Money-Making Throne: Japan's Top 10 Companies... Securities Industry Earnings Expectations Exceed Companies by 5 Trillion Won

Operating Profit Soars Due to Yen Depreciation Effect
Expected to Exceed Estimates by 5.2 Trillion Won
Toyota Holds 40% of Market Cap Lead
BOJ to Tighten Policy Next Year... US and China Economic Slowdown Expected
Surprise Earnings May Be Difficult

There is a forecast from the Japanese securities industry that the total operating profit of Japan's top 10 companies this year will exceed the combined estimates of each company by 600 billion yen (approximately 5.25 trillion KRW). It is estimated that more than 40% of this excess profit of 600 billion yen will come from Toyota, Japan's largest company by market capitalization. This is analyzed as a result of Japanese companies' performance surpassing market expectations due to the weak yen effect. However, there are also cautious concerns that since the earnings boom of Japanese companies is based on the weak yen, it will be difficult to achieve such earnings surprises again next year.

Earnings Boom in ‘Japanese Cars’

[Image source=Yonhap News]

On the 27th (local time), Bloomberg reported that it compiled securities industry estimates for the top 10 non-financial companies with a market capitalization of over 500 billion yen that make up the TOPIX index for the 2023 fiscal year (April 2023 to March 2024), and made this forecast. The securities industry consensus is that a combination of super weak yen, supply chain recovery, and price increase effects will lead to improved performance centered on manufacturing.

The company attracting the most securities industry expectations is Toyota. Toyota already recorded an 'earnings surprise' with operating profit of 2.5592 trillion yen in the first half of this year (April to September), doubling that of the previous year. The securities industry expects Toyota’s annual profit this year to be 4.21 trillion yen, which exceeds Toyota’s own forecast (3.95 trillion yen) by about 260 billion yen. Toyota also raised its annual profit forecast on the 1st by 1.37 trillion yen from the previous 2.58 trillion yen. Koji Endo, a researcher at SBI Securities, evaluated, "It is a common pattern for companies to present more conservative forecasts than the securities industry," and added, "Toyota has already achieved its goal of producing 10.1 million units annually." He then raised Toyota’s profit forecast for this year to 4.6 trillion yen, 900 billion yen higher than the previous estimate.

Along with Toyota, other automobile manufacturers are also expected to increase profits. The securities industry expects Honda to achieve 979.2 billion yen and Suzuki 271.1 billion yen in profits this year. These figures exceed each company’s own forecasts by 49.2 billion yen and 31.1 billion yen, respectively. The combined profits of Toyota, Honda, and Suzuki are expected to account for more than half of the 600 billion yen excess profit suggested by the securities industry.

Airlines Benefit from Increased Travelers... Chemical Companies Also Exceed Expectations Despite China’s Slowdown

Due to the weak yen, the number of foreign tourists visiting Japan is increasing, and airline industry performance is also expected to improve. ANA Holdings, the parent company of All Nippon Airways (ANA), Japan’s largest airline, is forecasted by the securities industry to earn a total profit of 114.8 billion yen this year. This is 34.8 billion yen more than the company’s own forecast.

Japanese pharmaceutical companies with a high proportion of overseas sales are also expected to benefit from the weak yen effect. Takeda Pharmaceutical, with 90% of sales overseas, is estimated to earn 147.7 billion yen, and Astellas Pharma, with about 80%, is expected to earn 118.4 billion yen, both exceeding their company forecasts by 54.7 billion yen and 33.4 billion yen, respectively.

The chemical industry is expected to offset the impact of China’s economic slowdown with the weak yen. Shin-Etsu Chemical is forecasted to earn 555.1 billion yen, and Sumitomo Chemical is expected to incur a loss of 60.8 billion yen. This is 35.1 billion yen higher than Shin-Etsu Chemical’s own forecast, and Sumitomo Chemical’s loss is 34.2 billion yen smaller than the company’s estimate. Komatsu, a global Japanese construction machinery company, is expected by the securities industry to earn 374.6 billion yen, 34.6 billion yen more than the company’s forecast.

Stock Market Boosted by Earnings Improvement... Also Criticism of Weak Yen Illusion Effect

Due to strong earnings, the stock prices of each company are also trending upward. In particular, the stock prices of automobile companies leading the revival of Japanese companies have soared significantly this year. Toyota’s stock price has surged 52.8% this year (as of the closing price on the 27th). Honda, Nissan, and Suzuki have risen 36.2%, 40%, and 35.3%, respectively, since the beginning of the year. As a result, the TOPIX index has risen 26% this year, and the Nikkei 225 index has increased by 28.2%.

However, there are doubts about whether earnings surprises like this year can be recorded again next year. It is pointed out that the weak yen effect is masking the actual business conditions of each company. Although the global economic uncertainty has increased due to China’s economic slowdown and the US economic deceleration, the earnings boom of Japanese companies makes it difficult to accurately assess the corporate value of Japanese companies. Especially since the earnings improvement of Japanese companies is driven by the weak yen, if the yen’s value rises in the future, the decline in earnings could be even more severe.

Mitsushike Akino, CEO of Ichiyochi Asset Management, said, "Companies set their earnings forecasts lower than the securities industry consensus because of expectations that the US and Chinese economies will slow down," and predicted, "Stock prices may fall depending on the earnings results in the fourth quarter this year."

This content was produced with the assistance of AI translation services.