1H FY08 earnings will be hit by mark-tomarket
losses
􀀗 We cut our forecasts and target prices
to reflect mark-to-market losses
􀀗 T&D Holdings is oversold. Raise rating
to OW(V). All others unchanged
The Topix has fallen c28% since the start of fiscal 2008.
Despite the BOJ cutting interest rates by 20bp to 0.3% on 31
October, we expect companies will need to make mark-tomarket
adjustments, hitting both earnings and balance sheets.
AIOI, Mitsui Sumitomo and T&D Holdings have already
announced investment write-downs, but only T&D has cut
guidance. We have estimated write-downs for Nipponkoa,
Tokio Marine, and Sompo Japan.
We cut forecasts and valuations for all our coverage to
take account of these write-downs. Apart from T&D
Holdings, ratings remain unchanged. T&D is oversold and
we upgrade to Overweight (V).
But we think the real issue is recession. The Japanese
government has already admitted that the recession is not
avoidable. We expect it to cut into premium growth over the
medium term and to undermine investment returns.
With the exception of T&D, our forecasts are below
guidance and consensus. At the time of announcing its
write-down T&D cut guidance. All other company guidance
is unchanged. We anticipate that both guidance and
consensus will be cut during 2H FY08.