TOKYO -- Animosity between Japan and South Korea is weighing on the bottom lines of Japanese companies that rely heavily on sales to South Korea, with their combined net profit falling more than 30% in the July-September quarter versus a year earlier.
These companies are struggling as tensions between the neighbors rise following developments such as Japan's tightening of export controls on inputs used by South Korean chipmakers. Sportswear maker Descente, for example, has cut its net profit forecast for the current business year by more than 80% from the previous year.
These headwinds come as Japan's GDP growth fell to an annualized 0.2% in the third quarter, its lowest reading in a year, as bilateral tensions and the U.S.-China trade war hit.
Using the QUICK-FactSet database, Nikkei selected 14 Japanese companies that close their books in March and chalk up more than 10% of their sales in South Korea, including estimated sales shares. Collectively these companies suffered a year-on-year decline of 33% in net profit for July to September.
The combined net profit of 80 overseas companies that rely heavily on the South Korean market, including ASML, a Dutch manufacturer of chipmaking equipment, fell 25%. The figure includes analyst estimates.
Manufacturers, including makers of semiconductors, electrical equipment and components, are being hit hard by a slowdown in the world economy.
The effect on Japanese companies with a big presence in the South Korean market is even starker. Consumer boycotts of Japanese products are taking a big bite out of profits at the 14 companies surveyed. The boycotts have spread to products ranging from food to cars.
On Wednesday, Descente slashed its earnings forecast for the fiscal year ending March 2020. It now predicts a net profit of 700 million yen ($6.42 million), down 82% from the previous year. Previously it had predicted a 30% rise.
The company, whose brands include Descente and Munsingwear, makes around half its sales in South Korea. "Our sales in South Korea in the July-September period decreased some 30% from a year earlier as a result of the boycott campaign," said Shuichi Koseki, Descente's president, at a media briefing on Wednesday.
November and December are peak seasons for Descente in South Korea, driven by sales of down coats and other winter clothing. "I wonder how longer the boycott will continue?" Koseki fretted at the briefing. The company will decide how to respond after its South Korean unit closes its books at the end of December.
Fast Retailing, which had revenue o
f 140 billion yen at its Uniqlo casualwear business in South Korea in the year ended in August 2018, saw both sales and profit fall in the year ended this August.
Asahi Group Holdings best known for its eponymous beer, cut its net profit forecast for the year through December on Tuesday, citing the appreciation of the yen and South Koreans shunning Japanese beer. The revised forecast includes a 75% fall in core operating profit to 500 million yen in International department including South Korea, down 1 billion yen from its earlier forecast. Asahi, which has been the top imported brand in South Korea for the past eight years, finds its position threatened.
Japan's tourism industry has also suffered from strained ties with South Korea. The number of South Korean visitors slid 48% in August from a year earlier, and 58% in September.
Kyushu Railway saw passengers on its high-speed ferry service between the two countries plunge. Hanatour Japan, a travel agency that mainly handles tours to Japan from South Korea, logged a 67% year-on-year decline in bookings in September.
Companies that are less sensitive to consumer demand appear more sanguine. Chemical maker Showa Denko ships hydrogen fluoride to South Korea. Although the chemical is on the list of items subject to Japan's tighter export controls, board member Motohiro Takeuchi told reporters Wednesday that the company "will be able to start exporting the material by the end of this year."
Additional reporting by Mariko Saito, Koutaro Suzuki, Yoshinaru Sakabe, Momoka Matsumoto and Tokio Murakami in Tokyo.