estimates that a one-month suspension of output in Thailand would shave annual operating profit by 25 billion yen at Toyota, 8 billion yen at Honda and 7 billion yen at Nissan.
HYUNDAI, KIA MAINTAIN MOMENTUM
For Hyundai and Kia, whose sales are geographically diversified, analysts expect a bright outlook for the remaining three months, with cars like the Sonata and Optima winning over consumers with attractive prices, features and styling.
Once viewed as manufacturers of bland but economical cars, they have addressed design and reliability problems in recent years to outperform during the global financial crisis and have become formidable competitors to more established rivals.
Both companies have said they would likely beat their earlier sales targets for 2011 despite the euro zone's debt crisis and fears of a U.S. recession.
"I am not worried about South Korean carmakers' earnings in the (October-December) fourth quarter," said Park In-woo, an auto analyst at LIG Investment & Securities. "The macroeconomic uncertainty will have little impact on their sales."
Still, maintaining sales momentum next year in the face of a slowing global economy, resurgent Japanese rivals, and their stretched manufacturing capacity may be a challenge, analysts said.
Hyundai will report third-quarter earnings on Thursday and Kia on Friday.
SLOWDOWN IN INDIA
Indian automakers are expected to post a fall in second-quarter revenues on a slowdown in demand due to high interest rates. Higher raw material costs will crimp margins. The country's central bank raised interest rates again this week, for a total hike of 375 basis points since March 2010.
"Slower sales are going to impact the firms' operating leverage and we're likely to see discounts having a negative impact on profit margins," said Joseph George, industry analyst at Mumbai-based brokerage IIFL.
Top automaker Maruti Suzuki India Ltd (MRTI.NS), 54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), is forecast to report a 32 percent fall in quarterly net profit. The company has been hit by labor unrest, and strikes at its factories have cost it around $400 million in lost production.
Car sales in India fell in July in their first monthly decline in nearly three years. They continued to slide in August and September after a 30 percent jump last business year.
India's auto industry body this month slashed its growth forecast to 2-4 percent for this fiscal year from 12-14 percent previously.
($1 = 75.770 Japanese yen)
(Additional reporting by Henry Foy in Mumbai; Editing by Matt Driskill)