Honda boosts profit forecast as SUVs lead China sales surge

Tokyo: Honda Motor raised its forecast for full-year profit as demand for Vezel and XR-V sport utility vehicle models surged in China, the carmaker’s second-largest market.
Net income will probably rise to 415 billion yen ($3.96 billion) in the fiscal year ending in March, more than the 390 billion yen forecast in May, according to a statement from the Tokyo-based automaker. The projection compares with the 491.8 billion yen average of 20 analysts’ estimates compiled by Bloomberg.
Honda boosted deliveries of the Vezel and XR-V models each by more than 50 per cent, as carmakers selling in the world’s biggest auto market benefited from a sales tax cut for vehicles with smaller engines. China’s government is looking at extending the levy reduction set to expire this year, potentially helping Honda rebound from unprecedented recalls of faulty Takata air bags.
"Their redesigned models, especially the small crossovers, are giving them a strong boost,” said Seiji Sugiura, an analyst at Tokai Tokyo Research Center. "We expect the Chinese government to take some action, further supporting the industrywide growth, and Honda will continue to benefit.”
Honda shares fell 0.2 per cent in Tokyo trading, before the company released earnings. The benchmark Topix Index was little changed.
Sales outlook
While Honda also raised its forecast for operating profit this year to 650 billion yen, from 600 billion yen, it dialed back its projection for annual revenue. For the year ending in March, sales will probably decline to 13.4 trillion yen due to unfavorable foreign exchange rates.
The yen has strengthened about 15 per cent against the US dollar this year, eroding Japanese exporters’ repatriated earnings. Honda said on Monday foreign exchange swings reduced operating income by 178 billion yen in the first half of the fiscal year.
Demand for vehicles with smaller engines paced Honda’s 26 per cent gain in China sales this year through September. Industry-wide deliveries began to recover late last year following the tax cut scheduled to expire on December 31. Passenger-vehicle sales have surged 15 per cent to 16.75 million units in the first nine months of this year.
As sales climb, Honda has revived plans to expand production in China. The carmaker will begin work on a new plant this year that’s scheduled to begin operations in 2019.
US gains
The Japanese automaker’s sales in the US rose 3.3 per cent this year, outpacing industrywide expansion, helped by demand for models including the Civic and HR-V.
The carmaker is introducing a larger, redesigned CR-V SUV in December with a sportier look and expanded safety features. While the CR-V was America’s most popular SUV in eight of the past nine years, new models from Ford Motor, General Motors and other automakers are challenging its dominance.