Daiwa House Forecast Record Profit on Rebuilding After Japan Earthquake

Daiwa House Industry Co., Japan’s biggest home builder, expects profit to rise to a record for the current year on higher sales following the nation’s biggest earthquake.

Operating profit, deducting the cost of goods sold from sales, will rise 8.3 percent to 95 billion yen ($1.19 billion) for the year ending March 2012, according to a statement distributed through the Tokyo Stock Exchange. That would exceed the previous high of 89.1 billion yen in the year ended March 2008. The forecast matched the median estimate of five analysts in a Bloomberg News survey.

The Osaka-based builder, which earlier had postponed the profit forecast announcement because of the March 11 earthquake and tsunami, may benefit from rebuilding demand following the temblor, analysts said. Its China operations may also gain as sales climb in the world’s fastest-growing major economy.

“Profit generated from the China market is likely to offset short-term deterioration of sales for Daiwa House,” said Masahiro Mochizuki, an analyst at Credit Suisse Securities (Japan) Ltd. “Potential home buyers in Japan are likely to choose larger home builders they have confidence in.”

Mochizuki had an operating profit forecast of 95.4 billion yen for the year. The estimates ranged from Barclays Capital Japan Ltd.’s 85 billion yen to the high of 96 billion yen by JPMorgan Chase & Co.

Daiwa House’s shares climbed 1.5 percent to 1,006 yen at the 3 p.m. close of trading in Tokyo, a two-month high. The Topix Construction Index (TPCONT) advanced 0.6 percent.

The company expects sales to rise 3.5 percent to 1.75 trillion yen for the year ending March 2012.

Housing Boom

Daiwa House’s orders gained 7 percent in April from a year earlier, outpacing the 0.3 percent increase in Japan’s housing starts for the same period, according to the company’s data and the land ministry.

Sekisui House Ltd. (1928), Japan’s second-largest home builder, said last month it expects the biggest housing boom in the country in at least 15 years as homeowners seek to rebuild after the magnitude-9 temblor.

“Daiwa House relies more heavily on non-housing businesses than peer Sekisui House and should be capable of offsetting some of the setback in domestic profits associated with a quake- related economic dip by booking condominium sales in Suzhou China,” Takashi Hashimoto, an analyst at Barclays, said in a report.

Daiwa House’s profit from China may reach 7 billion yen this year after it first started apartment projects in 2006, Mochizuki estimates. Daiwa, which focused on rental apartments in China since 1985, started to build and sell homes in the nation five years ago to diversify as its home market shrank.

Rebuilding Demand

The March earthquake and tsunami destroyed or damaged more than 503,000 homes and 93,270 people are still staying in shelters, according to the National Police Agency.

Temporary homes completed 74 days after the quake totaled 15,572 units, only about half of those finished during the same period after the great Hanshin Earthquake that hit Kobe, according to data compiled by Credit Suisse.

“The construction of temporary housing is very slow and that means rebuilding demand will be delayed,” Mochizuki said. “The company can probably profit from rebuilding demand in northeastern region for the next two to three years.”

Construction companies broke ground on 0.3 percent more homes last month from a year earlier, according to a report released on May 31 by the Ministry of Land, Infrastructure, Transport and Tourism in Tokyo.

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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