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Thank you for attending today's briefing session on NYK Line's financial results. I will provide an overview of the company's performance in the third quarter of the fiscal year ending March 31, 2018.
Before discussing the presentation materials, I would like to touch upon third quarter financial results, our earnings forecast for the full fiscal year and the priority tasks we have set for management.
To begin, NYK Line's performance was very good in both the third quarter and the 9-month period of the current fiscal year. That was primarily due to a recovery of the market, as shipping traffic was particularly brisk for dry bulker and container vessels. Consequently, financial results surpassed our expectations during the 9-month period of the current fiscal year, with recurring profit amounting to JPY 35.6 billion and profit attributable to owners of the parent coming in at JPY 16.8 billion. Indeed, the company already exceeded its previous forecast for the full fiscal year by the third quarter.
Turning to the forecast for the full fiscal year, we are benefiting from the market recovery, and that is not expected to change. In the fourth quarter, however, we expect to incur onetime expenses and a net loss. Accordingly, we have downwardly revised our full year forecast of recurring profit. Specifically, the previous forecast of JPY 35 billion for recurring profit is now JPY 27 billion, a downward revision of JPY 8 billion. Nevertheless, the full year forecast of profit attributable to owners of the parent is unchanged at JPY 11 billion.
As I have said in previous presentations, we have regarded the resumption of dividend payments as the biggest priority task for management. Having taken into account the earnings forecast for the full fiscal year, we now plan a dividend payment of JPY 20 per share. The reason for resuming dividend payments is that we now foresee a return to profitability due to the recovery of the maritime shipping market as well as to the results of restructuring measures that we have been carrying out since last year.
Our second priority task is to launch OCEAN NETWORK EXPRESS, or ONE for short, which was established through the integration of the NYK Line's container shipping business with those of 2 other companies. So far, preparations have been going smoothly. ONE started taking bookings on February 1. And it is making good progress towards the goal of commencing service on April 1.
Our third task involves Yusen Logistics. Exactly 3 months ago, we announced that this company was made a wholly owned subsidiary. The necessary procedures went well, and the company became a wholly owned subsidiary effective from February 1. This will be reflected in NYK Line's consolidated balance sheets in the fourth quarter. Now that Yusen Logistics has been included in the scope of consolidation, we intend to improve its performance by leveraging synergy effects.
Now I would like to discuss the presentation materials. Let's look at the briefing material starting from Page 3, which provides an overview of third quarter results.
Since financial results were poor in the 9-month period of the previous fiscal year, both the revenues and income increased drastically in the current fiscal year against the backdrop of a recovery in both the container and dry bulk shipping markets.
In the 9-month period of the current fiscal year, profit attributable to owners of the parent came to JPY 16.8 billion, returning to the black after a loss last year, during which a large impairment loss was posted.
Among the business segments, the Logistics segment did not perform particularly well. Gross profit declined in the maritime and airfreight forwarding businesses due to persistently high cost prices. In certain regions, especially in the Americas, we are planning to implement structural reforms in Logistics operations.
Next, Page 4 shows a comparison of results with the same period of the previous fiscal year. Results greatly improved on a year-on-year basis, empirically indicating the market's recovery.
Among the results, the year-on-year differences in recurring profit and profit attributable to owners of the parent reflect a positive net balance in extraordinary income and losses posted in the third quarter. There were several main factors for that, including a gain on the sale of investment securities as well as the sale of vessels. Compared to last year, the price of bunker oil has increased by about 40%, and costs have gone up accordingly. Nevertheless, NYK Line was still able to generate profits in the third quarter.
Please look at Page 5, which shows results by segment compared with the same period of the previous fiscal year. The results in the far right column are differences between the 9-month periods of the previous and current fiscal year.
Recurring profit improved by JPY 28.6 billion in the Liner Trade segment and by JPY 13 billion in the Bulk Shipping segment. On the other hand, recurring profit decreased by JPY 4.4 billion in the Logistics segment and by JPY 9.2 billion in the Real Estate segment. The absence of a onetime gain from a real estate-related transaction posted in the previous fiscal year is the main reason for the decrease in the Real Estate segment. Nonetheless, this segment has managed to maintain profitability and has been steadily contributing to profits. The year-on-year decrease in the Logistics segment is a result that we need to seriously consider.
Page 6 shows an analysis of the year-on-year change in recurring profit. The higher bunker oil price, as I mentioned, increased by about 40%. But the effect of the market recovery written next was a big improvement. Others shown last on the list includes the effects of structural reforms, particularly in connection with an impairment loss, which contributed positively by JPY 8 billion.
On the other hand, the absence of the onetime gain from the real estate-related transaction posted in the previous fiscal year resulted in a negative amount of JPY 8.5 billion this year. Altogether, the items included under other came to a negative balance of JPY 3.3 billion.
Let's move to Page 7. It describes our revised forecast, which is probably the most important thing we have announced together with the third quarter results. Specifically, our previous forecast of JPY 35 billion in recurring profit has been downwardly revised by JPY 8 billion to JPY 27 billion, which I will explain.
While the outlook for the market recovery has not changed, unfortunately, NYK Line will incur a onetime expense of JPY 7 billion in the fourth quarter. I will provide details a little later in this presentation.
Our forecast of JPY 11 billion in profit attributable to owners of the parent is unchanged. The company will also resume the payment of a year-end dividend, as I mentioned before.
By business segment, the outlook for the Liner Trade segment is promising. Results are also expected to be solid in the Air Cargo Transportation segment. In the Logistics segment, we think some time will be needed for gross profit to improve. Profit is forecast to decrease slightly in the Bulk Shipping segment. Within this segment, results for certain businesses are expected to rise or fall compared with the previous forecast. Specifically, we forecast better results in the Dry Bulk Shipping business, but lower results in the liquid transport and car carrier businesses. Meanwhile, the Real Estate segment has posted stable profits, as I mentioned earlier.
Moving on to Page 8. I would like to talk about the onetime expense of JPY 7 billion, which I just spoke of. Beforehand, if we look at the figures for the fourth quarter, we forecast JPY 5.2 billion in operating income, along with a recurring loss of JPY 8.5 billion. There are 2 main reasons for that: The first reason is that expenses needed for ONE, the integrated company in the container shipping business, are projected to grow substantially. Overall, expenses associated with ONE were assumed to total $250 million dollars over the whole fiscal year, but now these expenses are expected to reach about $340 million, an increase of $90 million. NYK Line's shared these total expenses is 38%, which works out to an increase of about JPY 4 billion.
The other reason is a cost overrun for a project carried out by Knutsen NYK Offshore Tankers, an equity method affiliate operating out of Norway. We currently estimate this to total JPY 3 billion and were recorded as an impairment loss.
The project involves the construction of a ship scheduled for completion in May of this year, and 95% of it is already finished. Since the project is making smooth progress, we do not expect to incur another cost overrun.
Along with these 2 reasons, we forecast an exchange rate of JPY 110 to the U.S. dollar and a bunker oil price of JPY 390 per metric ton in the fourth quarter. We upwardly revised the price from JPY 350 in our previous forecast because bunker oil prices have been rising. The sensitivity of the exchange rate on recurring profit works out to about JPY 0.4 billion per JPY 1 of depreciation, and that has not fluctuated very much.
Generally, the NYK group is shifting towards recording costs in U.S. dollars. And ONE, in particularly, is a foreign currency denominated company that calculates costs on a dollar basis. Therefore, with respect to the yen, exchange rate sensitivity is becoming smaller.
On Page 9, we have the full fiscal year earnings forecast by segment. Please look at the year-on-year differences in the column on the far right. The biggest improvement in recurring profit is in the Liner Trade segment followed by the Bulk Shipping segment. Results forecast worsen year-on-year are in the Logistics, Real Estate and Air Cargo Transportation segments. Nevertheless, the forecast year-on-year decline in recurring profit in the Air Cargo Transportation segment is related to the absence of a onetime foreign exchange gain in the previous fiscal year, which is similar to circumstances in the Real Estate segment. If that gain is excluded, a year-on-year increase in recurring profit would actually be forecast. Meanwhile, results in the Logistics segment are a cause for concern.
Next, Page 10 shows information similar to what I just discussed. So I have nothing particular to explain here.
Page 11 shows an overview of each segment, but I would like to skip this.
Now I would like to talk about each business segment starting from Page 12. Beginning with the Liner Trade segment, certain forecast assumptions have been revised from the previous forecast. The forecast of freight volume for routes bound for North America from Asia was previously 988,000 TEUs, but it has been downwardly revised by 17,000 to 971,000 TEUs. Likewise, the forecast of freight volume for routes bound for Europe from Asia was downwardly revised from 685,000 TEUs to 659,000 TEUs.
The forecast of freight rates, however, is practically unchanged. Due to the continuous rush leading up to the Chinese New Year, which just started on February 15, freight rates and volume have both been solid. Incidentally, the fourth quarter forecast of net income in the Liner Trade segment would be about the same as the previous forecast if we were to exclude the costs associated with ONE, which will increase, as I explained a little earlier.
Now let's look at the Air Cargo Transportation segment, which is operated by Nippon Cargo Airlines. This segment has performed at its best over the past 5 years, and market sentiment has also been good. Third quarter results were strong with yields rising despite higher fuel costs.
In the fourth quarter, we expect results to be a little weaker than previous forecast, but cargo volume will not be bad at all. Rising fuel prices are a cause for concern. In addition, while we had originally planned to step up maintenance activities this fiscal year, a bird strike and other unfortunate problems caused maintenance expenses to accumulate even more. So it has been an unlucky year for this segment.
Next is the Logistics segment, which is operated by Yusen Logistics. I would like to talk about some of these figures, which are shown in a different format than before.
In the ocean freight forwarding business, handling volume is forecast to increase by 1% compared with the previous fiscal year. Handling volume increased substantially by 22% in the previous fiscal year, but now our policy is to keep this growth in check in an effort to boost gross profit.
Similarly, handling volume was up 11% in the previous fiscal year in the air freight forwarding business, but this fiscal year, we forecast an increase of just 1%. We are also operating this business with the goal of improving gross profit.
In the logistics business, handling volume by inland transport operations in the United States has been weak. Nevertheless, we are expanding services offered by -- offered in other countries, including Malaysia, Indonesia and Myanmar.
In addition, I would like to inform you that as part of our efforts to promote mergers and acquisitions, NYK Line acquired a Romanian forwarding company in December of last year. Effective from the fourth quarter, NYK Line made Yusen Logistics a wholly owned subsidiary. Yusen Logistics is now operating in accordance with its medium-term management plan, TRANSFORM 2025. To accomplish the plan, NYK Line intends to provide its full support. We plan to set up a committee on April 1 to exam concrete proposals for initiatives that both companies can carry out together.
Page 15 shows market indices that are relevant to the Bulk Shipping segment. They indicate that market results in the third quarter turned out to be higher than the forecast for the fourth quarter. Only the forecast for very large crude carriers is really low, and overall, the market is picking up. In the fourth quarter, we have hedged against freight rate volatility by concluding forward freight agreements among other measures, so I think fluctuations in freight rates will not have much of an effect.
Let's turn to the car carrier business. The number of vehicles shipped is forecast to increase by 8% compared with the number in the same period of the previous fiscal year. Shipments have risen especially in Europe and the United States. Many vessels are departing from Asia for Europe and the U.S., but they are returning with practically no cargo. Therefore, whether returning vessels are empty or loaded with a small number of vehicles, the imbalance is growing considerably.
Because the efficiency of vessel assignment is worsening to some extent, we are currently taking a number of steps to address this situation, such as enhancing services.
That concludes my discussion of the briefing materials.
Finally, I would like to give a very short explanation regarding the attached section about OCEAN NETWORK EXPRESS. The new company began accepting bookings on February 1. Gaining approval from antitrust authorities has been a cause of concern among investors. But after being authorized in South Africa, ONE gained approval in every relevant country. Following the completion of that process, new services were announced on January 26, including the service schedule. We are in the process of preparing ships and new containers painted in magenta as shown in the photo and are now doing everything we can to launch services on April 1.
That concludes my explanation of NYK Line's third quarter results. Thank you for your attention.