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Groups Wait for Earthquake Effect to Strike Home

The global surge in energy and commodity prices had a bigger financial impact on developing Asia’s big companies in the first quarter than Japan’s devastating earthquake and tsunami, results and trading updates suggest.

A man and his sister stand before their broken house, destroyed by the tsunami at Rikuzentakata in Iwate prefecture on March 17, 2011.
JIJI Press | AFP | Getty Images
A man and his sister stand before their broken house, destroyed by the tsunami at Rikuzentakata in Iwate prefecture on March 17, 2011.

South Korea’s Samsung Electronics, the world’s largest technology company by sales, China’s Guangzhou Auto and Taiwan’s TSMC, the world’s largest contract manufacturer of semiconductors, were among companies acting as a barometer of the possible impact of component shortages from Japan.

However, most companies said the impact would be felt largely in the second quarter. The March 11 earthquake happened only three weeks before the end of the first quarter for most companies, which meant that shortages of Japanese parts had little impact until April.

TSMC, which holds a 30-day stockpile of important materials, reported net profit up 7.8 percent from the first quarter of 2010, and said the earthquake had not affected its supply chain, although it might affect its customers in the quarter to June.

Zhang Fangyou, chairman of Guangzhou Auto, one of China’s biggest carmakers, said production volume in May would be 30 percent lower than planned “due to [the] earthquake’s impact on our supply chain”. But Mr Zhang also said the impact would be “short-lived”, with no major influence on the company’s full-year performance. Guangzhou has not released first-quarter results.

Samsung, which reported a 30 percent drop in first-quarter net profit, blamed stiff competition in mobile phones and flat-panel televisions. Rising margins in its semiconductor division suggested it had benefited from a rise in prices of memory chips caused by the impact of the earthquake on Japanese production.

HTC, the Taiwanese smartphone maker, said it had sold nearly three times as many handsets in the first quarter as in the equivalent period a year earlier, and saw little impact from the Japanese disaster.

South Korea’s LG Electronics reduced its operating loss in the quarter to Won15.8bn ($14.5m), compared with a loss of Won256bn in the fourth quarter of 2010, but blamed the slowdown in the U.S. and Europe, and forecast a further improvement in results in the second quarter.

Other companies appeared to benefit from the blow suffered by Japanese competitors. Hyundai Motor, the South Korean carmaker, said net profit rose by 46.5 percent compared with the same quarter a year earlier, with overseas sales soaring by 11.6 percent. Kia Motors, an affiliate, said net profit was up 91 percent on the same basis.

Some food exporters did well, benefiting from a shortage of seafood in Japan caused by damage to the national fishing fleet and radiation leaks from a damaged nuclear plant.

Thai Union Frozen Products, the world’s biggest producer of canned tuna, said net profit fell by 9.4 percent because of rising costs and interest expenses, but analysts said the company had benefited from rising exports linked to the Japan disaster. Charoen Pokphand Foods, a big shrimp exporter to Japan, said net income was up by 7.9 percent.

Korean Air Lines reported a 50 percent rise in net profit, helped by a surge in passenger demand as people left Japan after the earthquake, together with higher cargo revenues as component shipments increased. However, KAL said operating profit was down 41 percent because of higher oil prices.

Other regional airlines said their performance was impaired by the Japanese disaster. Air China said net profit was down 23 percent from a year earlier, and Thai Airways, which has not yet reported, said in April that the disaster had reduced revenue by about Bt600m ($19.8m).

Singapore Airlines , the world’s second-largest airline by market value, surprised investors with a 38.5 percent fall in net profit for its fourth quarter to the end of March, which it said was due to fuel prices. It also warned of weakness in load factor in the near term, in part because of the impact of the Japan earthquake.

Garuda Indonesia also blamed oil prices for a first-quarter loss of Rp183.5bn ($21.4m), compared with a net profit of Rp18bn a year earlier. Analysts said more regional airlines were likely to announce impaired profits as a result of the surge in fuel costs, which reflected a rise in the price of Brent crude oil from about $95 to more than $120 during the quarter.

Neptune Orient Lines , the Singapore-based shipping group, also blamed fuel costs for a quarterly loss of $10m. The group had hoped that rising trade volumes would help it to return to profit after a loss of $98m in the same period of last year.

The increase in energy and commodity prices hit steelmakers, with net profit at South Korea’s POSCO down 33 percent compared with a year earlier. Indonesia’s Krakatau Steel was down 76 percent and China’s Hebei Iron & Steel 3 percent. Prices for both iron ore and coking coal reached record levels during the quarter.

Power generators also appeared to be suffering. Malaysia’s Tenaga Nasional reported a 37 percent fall in net profit for its second quarter to the end of February, and issued a profit warning for the coming quarter. The natural resources price surge helped commodity traders such as Hong Kong-based Noble Group, which reported an 80 percent rise in net profit, with a 59 percent increase in coal and coke revenues as prices rose following the Japanese disaster and floods in Queensland.

Olam , the Singapore-based commodities group, said net profit for the quarter rose by 48 percent, excluding exceptional gains, on higher sales and margins.

Additional reporting by Robin Kwong in Taipei, Henny Sender in Hong Kong and Patti Waldmeir in Shanghai

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