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Japan-Update

A quarter of Japan Inc. on track to record annual profit

Electronics, machinery, trading companies enjoy favorable trends

TOKYO -- One in four listed companies in Japan is on course to log record net profit for the year ending March 2018, as the business environment improves for a range of businesses in both the manufacturing and service sectors.

Friday marked the peak of interim earnings announcements by companies that close books in March. Aggregate sales among the 1,448 such firms that have released their April-September results thus far rose 9% on the year, and pretax profit and net profit both climbed 24%. Of those companies, 347 are expected to generate highest-ever net profit. Having overcome at last the blows of the 2008 financial crisis and appreciation by the yen, many companies are looking forward to their first record profit in a long while.

Winter turns to spring

In the manufacturing sector, notable recoveries are seen in electric equipment and machinery companies. Sony, for instance, booked massive losses for two straight years through fiscal 2014 due to the poor performance of its electronics business, including flat-screen televisions and smartphones. But this fiscal year, its net profit is seen soaring 420% on the year to 380 billion yen ($3.35 billion), hitting a new zenith after a decade.

The company has streamlined its operations by discontinuing lackluster businesses and downsizing staff. And strong demand for smartphone image sensors has boosted profit. Sony has been cultivating multiple earnings drivers, such as consumer game consoles and financial services, as well. "A sense of urgency is important," said Executive Deputy President Kenichiro Yoshida.

Mitsubishi Electric is enjoying an earnings boost from factory automation equipment, as makers of smartphones and electric vehicles have stepped up capital investment in China and elsewhere.

Akihiro Matsuyama, an executive officer in charge of finances, projects that demand from organic light-emitting diode panel and semiconductor industries also will increase in China.

Daifuku, which builds logistics systems used in factories and warehouses, is also on track for a record profit, helped by brisk demand from distribution centers amid the rise of e-commerce.

General trading companies are also seen generating record profits, thanks to the rise of commodity prices. Sumitomo Corp., for instance, is buoyed by higher prices of copper and nickel. "Metal prices will stay stable for the time being," said Chief Financial Officer Koichi Takahata.

In sectors mainly serving the domestic market, real estate and construction companies are faring well thanks to redevelopment projects in central Tokyo and rising land prices. Three major real estate companies, Mitsui Fudosan, Mitsubishi Estate and Sumitomo Realty & Development, are all expected to book record net profits this fiscal year.

Construction company Obayashi is on pace to deliver a three-year streak of record profits. Strong demand is boosting the company's price negotiation power. "We have been reexamining our pricing to reflect higher materials, labor costs and other factors," said Shozo Harada, executive vice president.

Strugglers

Meanwhile, office equipment maker Ricoh is expected to sustain its first net loss in six years, amid tougher competition stemming from weak demand for its mainstay multifunction copiers. "We placed a somewhat higher priority on market share expansion than profitability," President Yoshinori Yamashita said.

Nippon Paper Industries downgraded its earnings guidance for the year in light of higher materials costs and sluggish demand for paper.

"Companies that have steadily made such efforts as improving profitability and expanding sales channels following the slump periods are now enjoying significant earnings growth," said Takashi Ito of Nomura Securities.

(Nikkei)

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