* Honda shares end up 0.7 percent, in line with Nikkei (Updates with Fit Shuttle orders, closing share price)
Tokyo: Honda Motor Co’s annual operating profit forecast is not conservative, given the yen’s strength and soaring raw materials prices, the automaker’s chief financial officer said on Tuesday.
Japan’s No.3 automaker this month forecast a worse-than-expected 65 percent fall in annual operating profit to ¥200 billion ($2.5 billion) for the year to March 2012. Many analysts consider its guidance overly conservative, with consensus forecasts putting the profit at ¥412 billion, according to Thomson Reuters.
“I don’t think assuming ¥80 to the dollar is conservative at all,” Fumihiko Ike told a small group of reporters in an interview, explaining the expected sharp drop in earnings.
“The same goes for raw material prices.”
Ike said potential shortages of electricity in Japan following the nuclear disaster caused by the 11 March earthquake and tsunami likely meant resources-poor Japan would need to step up its imports of natural gas and other energy sources.
“And for that, a stronger yen is better,” Ike said. “We in the manufacturing sector may cry out for relief but...I suspect such forces may be at work.”
Honda’s assumption that a rise in raw material prices would have a negative impact of ¥80 billion on profits this year was also not overly pessimistic, he said.
“Before, it used to be about rising precious metals prices. Now, on top of that, we’re dealing with an incredible surge in rare earth prices as hybrid cars become more popular,” he said.
Precious metals such as platinum are used in catalytic converters needed to reduce tailpipe emissions, while rare earth elements such as dysprosium and neodymium are needed for electric motors fitted in fuel-efficient hybrid cars.
Honda said on Tuesday it had received 12,000 orders for the new Fit Shuttle station wagon in Japan, about three times the monthly sales target. Of that, 86% chose the hybrid option.
Rare earth prices have been soaring since China, which controls more than 95 % of global supply, restricted exports late last year. The China offer price of dysprosium now hovers around $3,600-$3,800 a kg, up from $300 a year ago, and neodymium is traded above $450, up from $45.
Honda’s cost and sales assumptions translate into a cost increase of around ¥24,000 per car this year. Honda is expecting a 6 percent drop in its global car sales to 3.3 million vehicles.
Honda’s ¥200 billion profit forecast would yield an operating margin of 2.4%, less than half of rival Nissan Motor Co’s projection of 4.9% for 2011-12.
Nissan on Monday mapped out a business plan to boost that margin to a sustainable 8% within six years, partly fuelled by a global expansion of the Infiniti luxury brand.
Ike said Honda was also preparing a big model offensive for its premium Acura brand, which sells about the same number of cars as Infiniti, or around 160,000 a year.
“We’ve got quite a number of new models in the pipeline,” Ike said, declining to provide details. He added, however, that unlike Nissan, Honda had no plans to spread the brand into more markets. Honda sells Acura cars in North America and China.
Honda’s shares closed 0.7% higher at ¥3,040 in Tokyo, roughly in line with the benchmark Nikkei average.