Major Japanese parts makers are expected to grow operating profit this fiscal year, but profit margins will likely fall short of pre-earthquake levels, a Japanese business newspaper calculated.
Operating profit at 34 large firms is seen climbing 27% to a combined JPY946.2bn for the year ending March 2013, according to data tabulated by the Nikkei. This would exceed the level for fiscal 2010.
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Of the companies, 27 anticipate operating profit growth as Japanese automakers embark on production increases widely expected to spur a recovery in parts orders.
Koito is poised to reap a 26% jump in operating profit to a record JPY40bn while Calsonic Kansei is also on track to drive profit to an all-time high.
But of the 27 expected to boost profit, operating profit margins at 14 are expected to undershoot fiscal 2010 levels, prior to 2011’s quake and severe Thai flooding. The collective figure of 5.7% for fiscal 2012 would mark a recovery from fiscal 2011’s 4.9%, but nonetheless trail fiscal 2010’s 5.9%, the Nikkei said.
Higher capital outlays and other expenses are expected to weigh on parts makers.
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By GlobalDataKeihin, a Honda Motor affiliate, will see a JPY2.5bn increase in depreciation charges as a result of a more than doubling of capital investment. Likewise, Denso will spend more to equip existing facilities, resulting in a profit margin decline for its Australia and Asia operations.
Such investment is unavoidable for the parts companies as automakers expand operations to prepare for record sales ahead, the Nikkei said.
Meanwhile, labour costs at major overseas bases in China, Thailand and elsewhere are rising.
“The increase has been 10-15% for China,” Keihin senior managing director Masaaki Koike told the Japanese business paper.
Parts makers also face growing pressure from automakers to reduce prices. For instance, Nifco, which has been able to boast about double-digit profit margins, expects margins to come down as high crude oil prices make it difficult to absorb the impact of price cut requests.
Parts makers have largely recovered from the repercussions of last year’s natural disasters. Their focus will thus shift to improving production efficiency even more and expanding sales networks to enhance profitability, the Nikkei concluded.
