ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter

Panasonic targets 'high-growth' return on investment

Electronics giant's auto-related business spearheads expansion

Panasonic President Kazuhiro Tsuga announces business results for fiscal 2016 at a press conference in Tokyo on May 11.

TOKYO -- After a year of biding its time, Panasonic looks ready to turn bullish again. At the beginning of the fiscal year through this past March, the Japanese electronics giant said it would retract a mid-term target of 10 trillion yen ($88.9 billion) in sales, and concentrate on investing to lay the foundations for future growth.

For fiscal 2017, the business expects to see an increase in group net profit for the first time in two years. But there may well be a number of pitfalls on the way.

"We are confident we can achieve increases both in sales and profit for the year through March 2018 and later years," said President Kazuhiro Tsuga at a financial briefing in Tokyo on May 11.

For fiscal 2016, net profit fell 10% from a year earlier, due mainly to an increased tax burden. On the other hand, operating profit rose 20%, indicating the core businesses is doing well. For fiscal 2017, the company projects sales will go up 6% from the year before to 7.8 trillion yen, and net profit will see a 7% increase to 160 billion yen.

Panasonic has maintained a goal of 250 billion yen net profit during the year through March 2019. The company is slowly but surely moving toward a growth phase, said Kota Ezawa at Citigroup Global Markets Japan.

Tsuga's confidence is backed up by strong growth in car batteries and other auto-related products. The president was lucid in answering some very detailed questions from reporters at the briefing.

During fiscal 2016, the company managed to offset soaring costs in hiring large numbers of nursing-care staff and housing sales representatives.

For the coming year, Panasonic will be able to reap what it has sowed in terms of investment, including in auto batteries for U.S. electric car company Tesla Motors, as well as the effects of converting a Spanish autoparts maker into a consolidated subsidiary.

Sales at Automotive & Industrial Systems, the in-house company that handles these auto-related businesses, are expected to increase 10% this year, the largest among Panasonic's four in-house companies.

Although the unit's operating profit will remain somewhat flat at 93 billion yen or so, its contribution to entire group earnings is significant. During the previous year, special factors such as a reduction of allowance for possible lawsuit expenses, as well as profits from business sellouts, pushed up earnings at AIS. Even without such extra earnings, the unit's profit forecast for this fiscal year has managed to avoid a significant decrease.

Potential or maturity?

Panasonic divides its business units into three categories: "high-growth" businesses on which it concentrates investment and resources; a "stable growth" group with steady earnings, and "low-profit" units that need to be strengthened.

In-flight entertainment systems used to be a high-growth unit, along with AIS. But it has been regraded to stable, according to Tsuga. Panasonic controls more than 70% of the market globally. But the company sees little potential for further growth in a market which is now becoming mature.

Panasonic's in-flight entertainment system business mostly relies on a U.S. subsidiary, which has been under investigation from U.S. authorities for possible bribery, resulting in its president stepping down in February. The manufacturer has confirmed it has booked allowance for legal and other expenses possibly arising from the matter for fiscal 2016, but it has not revealed details of the case, nor how much has been booked.

The company's price earnings ratio (PER) forecast ranged between 13 to 25 for the past year, and currently stands at 19 -- indicating the stock is neither expensive nor particularly cheap. On May 11, investors awaiting the disclosure of results later that day moved to buy Panasonic shares, pushing the price up to a year-to-date high. After the briefing, however, the shares fell for two trading days.

"I will buy the shares when the growth scenario at its auto-component business becomes more realistic," said a fund manager at a Japanese asset management company.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more