Shares of Japan’s Kawasaki Heavy Industries plunged the most in eight years after the company cut its full-year profit forecast by more than half and said it was reviewing whether to continue its shipbuilding business.
The stock fell 11 per cent to close at ¥276 in Tokyo on Monday, the biggest drop since October 2008. It was the worst performer on the Nikkei 225 Stock Average, which rose 0.9 per cent.
Net income will probably be ¥16.5 billion (Dh598.6 million) in the year ending March 31, 66 percent less than an earlier forecast of ¥49bn because of a stronger local currency and losses at its ship operations, Kawasaki Heavy said. The company also said it expects a loss of €5bn for the half year ended September 30 after booking a ¥13bn loss from a Brazilian drill-ship project, a Norwegian plan to build an offshore vessel, and a liquid natural gas ship.
Kawasaki Heavy joins companies including Singapore’s Keppel whose ship and offshore-structure operations have fallen victim to a plunge in oil prices in the past two years amid global economic weakness and reduced customer spending. The company said it will conduct a “radical review” of its business structure, establish a reform panel to look into the future direction of the ship business, including its continuity, and announce its decision by the year ending March 31.
“We expected the cuts but did not expect them to be so large,” said the Shinji Kuroda and Yuan Qi, analysts at Credit Suisse in Tokyo. The future existence of the ship and offshore structure business is “up in the air”, wrote the analysts, who reiterated their underperform rating and have a stock-price estimate of ¥260.
Full-year operating profit will probably reach ¥34bn compared with ¥70bn previously forecast, said the company, also a maker of motorcycles and industrial equipment. Kawasaki Heavy cut the full-year revenue forecast to ¥1.51 trillion from a previous projection of ¥1.57tn.
The company has been hit by the bankruptcy of Sete Brasil Participacoes, which filed for protection from creditors in April, which led Kawasaki Heavy to write off ¥5bn for a drill ship, it said.
Asian shipbuilders, including the world’s top three shipyards, all South Korean, are selling assets and cutting jobs as dwindling orders lead to losses or smaller profits.
The ship and offshore-structure operation accounted for 6.2 per cent of Kawasaki Heavy’s sales last fiscal year, making it the smallest business by revenue, according to data compiled by Bloomberg.
Kawasaki Heavy had about 2,500 employees in its ship-related business at the end of March, according to the company. Japan had about 60,000 people working in the shipbuilding industry as of April 2014, according to figures from the Shipbuilders’ Association of Japan.
The yen has gained 19 per cent against the dollar this year and traded at ¥101.28 versus the greenback as of 4:21pm in Tokyo. The company now expects the yen to average 102 against the dollar for the year ending March 31, compared with a July estimate of ¥110.
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