By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) -- While Japanese investors cheered some relatively upbeat corporate results from the U.S. over the past couple weeks, they may find themselves disappointed as their own earnings season kicks into full gear in Tokyo.
"U.S. corporates who have reported Q3 results thus far have bestowed upon markets a far greater number of upside than downside earnings surprises, which is more than might be said for many other regions, including emerging Asia, the poster child of stock market resilience," Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ, wrote in a recent note to clients.
"The flood of upside surprises [in the U.S.] early in the earnings season certainly looks promising, but could be delivering the last positive surprises in many quarters," she said. And "starting in Q4, the bar for earnings rises."
For Japan, Fink said a "relatively slow recovery" is evident among Japanese companies, with upside surprises few so far, and with the majority of sectors expecting to have remained in the red for the July-September quarter.
But a closer look at forward earnings-per-share estimates shows that a "tech-led recovery is priced in for Q4, alongside positive earnings growth across most sectors," she said.
Fink also pointed out that Japanese corporates with overseas operations have a buffer of 20 trillion yen ($218 billion) in foreign profits "retained abroad to pad out parent-company earnings, should domestic gains prove weaker than expected."
So, "Japan may not escape disappointment, but could stay relatively sheltered," she said.
For the banking sector in particular, the key focus will be on loan growth, non-interest income and loss provisions, according to analysts at Macquarie, who have a blanket outperform rating on the sector.
"We expect a lackluster operating performance, headlined by slower loan growth and smaller margins," they said.
But they remained "hopeful" on the latter part of the year, "where positive swing factors could come from better fee revenues, lower provisions and possible equity gains."
Companies to watch
Toyota Motor Corp. /zigman2/quotes/203803129/delayed JP:7203 -1.38% /zigman2/quotes/200537742/composite TM -0.77% /zigman2/quotes/207653022/delayed TOYOF -0.79% -- reports first-half fiscal 2010 results on Nov. 5. The world's biggest car maker by sales volume expects to see a first-half operating loss of 400 billion yen, swinging from a year-earlier operating income of 582.1 billion yen. Still, in a report earlier this month, analysts at Macquarie said Toyota could post "substantially higher" earnings than expected for the full fiscal year ending in March 2010, despite a reflexive dip in the U.S. following the end of the cash-for-clunkers program, according to Dow Jones. Toyota's President Akio Toyoda said last week that the company aims to maintain solid sales performance in Japan, even as government subsidies expire at the end of March, according to the Nikkei business daily.
Sony Corp. /zigman2/quotes/201361720/delayed JP:6758 -1.28% -- reports second-quarter fiscal-year results on Oct. 30. The electronics giant is expected to post a second-quarter operating loss of 59.2 billion yen, according to a mean estimate of brokers surveyed by Thomson Reuters. A year ago, Sony posted a second quarter operating income of 11 billion yen. On the other hand, the company's April-September earnings are unlikely to be worse than forecast because the U.S. dollar did not spend much time below the 90 yen level, an official at Ichiyoshi Investment Management Co. said, according to the Nikkei. Looking ahead, the company expects to see an operating loss of 110 billion yen for the fiscal year ending in March 2010, with sales and operating revenue likely to fall by 6% from a year ago.
Nintendo Co. /zigman2/quotes/208063194/delayed JP:7974 -1.41% /zigman2/quotes/206371241/delayed NTDOF -1.29% -- reports second-quarter fiscal-year results on Oct. 29. The video-game giant is expected to see its net profit slip to 37.79 billion yen for the quarter, down from 42.3 billion yen in the April-June period, according to an average estimate of brokers surveyed by FactSet Research. The expected result would be just a little more than a third of the 107.3 billion yen it earned in the same period a year ago, a heavier hit than the 61% drop recorded in the previous quarter. A key issue for the company will be sales of its flagship Wii video gaming console, revenue for which tumbled in the previous quarter, prompting Nintendo to cut its price on the gaming system to $199 from $249. In the key U.S. market, sales of video consoles and games are only just now beginning to recover, with the Wii selling 67% more units in September than in August.
Nikon Corp. /zigman2/quotes/203281219/delayed JP:7731 -2.20% /zigman2/quotes/203151879/delayed NINOF +5.05% -- reports first-half fiscal year results on Nov. 5. The company expects an operating loss of 32 billion yen for the first half, a larger deficit than consolidated operating loss of about 26 billion yen tipped in a Nikkei report earlier this month. Overall sales for Nikon are expected to have dropped by nearly 30% to 360 billion yen, the Nikkei said, although that would be about 20 billion yen higher than its own forecast. The company's sales of compact digital cameras have been strong in North America and China, it said. Nikon had posted operating income of 54.07 billion yen in the year-earlier half, which was down nearly 15% from a year earlier. In the first quarter, Nikon saw operating income of 730 million yen, down more than 97% from a year earlier.
Mitsubishi UFJ Financial Group /zigman2/quotes/207520099/delayed JP:8306 -1.24% -- reports first-half fiscal-year results on Nov. 18. When it announced first quarter results in July, Japan's biggest bank offered a target for its consolidated net income instead of a forecast of its performance, namely income of 300 billion yen for the fiscal year ended in March 2010. But in late September, MUFG warned that it planned to recognize losses of 126.4 billion yen on write-down of investments in subsidiaries and affiliates on a non-consolidated basis for the three months ended in September. On a consolidated basis, Japan's largest bank expects to see a loss of 28 billion yen on one-time charges associated with the write-downs. A year ago, first half net income totaled 92.0 billion yen. The company reported net income of 75.9 billion yen for the first quarter of the current fiscal year, up nearly 49% from the same time a year ago, mainly because of an increase in overseas lending income and lower funding costs in foreign currency. "Loan growth at MUFG could hold up better than that at the other mega banks" due to reported moderate growth in overseas lending, analysts at Macquarie said in a note earlier this month.
Tokyo Electron /zigman2/quotes/202883609/delayed JP:8035 -0.34% -- reports first-half fiscal-year results on Oct. 30. The provider of chip-making equipment is expected to post a first-half net loss of 21.5 billion yen, according to a mean estimate of brokers surveyed by Thomson Reuters. The company forecast in late July a net loss of 26 billion yen for the six months ended in September. For the year-earlier period, Tokyo Electron reported net income of 17.36 billion yen for the first half, which was itself down more than 72% from the same time a year earlier. Semiconductor production equipment (SPE) orders have come back stronger than expected in 2009, but those orders will likely decline to a second trough in mid-2010, and SPE shares will likely underperform in tandem, analysts at Macquarie wrote in a note to clients. "Given market valuation for many SPE stocks, we see limited upside potential after the September-quarter results, and see potential upside revisions" for stocks in the sector, including Tokyo Electron, they said. For the first quarter, the company had posted a net loss of 11.0 billion yen.