Bullish Japan Utility Analyst Turns Bearish on Atomic Delays

  • SMBC Nikko analyst lowers Kansai Electric rating, price target
  • Japanese utility’s shares plunge by the most since March 10

Nuclear operator Kansai Electric Power Co.’s most bullish analyst is now one of its most bearish.

SMBC Nikko Securities Inc. analyst Hidetoshi Shioda cut the Japanese utility’s rating to neutral from outperform and slashed his profit forecast and share price target, according to a note Tuesday. Before the downgrade the price target was the highest of 10 analysts who provide price targets on Bloomberg.

Shioda believes Japan’s second-largest electric utility won’t be able to operate any of its nuclear reactors through at least March 2019 as an unprecedented local court challenge blocks restarts. Kansai Electric shares fell 5.6 percent in Tokyo trading on Wednesday, the biggest decline since March 10.

Shioda’s reversal underscores how much cheap nuclear power boosts profits -- and investor dividends -- at Japan’s utilities. A March ruling by a district court that forced Kansai Electric to shut its Takahama No. 3 and No. 4 units is likely the first of many such challenges for other utilities seeking to restart atomic units, according to Shioda.

“Before the 2011 Fukushima disaster took place, courts didn’t have enough courage to issue a ruling that would stop an operating reactor, even if there was public fear about it,” Shioda said by phone. “The number of such injunctions is likely to increase.”

Shioda cut his dividend forecast for Kansai Electric by 83 percent to 5 yen per share for the current fiscal year, and slashed the company’s stock price target by 38 percent to 1,000 yen from 1,600 yen.

Since the court injunction was announced earlier this year, Kansai Electric has dropped about 21 percent. Shares fell 57.8 yen to settle at 968.2 yen on Wednesday, the lowest closing price in more than two months.

Japan’s regional monopolies are getting squeezed by new entrants after the country liberalized its retail power market in April, allowing consumers to choose their electricity providers for the first time. Kansai Electric will likely sees idle reactors as a “risk to earnings” and will seek to boost capital levels and will remain cautious on reinstating dividends, Shioda said in the note.

The country’s utilities face more than two dozen lawsuits seeking to stop nuclear operations, according to the website of an organization of lawyers involved in the litigation. Only two of Japan’s 42 operable reactors are currently running. Twenty five have applied to restart.

Rival nuclear operator Shikoku Electric Power Co. aims to restart its Ikata No. 3 nuclear unit by the end of July, with commercial operations starting by mid-August, a company official said on Wednesday.

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