Marubeni share price down, cuts profit guidance in half on oil prices

Japanese trading house Marubeni Corp reduced its full-year net profit projections by a half on Monday citing write-downs caused by plunging commodities prices.

Japans fifth-largest trading company said it now expects net profit for the financial year ending March 31 to stand at ¥110 billion, half of what it had initially projected last May.

Marubeni cited an impairment loss of ¥95 billion, including a ¥60 billion loss from its North Sea operations, due to lower oil prices.

Additionally the company will take a ¥10 billion impairment charge from its business in Chile as a result from falling copper prices. Meanwhile, the drop in coal prices contributed for another charge of ¥5 billion in the companys Australian business.

Adding to the companys troubles was a different ¥50 billion write-down in goodwill related to the 2013 acquisition of the US-based grain merchant Gavilon. Marubeni said the unit is expected to “fall short from the initial business plan, as was the case in the previous fiscal year.”

Overall, Marubeni expects to take a hit of around ¥120 billion, reduced by favorable tax effects.

As a counter measure for the projection cut, Marubenis Chief Executive Officer Fumiya Kokubu and Chairman Teruo Asada will get 50% less payment for February and March. Additionally, all senior executives annual salaries will be reduced by 30% for the next financial year starting April.

“We didnt expect prices to fall this far,” said Mr. Kokubu referring to crude oil. “It wouldnt be strange if prices fell to the $30 level.”

Crude oil lost nearly 50% of it value during the second half of 2014 and prices have continued their fall in 2015, most recently crude oil reached its lowest level in almost six years.

Last September rival Sumitomo Corp reported its first half-year loss since 1998 and significantly reduced its guidance for its full-year results, citing a ¥270 billion write-down due to ill-fated investments in shale oil and coal among other energy sources.

Although lower oil prices usually boost the economies of export-oriented countries, like Japan, they are proving to be hurting the performance of trading houses.

Marubeni Corp lost 4.74% on Monday and closed at ¥671.20 in Tokyo, marking a one-year decrease of 10.74%. The company is valued at ¥1.22 trillion.

According to the Financial Times, the 3 analysts offering 12-month price targets for Marubeni have a median target of ¥850.00, with a high estimate of ¥940.00 and a low estimate of ¥400.00. The median estimate represents a 26.64% increase from the last close price.