TOKYO Fuji Heavy Industries Ltd (7270.T) should be able to reach its profit forecast for this year even with the dollar trading 3 yen below its assumption because it is protected through hedging through the first half, its president said.
The dollar's fall near a record low against the yen is offsetting much of the profits garnered from brisk sales of the company's Subaru cars. Fuji Heavy sold just under half of its cars in North America last year, and every 1-yen fall in the dollar wipes out 5 billion yen from its annual operating profit.
"The yen's strengthening is a headache but we won't have to revise our projections downward," President Yasuyuki Yoshinaga told Reuters in an interview on Monday, saying the company was hedged at 81 yen to the dollar for a six-month period.
Last week, Fuji Heavy reported an operating profit of 10.67 billion yen ($136 million) for the April-June first quarter, down 53 percent from the year before, hit by the March 11 earthquake. That put it well on track to reach its target of 30 billion yen ($382 million) for the business year to March 2012.
A poll of 18 analysts by Thomson Reuters I/B/E/S put the consensus forecast at 53 billion yen.
Yoshinaga warned, however, that the yen's persistent strength remained the biggest risk for Fuji Heavy, which he said was helpless against the dollar's fall in the short term beyond currency hedging.
In the longer term, Fuji Heavy is looking to reduce some exposure by building cars in China through a planned local joint venture instead of exporting them from Japan.
But those plans have been on hold as Fuji Heavy awaits approval from the Chinese government to form a joint venture with a local partner, which sources have identified as Chery Automobile, the country's largest independent automaker.
"Three years ago, it may not have taken this long but now the country is at the stage where they're thinking strategically about what is needed to foster growth of home-grown automakers," said Yoshinaga, who was appointed president and chief operating officer in late June.
"We'll just have to wait and see."
Fuji Heavy had initially said it expected to have a joint venture agreement sealed by the end of 2010. As part of a new five-year growth plan through March 2016, the company is aiming to more than triple sales in China to 180,000 vehicles, which Yoshinaga said would require local production.
U.S. DEMAND STILL STRONG
Fuji Heavy, the smallest of Japan's eight car makers and owned 16.5 percent by Toyota Motor Corp (7203.T), had been on a roll with market-beating growth in the United States, its most important market, until the earthquake in March disrupted production.
Yoshinaga said Subaru's U.S. inventory was currently at a razor-thin 19 days, and would hit bottom at the end of August as its Japanese factories take a week off for the summer holidays.
Still, Yoshinaga said he was confident of reaching a U.S. sales target of 250,000 vehicles this year, by making up for lost output in the second half and building up inventory to a healthy 60 days' worth by the end of 2011.
"Subaru's sales momentum is still strong," Yoshinaga said, noting that dealers were offering under $1,000 per car in incentives, far below the industry average.
"I'm not too worried that any deterioration in consumer sentiment (in the United States) would hurt Subaru."
($1 = 78.490 Japanese Yen)
(Additional reporting by Kentaro Sugiyama; Editing by Chris Gallagher)