Nikkei Asia300 is on a roll, with a few notable exceptions
Some airlines, shipping companies are having a tough time in a changing market
KENJI KAWASE, Nikkei deputy editor
HONG KONG The earnings picture for the Nikkei Asia300 had a number of standouts, among them Indian companies providing consumer goods and IT services, along with Apple's major Taiwanese suppliers and Chinese internet conglomerates. But a few sectors were peppered with losers such as airlines, shipping companies and IT hardware manufacturers.
Regional flag carriers especially have had a tough time as they feel the squeeze from low-cost carriers, rising fuel costs and mounting competition by expanding Chinese airlines.
Cathay Pacific Airways, which recorded its first net loss last year since the financial crisis of 2008, responded by sacking chief executive Ivan Chu Kwok-leung and letting go 600 employees in May, with another 200 cuts reportedly coming. "We have had to make tough but necessary decisions for the future of our business and our customers," said Rupert Hogg, who took over as chief executive of the Hong Kong airline.
Thai Airways International could be in a more difficult position. After three straight years of losses, the company managed to crawl back into the black, but as fuel prices rose and competition intensified, operating profit for the first quarter, normally the busiest season of the year, dropped by 60% year-on-year. Narongchai Wongthanavimok, chief financial officer of the airline, said in a recent investment forum in Singapore that the competitive landscape remains challenging, even though there are signs that low-cost rivals are scaling back on capacity expansions.
For Korean Air Lines, a slumping shipping industry exacerbated its troubles. The bankruptcy of its affiliate Hanjin Shipping inflicted a more than 820 billion won ($730 million) loss last year, causing its financial soundness to further deterioriate.
Oversupply and low demand have hit shipping line operators other than Hanjin. Cosco Shipping Holdings has recorded four consecutive years of net loss attributable to shareholders, adding up to almost 11 billion yuan ($1.61 billion). It was just slightly better for Evergreen Marine. The Taiwanese company has been in the red the last two years, accumulating a loss of 11 billion New Taiwan dollars ($365 million). However, both have managed to recover in the first quarter.
Shipbuilders are also having a tough time. Ailing South Korean shipbuilder Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering, have been trying to rally with major deals involving Russia. "Russian businesses will help local shipbuilders expand their shipowner pool," said Choi Jae-hyung, a Nomura analyst. "But it remains to be seen how much these could contribute to their performance,' he added.
As global smartphone demand slowed to 2.3% year-on-year in 2016 according to IDC, brands that did not make the global top five, including LG Electronics, ZTE and HTC, were fighting an increasingly uphill battle. As a result, both HTC and ZTE reported net losses last year, while LG Electronics also saw its net profit drop year-on-year in 2015 and 2016.
On the panel front, Taiwanese makers AU Optronics and Innolux have suffered from a ferocious price war with Chinese competitors such as BOE Technology Group over the past few years. However, market conditions have improved in the second half of 2016 as Samsung Display, a subsidiary of Samsung Electronics, closed its traditional liquid crystal display facilities to focus on organic light-emitting diode panels. Samsung's move tightened supply, causing LCD panel prices to rebound.
Nikkei staff writers Debby Wu and Cheng Ting-Fang in Taipei and Kim Jaewon in Seoul contributed to this story.