Japan shipping lines post Q3 profit falls

Published February 13, 2006
BT
Japan shipping lines post Q3 profit falls; cut annual forecasts
They face rising container shipping capacity, pressure on freight rates, high fuel costs

(TOKYO) Japan's top three shipping firms have said that a fall in freight rates slashed quarterly profit more than 20 per cent, and surprise cuts in annual forecasts at the two largest firms drove the sector's shares sharply lower.

Rough seas ahead: Kawasaki Kisen reported a 26 per cent drop in third quarter profit to 19.08 billion yen but is maintaining its full year forecast of 91 billion yen, down 16 per cent from 2004/05
After a bumper year on a China-led boom, the three companies - Nippon Yusen KK, Mitsui OSK Lines Ltd and Kawasaki Kisen Kaisha Ltd - see tough times ahead, faced with a rise in global container shipping capacity, pressure on their freight rates and high fuel costs.

Nippon Yusen and Mitsui's downward revisions of their full-year profit forecasts took the market by surprise.

'The companies' sentiment on the global market outlook appears to have suddenly turned pessimistic,' said Yoshihisa Miyamoto, an analyst at Okasan Securities.

'A long recovery trend in their share prices continuing since 2002 could now have been snapped.'

On Friday, shares in Nippon Yusen, the world's ninth-biggest container shipper, closed down 8.35 per cent at 790 yen, while Mitsui OSK fell 6.09 per cent to 972 yen. Kawasaki Kisen lost 5.20 per cent to 711 yen.

The sector index tumbled 6.15 per cent, the biggest percentage loser of 33 subindexes on the broad TOPIX

'The fall in freight rates is dragging down their bottom lines. Nonetheless, their stocks' low valuations will somehow attract investors,' said Hajime Yagi, general manager at Meiji Dresdner Asset Management.

The sharp declines in profits come despite efforts by the three companies to break the industry's pattern of boom and bust by diversifying into land and air transport or increasing reliance on stable tanker operations under long-term contracts.

Still, the three firms' price-earnings multiple averages 9, less than half of the Nikkei's top 225 firms' average PE of 23.

Nippon Yusen's operating profit plunged 21 per cent to 39.4 billion yen (S$545 million) in the October-December quarter, despite a 25 per cent jump in sales to 524.2 billion yen.

The company slashed its operating profit target for the year to March by nearly 10 per cent to 140 billion yen, below a consensus projection of 157.8 billion yen in a poll of 13 analysts by Reuters Estimates.

'Competition is intensifying, and fuel costs will stay high. We see a tough business environment for next year,' Yukio Ozawa, chief financial officer at Nippon Yusen, told a news conference.

Mitsui OSK's quarterly profit fell 22 per cent to 42.3 billion yen.

It lowered its full-year outlook by 8 per cent to 174 billion yen, although the new forecast would still represent a small rise from the previous year's actual profit of 171.8 billion yen.

Kawasaki Kisen, which relies relatively heavily on container shipping, reported a 26 per cent drop in profit to 19.08 billion yen and maintained its full year forecast of 91 billion yen, down 16 per cent from 2004/05.

Nippon Yusen and Mitsui said businesses other than container shipping did well, despite a fall in spot rates shippers can charge for transport of iron ore, coal and other materials.

The Baltic Exchange Dry Index, which tracks the freight rates of dry bulk carriers, fell nearly 40 per cent in April-September after Japanese and European steel makers curtailed iron ore imports and Chinese imports remained low. - Reuters