Flood impacts remain ruinous

Corporate November 01, 2011 00:00

By The Nation, Agencies

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Flood impacts on the business sector are not yet easing, as several manufacturers are extending their suspensions of production because of continued supply-chain disruptions, while Moody's Investors Service announced that continued damage was negative to



Honda Automobile (Thailand), while announcing that its motorcycle and power-part-manufacturing subsidiary would suspend operations only until Nov 4 Friday, said: “The company does not have a clear outlook for when vehicle production will resume, as its facilities remain flooded since October 8.” The autoassembly plant in Rojana Industrial Park, Ayutthaya, was inundated on that date, but its parts suppliers were flooded four days before.

Counting Thailand as its second-largest Asian manufacturing base, Honda Japan yesterday announced that it had abandoned full-year profit forecasts given the unknown financial toll of the Thai floods.

Meanwhile, though their plants are unaffected, Toyota, Isuzu Mitsubishi, Nissan and Mazda have suffered from supplychain disruption. While Toyota had to cut production in Japan and North America, Mitsubishi Motors Corp said the floods in Thailand might cut full-year operating profit by as much as 15 billion yen (Bt5.9 billion).

India’s Business Standard newspaper also reported that Tata Motors yesterday suspended production of its Xenon pickup here.

Overall, Thailand’s automotive output this year is expected to fall short of the targeted 1.8 million units.

More than 400 Japanese auto manufacturers and electronics firms in six industrial parks north of Bangkok have been affected by the flood disaster.

Supply-chain disruptions are also crucial in the electronics/electrical-appliance sector. Panasonic is expected to suffer a US$4billion (Bt123billion) net loss in the year to March 2012, despite an initial forecast of profit, due to a strong yen and suspension of operations in Thailand. As for Toshiba, 10 of its 11 factories here are inundated.

However, the biggest impact is in the hard-disk-drive industry, as many factories in Thailand – producing half of the world’s output – are inundated. Computer companies from North America to Taiwan are evaluating the damage from supply-chain disruptions.

Last week, Jim Wong, president of Acer, the world’s fourth largest computer maker, said floods in Thailand had pushed the price of hard drives 520 per cent higher.

Japanese electronic-component and data-storage maker TDK, which has suspended four plants here, said yesterday that it would cut its global workforce by 11,000, or roughly 12 per cent, over two years.

Flood impacts are also spreading to other sectors. According to DBS Research, aside from lower travel demand because of the fragile global economy, floods also reduced Thai Airways International’s cabin factor to 66 per cent in October from 74 per cent in the same period last year.

Advanced bookings in November and December also remain weak, at only 60 per cent and 53 per cent, respectively, against 72-75 per cent cabin factor in the same period last year. DBS expects THAI to show a Bt5.5billion net loss this year, while the 2012 profit forecast is cut 42 per cent to Bt2.9 billion.

To date, tyre maker Goodyear (Thailand) is unable to assess the extent of damage to its property and equipment or to determine when its facility will resume production. It announced yesterday that production and sales in the current fourth quarter of the year would be affected. Goodyear closed the Bangkok factory, which makes consumer and aviation tyres, on October 20.

As the stillemerging damage and disruptions are poised to affect asset quality and profitability adversely for at least six months, Moody’s Investors Service expects continuing flood problems to be credit-negative for Thai banks. Initial estimates from major Thai commercial banks suggest that up to 1 per cent of their outstanding loans will be directly affected, and another 58 per cent indirectly affected.

“Banks are especially vulnerable to the small and midsize enterprise segment, as the reported closure of a number of large industrial ventures could directly jeopardise many of their suppliers. We also expect bank profits to be affected by higher provisioning as well as repair costs to ATMs and other premises,” Moody’s said.

Aside from requests from the Bank of Thailand for assistance to clients, banks are expected to witness asset deterioration in the next six months. Yet the floods will not materially undermine banks’ creditworthiness because the effects will be short-lived and banks’ asset quality is improving in the run-up to the disaster, the rating agency said.

Credit growth (the denominator effect) and recoveries on problem loans that have exceeded allocated provisions have driven improvements. A strong capital base will also cushion any impact, it added.


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