TOKYO -- Japan's Denso Corp., the world's most valuable auto parts maker, on Tuesday boosted its full-year earnings forecast by 16 percent on brisk sales to top customer Toyota Motor Corp.
Denso is benefiting from the success of Toyota, Japan's largest auto maker, which overtook Ford Motor Co. as the world's second-biggest car maker in 2003 and has forecast record sales of over seven million units in 2004.
Denso, 23.4 percent owned by Toyota, has been expanding sales of high-margin car air conditioners and diesel fuel injection systems to U.S. auto makers, including General Motors.
The company's strong results contrast sharply with those of major U.S. parts makers like Delphi Corp. and Visteon Corp., which are struggling with a legacy of heavily unionized workforces and underfunded pension obligations.
Denso, which gets just under half of its revenue from Toyota, lifted its net profit estimate for the year ending in March to 102 billion yen ($967 million) on record revenues of 2.52 trillion yen.
The new forecast is still lower than last year's profit of 111.02 billion yen, which was inflated by extraordinary gains related to its pension fund, but analysts said Denso had left room on the upside.
"This is a company famous for its conservative forecasts, and I'd be surprised if Denso failed to beat even its upgraded target," said Eiji Hakomori, an analyst at Daiwa Institute of Research.
"Denso has fatter profit margins than the other biggest players in the auto parts industry and they're well positioned in key growth areas."
Denso, which is the world's third-biggest parts maker by sales, behind Germany's Robert Bosch GmbH and Delphi, notched up a group net profit of 90.86 billion yen for the first nine months of the 2003/04 business year.
That puts it 89 percent of the way towards its revised target for the full year.
DENSO LEADS PACK
Last month Visteon, which was spun off from Ford in 2000, posted a larger-than-expected quarterly loss, while General Motors spin-off Delphi posted a fall in quarterly earnings due to restructuring charges.
Denso's market capitalization of $17.2 billion is more than double than that of Delphi and Visteon combined.
Denso, which is also the world's biggest maker of car air conditioners, with around 30 percent of the market, has been stepping up investment in diesel common rail systems -- an electronic fuel injection system for diesel engines that boosts fuel efficiency and cuts harmful emissions to below those of gasoline engines.
Japanese auto makers have been grabbing global market share as sales of the systems have been growing, especially in Europe, where high gasoline prices and tougher emissions controls have fuelled demand for diesel engines.
Denso's strength in new growth areas like common rail and car navigation systems, which require hefty capital investments, help protect it from severe price competition at the lower end of the market for parts like spark plugs, in which Chinese and Indian firms have been giving established players a run for their money.
Denso, like other global parts makers, has also been shifting production to places such as India and China to take advantage of lower manufacturing costs and rapidly growing markets.
Late last year Denso said it would set up a joint venture with China's Fawer Automotive Parts -- a unit of China's biggest auto group, FAW Group Corp -- to produce air conditioners for Toyota and other foreign auto makers boosting production there.