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Japan-Update

Japan Post takes first net loss since privatization

Burned by soured deal, postal group likely to tread carefully

Japan Post Holdings President Masatsugu Nagato

TOKYO -- Japan Post Holdings booked a 28.9 billion yen ($254 million) net loss for fiscal 2016 after absorbing a massive impairment charge on its 2015 acquisition of Australian logistics provider Toll Holdings.

The 400.3 billion yen write-down, which saddled the postal group with its first net loss since the 2007 privatization, may have stymied plans to turn the real estate business into a growth engine by purchasing one of Japan's biggest developers.

The postal business environment is bleak both in Japan and abroad. Japan Post handled 17.7 billion pieces of mail such as post cards and letters last fiscal year, down about 30% from the peak in fiscal 2001.

Although package delivery has gained steam in recent years amid the rise of online shopping, pressure to raise wages has boosted costs. The postal unit had an operating profit of just 12 billion yen in fiscal 2016.

Japan Post Bank's net profit shrank 3.9% to 312.2 billion yen. Ultralow interest rates have eroded the banking unit's investment returns on Japanese government bonds. Returns on foreign exchange trading grew but this was not enough to absorb the negative impact.

Meanwhile, Japan Post Insurance enjoyed a 4.4% net profit increase to 88.5 billion yen. Annual premiums on new policies for individuals rose 4.7%.

For the current year through March 2018, Japan Post Holdings is seen swinging back to the black with a net profit of 400 billion yen. Package delivery rival Yamato Transport is curbing service amid an overworked staff. Japan Post, which has some excess package delivery capacity, can claim more of the market. Still, the postal unit's pretax profit is projected to drop to 18 billion yen, a third of the fiscal 2016 level.

"Due to powerful upward pressure on wages, our numbers will add up to only this much unfortunately," President Masatsugu Nagato said at the earnings briefing Monday.

The group remains reliant on the banking unit. Net profit at Japan Post Bank is expected to rise 12% to 350 billion yen this fiscal year on brisk fee-based services. Japan Post Insurance's profit is expected to stay roughly flat at 86 billion yen.

Another expensive buy?

Meanwhile, Japan Post is considering the purchase of Nomura Real Estate Holdings, a large Tokyo-based developer with the heft and know-how to help the postal group redevelop its sizable land holdings. The value of those holdings comes to a whopping 1.56 trillion yen, the sixth-highest tally among listed companies in Japan. Post offices by major train stations and densely populated areas could be redeveloped into commercial facilities and condominiums.

But substantive negotiations have apparently yet to begin with Nomura Holdings, which owns about 34% of Nomura Real Estate. As an equity-method affiliate, the real estate company contributes some 16 billion yen to Nomura Holdings' annual earnings. Some urge caution, given that Japan Post just booked a massive loss on Toll. The postal company no doubt will be wary of overpaying, as it did with Toll.

In a report to the Tokyo Stock Exchange Friday, Japan Post said it is considering various possibilities for a new capital partnership. But President Nagato said Monday that "there is nothing else to report" at this point. Asked about the high price of real estate stocks in Japan, Nagato expressed caution about investing in a sector that is being bid up in the stock market.

It is unclear whether negotiations would advance smoothly, but Nomura Real Estate's stock jumped by the daily limit of 500 yen on Monday, reaching 2,528 yen. Of course, a higher stock price means a higher acquisition price. Some within Japan Post say Nomura Real Estate shares already look expensive.

Nomura Holdings, which has refrained from commenting on the acquisition news, likely will carefully assess whether selling the stable earnings contributor makes sound economic sense.

(Nikkei)

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