Japan’s trading houses are on course to deliver record profits for the current fiscal year in spite of fluctuating commodity prices.
Mitsubishi Corp – the largest of the big five trading companies – on Tuesday reported solid third- quarter earnings, and stuck with its bullish full-year net profit forecast of Y450bn ($6bn), despite lingering damage on its auto and coal businesses from last year’s floods in Thailand and Australia.
The other four trading companies – Mitsui & Co, Sumitomo Corp, Itochu and Marubeni – will report on Thursday. Analysts expect the quintet to post a combined Y1.62tn of net income in the year to March – almost a quarter of the total profit of non-financial companies in the Nikkei 225. “The others should be as good, if not better than Mitsubishi,” said Penn Bowers, a Tokyo-based analyst at CLSA.
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At Mitsubishi Corp, metals accounted for two-fifths of net profit in the first nine months, with energy just over a quarter. However, a general buoyancy in commodities meant that it made money in each of its six main segments, spanning logistics to “living essentials” such as sugar, rice and cement. Of the dozens of business divisions run by the big five, Nomura expects just two of them – real estate development at Marubeni and consumer services at Mitsui – to lose money this year.
Yet, despite projections of combined net income about 10 per cent better than the previous record in the year to March 2008, the big five are trading at the five lowest forward price to earnings multiples among non-financial companies on the Nikkei.
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However, they are yet to prove they are as good at operating assets as they are at booking profits from them, said Yasuhiro Narita, an analyst at Nomura. “You have to ask whether active investment policies will, upon implementation, lead to earnings growth.”
