Itochu Corp. has secured its position as the nation’s top trading giant — at least by some measures — as its emphasis on nonresource businesses helps it weather the coronavirus pandemic.
The company is set to earn twice the net income of key rival Mitsubishi Corp. in the fiscal year through March, according to filings from the companies. That will mark the first time time since 2015 it has edged out Mitsubishi to be the biggest trader by profit as the latter takes a hit from low coal and gas prices.
"Everyone has strong earnings when the economy is booming, but the difference appears when the environment turns sour,” said analyst Hidenori Kusunoki at Mizuho Securities Co. in Tokyo, adding that Itochu’s results reflect its drive to cut costs and avoid losses. Measures such as cost reduction can be more easily reflected in earnings of nonresources businesses, while the performance of resource sectors are affected by fluctuations in commodity prices, he said.
For much of Japan’s modern history, the top three trading houses had been Mitsubishi, Mitsui & Co. and Sumitomo Corp., all descended from family-controlled conglomerates that built their empires by importing commodities into the resource-poor nation.
Itochu, a 162-year-old firm that traces its origin to linen trading in Osaka, has shattered that order. It’s extending its lead as the country’s most valuable trader after overtaking Mitsubishi by market value for the first time in June. Analysts surveyed by Bloomberg expect Itochu will continue to earn the biggest profit among the nation's trading houses through at least 2023.
Masahiro Okafuji, a 70-year-old textile business expert who took over as chief executive officer in 2010, has driven the company toward diversification. Itochu derived 75 percent of its profit from nonresource business last fiscal year and is seeking to take full control of convenience store chain FamilyMart Co. Mitsubishi earned more than half of its net income from mineral resources and natural gas.
Mitsubishi said last week it anticipates a ¥300 billion ($2.8 billion) impact from the coronavirus. On top of falling commodity prices, the company has been hit hard by a downturn in the auto sector, including at loss-making affiliate Mitsubishi Motors Corp. "The business environment is far from normal and we can’t be too optimistic,” Chief Financial Officer Kazuyuki Masu said at a post-earnings briefing.
"Overall it appears to expect earnings will bottom” this fiscal year, Akira Morimoto, an analyst at SMBC Nikko Securities Inc., said referring to Mitsubishi.
Mizuho’s Kusunoki says Mitsubishi’s profit could surpass Itochu’s again when commodity prices recover. Still, the company will also need to make its own efforts to improve earnings, including being more involved in management at companies it invests in, such as Mitsubishi Motors.
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