20140606-穆迪服务-Inside_Japan_53页_1mb

Inside Japan - Summary (June 2014)

Core Content Overview

This report provides an analysis of key sectors in Japan, including Automotive, Beverage, Consumer Electronics, Oil and Gas, Pharmaceuticals, Shipping, Steel, Telecom, Trading Companies, Utilities, and Banks, highlighting their performance, credit implications, and future outlooks. It also includes featured articles and rating actions, offering insights into the credit quality of major Japanese companies.

Main Sectors and Key Trends

Automotive

• Toyota Motor Corporation (Aa3 stable): Achieved record high full-year profit of JPY2.29 trillion, up 73% YoY, driven by the weak yen, cost reductions, and consistent sales. Despite a slight shortfall from expectations, its ratings remain stable due to strong financial position, market leadership in Japan and the US, and a robust product pipeline.
• Nissan Motor (A3 stable): FYE03/2014 results slightly improved, but its operating margin declined by 0.2% to 3.4% due to production delays and increased marketing expenses.
• Honda Motor (A2 stable): Benefited from Abenomics and a weaker yen, but its performance was less impressive than Toyota's.
• Overall Outlook: Earnings for FYE03/2015 are expected to be more subdued due to stable yen and lower foreign exchange gains. All three major automakers showed strong growth, though Nissan's margin decline is a concern.

Beverage

• Suntory Holdings Limited (Baa2 stable): Acquired Beam, leading to increased leverage and a downgrade. However, the company is well-positioned for future growth and margin improvement through global expansion and product innovation.
• Kirin Holdings Company, Limited (A3 stable): Faces margin pressures due to domestic focus and competition. Reduced debt/EBITDA and cash flow improvements are expected to support its financial health.
• Overall Outlook: The sector remains competitive, with Suntory having more growth momentum than Kirin.

Consumer Electronics

• Sony Corporation (Ba1 stable): Earnings remain under pressure due to restructuring and pricing issues, especially in digital AV products.
• Panasonic Corporation (Baa3 stable): Reported strong recovery, supported by restructuring and growth in housing and automotive-related businesses.
• Overall Outlook: The sector is expected to remain challenging, with Sony's earnings likely to stay low and volatile.

Oil and Gas

• JX Holdings Inc (Baa1 stable) and Cosmo Oil Co Ltd (Ba1 negative): Both reported ordinary losses in refining due to overcapacity and weak demand, but their E&P segments were profitable.
• Inpex Corporation (A1 stable) and Japan Petroleum Exploration Co Ltd (A2 stable): Generated meaningful profits due to stable production and crude oil prices.
• Overall Outlook: Domestic refining sector faces challenges, but LNG investments may lead to long-term growth and credit positive outcomes.

Pharmaceuticals

• Takeda Pharmaceutical (Aa3 stable), Astellas Pharma (Aa3 stable), and Daiichi Sankyo (A1 stable): All reported higher top-line sales, supported by new product launches and cost-cutting. They transitioned from Japanese GAAP to IFRS, impacting accounting methods and goodwill amortization.
• Overall Outlook: Flat to low-single-digit top-line growth is expected, with successful product launches critical to future performance.

Shipping

• Nippon Yusen Kabushiki Kaisha (NYK, Baa2 negative): Reported a 2.5x increase in operating profit, driven by the weak yen and cost efficiencies. However, high leverage and debt reduction efforts are key to improving credit quality.
• Mitsui OSK Lines (MOL, Baa3 negative): Turned around from two years of losses, reporting JPY41 billion in operating profit. It plans to invest in LNG tankers, which may be credit negative in the short term.
• Kawasaki Kisen Kaisha (K-Line, Ba2 stable): Doubled its operating profit in FYE03/2014 and expects a 25% increase in FYE03/2015.
• Overall Outlook: Operating profits are expected to rise, but LNG investments may pose short-term credit risks.

Steel

• Nippon Steel & Sumitomo Metal (NSSM, A3 stable) and JFE Holdings (JFE, Baa1 stable): Both showed strong V-shaped recovery and reduced leverage. NSSM's operating margin improved to 5.4% and debt declined by 10%.
• Overall Outlook: Earnings outlook for FYE03/2015 is softer due to a more stable yen and reduced demand in Japan. However, recovery is expected as the auto and construction industries normalize.

Telecom

• NTT (Aa2 stable), NTT DOCOMO (Aa2 stable), and SoftBank (Ba1 stable): All experienced margin pressures due to increased competition, especially in mobile voice. NTT's fixed-line business contributed to improved consolidated earnings.
• Overall Outlook: The sector is expected to remain stable, with continued margin pressure from competition and low interest rates.

Trading Companies

• Mitsubishi Corporation (A1 stable), Mitsui & Co (A2 stable), Sumitomo Corporation (A2 stable), Toyota Tsusho (A3 stable), Itochu (Baa1 stable), Marubeni (Baa2 stable), and Sojitz (Ba1 stable): All showed strong sales growth and net profit (except Sumitomo). Earnings are expected to be flatter in FYE03/2015 due to stable yen. Non-market sensitive sectors like machinery and food contributed to profitability.

Utilities

• Nuclear-dependent utilities: Suffered from low profitability due to the Fukushima disaster and reliance on nuclear power. Kansai, Kyushu, and Hokkaido utilities had the largest operating losses.
• Overall Outlook: Credit quality is expected to diverge as some utilities recover from nuclear-related losses. Recovery depends on nuclear restarts and regulated rate increases.

Banks

• Japanese banking system: Expected to remain stable with modest domestic growth and systemic support. Net interest margins are under pressure due to low interest rates.
• Focus Areas: Monitoring lending to SMEs, overseas expansion, and asset portfolio rebalancing away from government bonds. Abenomics policies are seen as a key driver for future stability.

Securities

• Nomura Holdings (Baa3 stable) and Daiwa Securities (Baa3 stable): Both showed improved earnings stability and net income. Nomura is a global investment bank with a strong retail business.
• Overall Outlook: Negative outlook remains, but government policies to end deflation are expected to support stability in the securities industry.

Insurance

• Life Insurance Companies: Faced declining premium income due to reduced sales of savings-type products. Larger insurers are expanding overseas, while mid-sized insurers remain focused on the domestic market.
• Property and Casualty (P&C) Insurers: Improved combined ratios to below 100% due to lower loss ratios in the auto sector. Premium rate increases are expected in FYE03/2015 to offset tax impacts.
• Overall Outlook: Profitability is recovering from disaster-related losses, with cost management and premium rate adjustments as key factors.

Key Points

• Credit Positive Developments:

  • Toyota's record high profit and sales milestone.
  • Sony's expansion into Ultra Definition TVs.
  • Panasonic's debt reduction.
  • Approval of Chubu Electric Power's new tariff.
  • Japanese leasing firms benefiting from new laws.
  • Tokio Marine's Cat Bond for earthquake protection.
  • Japanese banks benefiting from economic growth and deflation end.
  • Improved combined ratios for P&C insurers.

• Credit Negative Developments:

  • Suntory's increased leverage from Beam acquisition.
  • DOCOMO's weak FYE3/2014 results.
  • NYK's investment in LNG tankers.
  • MOL's high leverage and potential debt reduction challenges.
  • Steel sector facing softer earnings due to stable yen.
  • Weak yen may not boost profits in FYE03/2015.

Conclusion

The report outlines the mixed performance of Japan's major sectors, with some showing credit positive trends due to structural improvements, global expansion, and policy support, while others face challenges such as high leverage, margin pressures, and competition. Investors are encouraged to monitor developments in key areas like yen fluctuations, product launches, and regulatory changes for a better understanding of credit risks and opportunities.