PREVIEW-Japan, Korea carmakers poised for big profit growth

Fri Apr 20, 2012 11:48am IST

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* Weaker yen, U.S. growth aid recovery

* Korean automakers gain from U.S. consumer shift

By Chang-Ran Kim and Hyunjoo Jin

TOKYO/SEOUL, April 20 (Reuters) - Japanese automakers are expected to show a big improvement in quarterly profits as they ramp up production held down last year by disasters at home and in Thailand, setting the stage for a convincing recovery in the year ahead.

South Korean rivals Hyundai Motor Co and Kia Motors Corp, are also expected to post solid earnings for the January-to-March quarter, defying concerns about competition from resurgent Japanese automakers thanks to better-than-anticipated sales overseas.

Many analysts have raised their 2012/13 profit forecasts for Japan's top three automakers to reflect a weaker yen since the central bank's monetary easing in February and a more robust recovery in the profitable U.S. market.

"After struggling with the impact of natural disasters in 2011/12, we generally expect assemblers to produce solid earnings this year," Goldman Sachs analyst Kota Yuzawa wrote in a report.

Toyota Motor Corp and Honda Motor Co had a dismal 2011, dominated by supply chain disruptions from last year's earthquake and tsunami in eastern Japan, the yen's record strength and renewed output cuts from October due to historic flooding in Thailand.

As Toyota and Honda lost market share around the world, Nissan Motor Co shined as Japan's No.2 automaker recovered more quickly from both natural disasters and took more aggressive and speedy steps to offset currency losses by importing more parts.

The final January-March quarter for Japan's top three automakers is expected to show a surge in earnings, but cap a year of double-digit drops in operating profit for Toyota and Honda, while Nissan is seen managing a slight rise for the year.

As automakers announce their results in the coming weeks, the focus will be on the scope of profit recovery they forecast for the year ahead, analysts said.

"Currency assumptions will probably be neutral to positive, while sales growth should be huge as they bounce back from the disasters," said Credit Suisse analyst Kunihiko Shiohara.

"On the other hand, there should be a natural rise in costs that were held down last year, so the question will be what kind of net profit gain they'll forecast," he said, noting that Japanese automakers tend to provide conservative estimates.

SOUTH KOREANS STILL ON A ROLL

Hyundai and its affiliate, Kia, rode the U.S. market recovery with sales gains there while also bucking the downturn in Europe, which helped offset weak domestic sales.

"Once again, there was no observable zero-sum game pattern between Korean and Japanese brands," Credit Suisse said in a report.

Hyundai's U.S. chief said last week the automaker could see its sales top 700,000 vehicles in the world's second-biggest auto market this year, above its previous target of 675,000 vehicles.

The South Korean duo could especially benefit from a shift by U.S. consumers to compact cars due to rising gasoline prices because Japanese rivals import their smallest cars from Japan, making them less price-competitive at current exchange rates, JP Morgan analyst Kohei Takahashi said.

Hyundai and Kia are headed for record-high profits in the current April-June quarter, driven by seasonal demand and new model launches such as Hyundai's Santa Fe SUV and Kia's K9 luxury sedan in South Korea, analysts said.

MARUTI TURNS CORNER IN INDIA

Top Indian automaker Maruti Suzuki India Ltd is expected to post its first rise in revenue in three quarters after a torrid financial year for the carmaker as Tata Motors Ltd continues to see revenue and profit surge on the back of strong sales at its Jaguar Land Rover unit.

Maruti has posted two consecutive quarters of falling profits as the car maker struggled with an industry-wide sales slowdown and the impact of widespread labour unrest at its factories in 2011.

Car sales in India grew an annual 13.4 percent in the January-March quarter and revenues are seen rising across the industry, but profits are expected to fall as increased input costs and a weakened rupee curb operating margins.

"Year-on-year volumes are up and that will reflect in higher revenues, but profits will be lower as margins are hit by around 200 basis points, mainly due to unfavourable currency moves," said Joseph George, an auto analyst at IIFL Securities in Mumbai.

Indian automakers import a substantial number of parts and machinery. The rupee fell 13.5 percent in the year to March 31.

Maruti, 54.2 percent owned by Japan's Suzuki Motor Corp , saw sales rise in January for the first month since May 2011 and is seen posting a 14.5 percent rise in revenue, but a 14.4 percent slide in profit.

Tata, whose sales jumped more than 20 percent in the quarter due to continued demand for its Jaguar and Land Rover vehicles, is seen posting a 20 percent rise in profit even as the performance of its domestic business lags.

The British luxury brands accounted for more than 90 percent of profit in the previous quarter.

Overall car sales in India rose just 2.2 percent in the year to end-March, the slowest growth in three years, as costly credit and the rising price of fuel in Asia's third-largest economy smothered demand. (Additional reporting by Henry Foy in MUMBAI; Editing by Matt Driskill)

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