Japan's Kawasaki Kisen expected to record first-half earnings

TokYO - - Japanese marine shipper Kawasaki Kisen will likely report a record pretax profit of roughly 230 billion yen $2.02 billion for the first half of September, Nikkei has learned, a company record for any six-month period, thanks to the boom in container ship demand.

That would mark a 23 fold jump from a year earlier, surpassing the latest projection by 30 billion yen. In May, Kawasaki Kisen initially forecasted a 44 billion yen pretax profit for the first half, then issued two upgrades in quick succession.

Driving the earnings bonanza is the container ship operation that the company jointly owns with Japanese peers Nippon Yusen and Mitsui O.S. K. Lines. Kawasaki Kisen holds 31% of the venture and the equity-method affiliate lifted pretax income by a large margin.

The stay-at-home demand induced by the pandemic spurred the surge in container ship traffic, with transport between Asia and North America in particular high demand.

That demand has led to congestion at North American ports and the limited capacity of transportation has fueled higher market rates for containers.

The volume of U.S.-bound containers from Asia hit a September record, according to U.S. analytics firm Descartes Datamyne, topping year-earlier figures for the 15th consecutive month.

The Shanghai Containerized Freight Index, the benchmark for container shipping rates, stood at 4583.39 points on Friday, up nearly 80% from the end of March.

The weak yen is also lifting Kawasaki Kisen's profit. The company assumed a 106.86 yen per dollar exchange rate for the July-September quarter. Because sales are mostly booked in dollar-denominated terms, a further depreciation of the yen will boost pretax earnings.

On the other hand, earnings from its automobile carrier operation decreased further than anticipated due to production cuts among automakers. The effects of higher fuel costs on earnings appear to be limited, since Kawasaki Kisen has added surcharges to most of its vessels in operation.

Analysts believe the company is all but guaranteed to upgrade its earnings forecast for the second half.

It's hard to believe that container spot rates will decline sharply, said Yuichiro Tsuchi of UBS Securities. Marine shippers have put out conservative earnings projections, so upward revisions will likely continue. Kawasaki Kisen is expected to announce first-half earnings on Nov. 4.