Mitsubishi likely to cut earnings forecast on rogue oil losses at Singapore unit: analyst

[TOKYO] A US$320 million loss by a rogue oil trader at Mitsubishi's Singapore unit will likely prompt the Japanese company to cut its full-year net income forecast, SMBC Nikko Securities said.

"While the losses should be one-off, they will weigh on earnings in the second quarter," analyst Akira Morimoto wrote in a note dated Sept 20.

Against a backdrop of recent declines in coking coal prices, it seems likely that the firm will have to cut its full-year net income guidance of 600 billion yen (S$7.7 billion), he said.

Mitsubishi said on Friday that a trader at its Petro-Diamond Singapore unit executed unauthorised transactions disguised as legitimate hedges for customers. The Chinese national, whom the company declined to name, was fired and reported to police, according to a statement.

SMBC Nikko's Mr Morimoto kept the Mitsubishi stock at a "neutral" rating and its target price at 2,900 yen. His estimate for Mitsubishi's full-year profit of 582 billion yen excludes the oil trading losses. The Japanese trading company has seven "buy" ratings, five "hold"s and no "sell" recommendations, with an average target price of 3,231 yen, according to Bloomberg data.

Nomura Securities analyst Yasuhiro Narita maintained his "buy" rating and a target price of 3,580 yen. "It is unclear how this will affect bottom-line profits attributable to owners of the parent as the company has yet to disclose other related trading losses or the effect of tax allocation accounting," he wrote in a Sept 20 note.

SMBC Nikko said the inadequate supervision of the repeated derivatives trades raises questions about Mitsubishi's risk management process.

"We cannot avoid getting a negative impression as to why this was not detected earlier and it raises questions about the firm's risk management framework and governance," Mr Morimoto wrote in the note.

BLOOMBERG