Japan Inc. sees profit hit from emerging markets

Komatsu expects demand for construction equipment to keep shrinking in China and other markets.

TOKYO — Japanese companies expect slowdowns in emerging economies to continue weighing on earnings this fiscal year, releasing conservative forecasts despite signs that commodities prices may have bottomed out.

Komatsu sees net profit falling 33% to 92 billion yen ($825 million) in the fiscal year ending in March owing to reduced demand in such markets as China. “We don’t expect improvement in the business environment for construction equipment within the next three years,” President Tetsuji Ohashi told reporters.

 For fiscal 2015, net profit sank 11% to 137.4 billion yen. This owes mainly to Komatsu’s performance in China, where sales tumbled to 69.6 billion yen from 334.2 billion yen in fiscal 2010 amid a slump in urban development. The company sees sales there shrinking further to 61 billion yen this fiscal year.

The slowdown in China, the world’s second-largest economy and a major consumer of resources, is having knock-on effects on other emerging economies.

Hitachi Construction Machinery reported a 66% plunge in group net profit and released fiscal 2016 guidance calling for a third straight decline, with net profit seen sliding 9% to 8 billion yen. Sales of mining equipment have fallen by half in three years as natural resource development cooled in South America and elsewhere.

“The public works projects we were relying on didn’t materialize because of the impact of low oil prices,” Chief Financial Officer Tetsuo Katsurayama said.

These headwinds extend beyond resources and infrastructure. Fanuc is suffering from poor sales of machine tools used in smartphone production. Net profit sank 23% in fiscal 2015 and is projected to drop 41% to 93.7 billion yen this fiscal year, coming in below 100 billion yen for the first time since fiscal 2009. With Chinese industrial production shrinking, demand is weak from Taiwanese and South Korean companies with Chinese clients, the robot maker said.

Kawasaki Heavy Industries expects fiscal 2016 pretax profit to fall 26% to 69 billion yen amid weak Southeast Asian demand for motorcycles. “Our emerging-market business has missed expectations for the past several years, and I can’t expect it to pick up this year,” Chief Financial Officer Kazuo Ota said.

This comes on top of the impact of a stronger yen. Kawasaki Heavy’s guidance assumes 110 yen to the greenback, 9 yen stronger than in fiscal 2015. Each 1 yen rise against the dollar drags down annual pretax profit by about 2.5 billion yen.

China is scrambling to shore up its economy, planning to spend 2 trillion yuan ($307 billion) a year on transportation infrastructure. But its efforts have done little to affect sentiment on the ground, Komatsu’s Ohashi said. The company will cut costs and hike prices on construction equipment parts to weather the storm, while Hitachi Construction expects to spend 6 billion yen this fiscal year on structural reform.