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Japan-Update

Energy and tech names lead Japanese profit upgrades

Oil refiner Cosmo and Sony place high in ranking of earnings revisions

Demand for mining machinery parts has helped Hitachi Construction Machinery upgrade its fiscal 2017 profit outlook.

TOKYO -- As the Japanese fiscal year enters its final stretch, commodity-related and technology names figure prominently among listed companies raising their net profit forecasts, a Nikkei Inc. ranking shows.

Petroleum refiner Cosmo Energy Holdings, which has boosted its net profit guidance 250% over its initial estimate, to 70 billion yen ($652 million), had the second-largest upgrade as of Tuesday among listed companies closing their books in March.

Rising crude oil prices have benefited the Tokyo-based group. Oil inventory valuation is poised to climb 30 billion yen over full-year estimates, said Kenichi Taki, senior executive officer in charge of accounting. Consolidation among major Japanese oil distributors has also lessened competition, helping fatten Cosmo's profit margin on gasoline.

Among other names in energy, top domestic refiner JXTG Holdings and smaller Idemitsu Kosan ranked 14th and seventh, respectively, by the size of their upgrade.

Hitachi Construction Machinery has seen growth in demand for high-margin parts for mining machines, according to Executive Vice President Yasushi Ochiai, as iron ore production has picked up in Australia and elsewhere. Sales of construction machinery in China are strong as well. When reporting nine-month earnings, the company raised its full-year net profit forecast to 46 billion yen -- 2.6 times its initial estimate. This marked the fourth-largest percentage increase among companies in the ranking. Rival construction equipment maker Komatsu had the ninth-largest upgrade.

The technology sector has had a brighter-than-expected year as well. Sony has raised its net profit forecast 88% to 480 billion yen, putting it at No. 6 on the upgrade charts. Its electronics segment has enjoyed brisk sales of finished goods such as televisions and parts including smartphone image sensors. A U.S. corporate tax cut is also seen contributing to the company's first record profit in a decade.

At industrial robot maker Fanuc, orders for factory automation equipment are running high. Its shares rallied as much as 5% Jan. 29 after the company revised its profit forecast higher.

Electronics conglomerate Toshiba made the largest upgrade of all. The group now expects a 520 billion yen net profit in the year ending in March after booking one-time gains including the sale of claims on bankrupt American nuclear power company Westinghouse Electric. This is 10.4 times the 50 billion yen outlook announced last May, though questions remain about Toshiba's longer-term prospects.

Investors seem to have taken notice, judging by how well some of these companies held up during Japanese stocks' recent sell-off. Though the Nikkei Stock Average was down 9% as of Tuesday since climbing above 24,000 on Jan. 23, Hitachi Construction gained 0.2% over that time. While Sony fell 8%, the company fared better than the Nikkei subindex for electronics companies, which was down 12%.

Automakers Honda Motor and Toyota Motor also anticipate tax savings in the U.S. and have upgraded earnings estimates, placing them in the ranking's top 10. Third-ranked Nintendo is riding high on the success of its Switch game device. But such exporters could face headwinds in the January-March quarter from a stronger yen. The Japanese currency touched a 15-month high at the 105 yen level against the dollar on Friday, threatening a last-minute earnings setback for exchange-rate-sensitive companies.

The ranking covers companies with initial profit estimates of at least 10 billion yen, excluding financial groups and emerging companies.

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