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Investing.com -- Yamato Kogyo Co., Ltd. (TYO: 5444) announced a downward revision to its fiscal year ending March 2025 revenue forecast by ¥23.0 billion. This move comes as the steelmaker takes a significant ¥26.0 billion impairment on its investments in the Middle-East, specifically in its SULB operations, due to a deteriorating business outlook driven by rising natural gas prices.
Despite the impairments being anticipated following the company’s November 26, 2024, announcement of lower than expected natural gas reserves in Bahrain, the decision to sell its 49% stake in the venture was unexpected but seen as a positive step by Jefferies analysts.
The sale to Foulath Holding will bring in ¥27.0 billion, with the equity valued at US$30 million and the recovery of US$145 million in loans. However, a ¥19.0 billion currency translation adjustment reversal is expected to impact shareholders’ equity in the fourth quarter.
In its third-quarter earnings for FY3/25, excluding the impairments, Yamato Kogyo reported solid operational profit at ¥4.3 billion, an increase from ¥3.4 billion in the second quarter, with affiliate earnings remaining stable quarter over quarter. The company’s performance in the US remains strong, supported by high steel margins and robust infrastructure spending. Despite this, the company has lowered its earnings outlook for the Middle-East and South Korea due to increased competition and a flood of cheap Chinese steel imports.
Yamato Kogyo’s balance sheet remains strong, with ¥211.6 billion in cash and cash equivalents and ¥69.1 billion in securities as of December 2024, against a mere ¥2.2 billion in interest-bearing debt. The company’s financial position is expected to improve further with the proceeds from the asset sale to Foulath.
Jefferies analysts commented on the strategic exit from the Middle-East venture, stating, "We think that exiting SULB is a positive as earnings outlook has been deteriorating due to excessive pressure from cheap Chinese steel imports, and the company will be receiving cash from asset divestments, further pressuring management to raise shareholder returns."
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