Shares of Honda Motor Co. (IW 1000/30) tumbled on Monday after the Japanese automaker warned that its full-year results will be much weaker than forecast, as a trade dispute between Tokyo and Beijing dents sales.
Investors dumped the shares, which fell 4.65% to 2,399 yen by the close in Tokyo, on news that the maker of the Accord and Civic will report an annual profit that is 20% lower than previously expected -- even as its first-half profit more than doubled to $2.7 billion.
Honda's stock was down 6% in earlier trade after it mistakenly released earnings three hours ahead of schedule due to a "human error."
Blaming a strong yen and weakening sales, Japan's third-biggest automaker said it now expects to earn 375 billion yen ($4.7 billion) in its fiscal year to March 2013, down from an earlier 470 billion yen forecast.
Sales are projected to fall to 9.8 trillion yen, from 10.3 trillion yen.
A Honda statement did not offer details about the Japan-China spat, but company officials told a press conference in Tokyo later Monday that the firm is cutting its full-year sales forecast in China to 620,000 vehicles, down from 750,000 units.
Not Just a Honda Problem
The diplomatic dispute over an East China Sea island chain, which has slammed the brakes on sales of Japan-brand cars in China -- the world's biggest car market -- is expected to weigh on demand until February, the automaker said.
The two Asian giants remain locked in a festering row over the archipelago controlled by Japan but claimed by China, sparking double-digit sales declines in September for Japan's biggest automakers.
Japanese factories and businesses across China closed or scaled back operations in September over fears that they or their workers could be targeted by mobs protesting against Tokyo's nationalization of the islands.
"Honda's sales apparently felt the impact from a weaker China market, as well as the stronger yen, and [this] raises the possibility that it will revise down its full-year forecast yet again," said Hideyuki Ishiguro, strategist at Okasan Securities.
"Of course Honda's problems are not unique -- the magnitude of the China component in its earnings may be most felt in Nissan Motor's earnings, since it has the heaviest proportional exposure to China."
Shares in Nissan, which has yet to report its latest quarterly results, were off 2.2% to 670 yen, while Toyota shares fell 1.6% to 3,030 yen by the close.
Honda's profit and sales downgrade stood in marked contrast to its latest half-year results. These saw net profit soar to 214 billion yen, up from 92.2 billion yen in the same period a year earlier.
Sales in the period were 4.7 trillion yen, up from 3.6 trillion yen, largely tied to a rebound from last year's earthquake-tsunami disaster.
Japanese automakers saw extensive damage to their supply chains as a result of the twin disasters in Japan as well as record flooding in Thailand.
Yen Hurting Japanese Automakers
A high yen also ate into exporters' sales and profits.
The country's automakers have come under pressure from the value of the currency, which last year hit record highs against the dollar and remains strong. This makes exports relatively more expensive overseas and cuts the value of repatriated earnings.
While the number of vehicles that Honda sold rose strongly in the first half -- including a 73% jump in the key North American market -- the company said revenue in Europe, the Middle East and South America all weakened "mainly due to unfavorable foreign currency translation effects."
Copyright Agence France-Presse, 2012
Dow Jones Newswires contributed to this report.