Interview: Why the takeover trend has been growing
>> posco reports fourth quarter profit today. economists forecast it to report a 10th straight quarter of net% -pincome growth.% pnet income probably doubled to $961 million in the three months ending december 31 from a year earlier. that according to the median estimate of eight analysts polled by bloomberg. full-year profit probably rose at 85% to a record $3.67 trillion. for reaction, i’m joined by the head of asian credit research at calyon investment bank. good to have you with us. analysts expect posco to report 10 straight quarters of profit. why is the company doing so% pwell?
>> well, it’s a race between the steel price increases. steel price vs. shot through the roof for the last five or seven quarters. they have been upwards of $600, $700 imported prices in america and europe. coal prices are going up and metal prices are going up, too. still, both these taken together posco’s operating margins have risen. they are now hovering at around 25% for about six quarters now. so i think the basic thing is demand for steel, steel prices an how it is able to curtail prices.
>> do you expect costs to rise faster than steel price this is year and what effect will that have on the pace of profit growth for posco? there are reports that coal prices are likely to increase more than 100%. i know prices are likely to increase about 60%. both have negotiations going on right now. still we think the demand for steel will continue to be strong in the new year and the steel prices will stay at these high levels for some time to come. we have high forecasts for economic growth in the united states. we are looking at 3.6%. we think china will slow down but only slightly. so we are still looking at% growth for 2005. india, although the monsoons may play a role in the overall growth rate, production seems to be going very well. all of these factors are to be considered. demand for steel is likely to be high and i think steel prices can catch up with the price increases, maintaining posco’s profit margins at current levels.
>> so given your optimism for steel demand this year, will posco be able to pass on the costs as easily as it did last year?
>> i think in the first two quarters posco will be able to pass on. toward the end of the year we may have some negative influences coming into play. the u.s. growth rate may dip a little more in the year 2006. china will have slowed down to a cruising pace rather than a blistering pace. we may have chinese catching up with the rate of demand. i don’t think it will happen as early as this year. it’s a story maybe a year and a half, two years down the line. so from the beginning of next year we may have some moderating influences. until then i think it should be fine.
>> posco will hold their analyst conference call later this evening. are there any specific areas or issues that you would want the company to address?
>> i would think three questions are important. first of all, the operating margin outlook has been discussed. the rate between steel prices and the raw material prices. and secondly, i would like to know a little more about posco’s medium term strategy. they’re expanding in china. they’re talking about brazil, india. where are they going, how much will they invest and when will the benefits start flowing? thirdly, there used to be talks of diversification at least some time ago. they wanted to get into the private sector. talks have also slowed down. i would like to know once steel goes down a little bit, will they talk of diversification and if so, what are the areas they’d like to look at? these are the questions i’d like to ask them.
>> dilip, before you go, the unemployment rate for december in south korea is at 3.6% from 3.5% the previous month. what do you make of the data and the effect it may have on interest rates in south korea?
>> we think the domestic demand will still remain down for at least two quarters now. maybe from the third quarter it may rising. it is too soon. employment data reflects that. on top of that, we think exposure may moderate this year compared to last year. they’ll not collapse. they’ll continue to grow at a reasonable pace but not as strong as they used to last year. so given this kind of thing, we think interest rates will only go down. we don’t think the central bank would cut interest rates as soon as this week 25 basis points but we do expect a 25 basis point cut in the next meeting next month. that is because the central bank would like to watch where the currency is going. ‘ currency is appreciating, they don’t have to be in a hurry to cut the interest rates.
>> good to speak with you. thank you for that, dilip. head of asian credit research at calyon investment bank on the phone in hong kong. coming up, a special interview with u.s. commerce secretary donald evans. he will talk about trade, currency and china’s future, just ahead.
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Listen Market briefing --- Cathy (fast)
Australia market --- David (slow)
Tokyo market --- Ron (slow)
>> chinese leaders failed to produce results on points of friction in our trading relationship. their failure only empowers those critics within the u.s. political system.
>> we’ll hear from outgoing u.s. commerce secretary don evans as the u.s. trade deficit balloons to a record. the widening trade gap pushes the dollar lower in new york. the dollar posts its biggest drop against the euro in five weeks. it loses all the gain it is had against the yen earlier this year. the tsunami-ravaged countries get a break. the paris club agrees to delay debt payments until the i.m.f. and world bank come up with complete debt relief plans. apple computer shares surge more than 12% in extended trading. sales of the ipod helped apple more than quadruple profit in the last quarter. breaking news from south korea. the nation’s jobless rate is at 3.6% in december. that is up from november’s 3.5%. economists we surveyed expect that the jobless rate would hold near a three-year high of 3.5%. rising unemployment is hurting consumer confidence in asia’s number four economy. south korea’s central bank will probably keep borrowing costs at a record low to revive spending% -pand investment. futures on the a.s.x. are up .3%. let’s go straight to david in sydney for more. david, what are investors looking at in australia before the open?
>> looks like we might have a rising market , cathy. people will probably look at so. mining companies. b.h.p., biggest oil and gas producer in australia after crude rose to a six-week high. rio tinto to watch after copper increased. a buy recommendation on both the stocks. earnings may be good and they may have good outlooks when they report their earnings. watch for those two shares. b.h.p. ended up .4% higher in u.s. trading than it did in australia yesterday. also one of the big stories of the day is going to be 10 network. there was an unsourced report in the australian newspaper which said that john fairfax holdings, a publishing company that publishes “the sydney morning herald” may be in talks to buy a $1 billion stake from a canadian company which own as 57% stake in network 10. john fairfax holdings declined to comment on the story at moment. the background to this is, of course, the government in -- speculation is that the government will take steps to loosen some of the media ownership laws. since that election, 10 network holdings’ stock has reufb by 15%. watch for 10. the other one to look for is promina group. earnings forecast for fiscal 2004 was raised by about 12% by csfb this morning. csfb is going to do well because of the decrease in bond yields and strong equity markets that we have seen. now remember that csfb increased its forecast also for a.m.p., biggest insurance company in australia, earlier this week because of the same reason, the increase we saw in fourth quarter equity markets in australia. back to you, cathy.
>> thanks for that, david. third quarter profit rose 52% on higher profit. what are they saying about third quarter earnings?
>> good morning, cathy. let’s look and see what it forecasts for the fourth quarter. infosys’ chief executive officer told cnbc they predict 50% fourth quarter growth. going forward we’ll have to take a look at the growth rate. now infosys is saying third quarter profit rose 52% on orders from new customers and infosys technologies is india’s second largest software exporter. the company says that 38 customers in this quarter. they did that at prices higher by 5%. cathy?
>> what is the company’s strategy in trying to mitigate the local currency gains?
>> cathy, infosys is betting more orders on businesses like consultants and network management would compensate for that depreciation against the u.s. dollar. the indian currency gained at least 5.4% in the third quarter cutting the value of overseas earnings. infosys expects earnings per share to rise as much as 50% in the current quarter. now the manager of $40 million in mumbai says that the company improved its operating margins despite rupee pressure. he says there’s been a marginal increase in the pricing of the new customers. here’s how the stock did in the previous day’s session. infosys fell 3.4%. benchmark index itself fell 1.9% which is the lowest since november 25. cathy?
>> before you go, a lot of the success of eupbd kwrao software companies are based on the pay structure for employees. what can you tell us about that?
>> that’s right, cathy. that’s one advantage. india’s software exporters are winning customers in part because they can pay workers the equivalent of about 12,000 u.s. dollars a year. that’s 1/6 the average programmer salary in the u.s. even so, wages are rising as local rivals and overseas technology companies in india take on growing numbers of skilled engineers. the head of worldwide sales at infosys says demand for offshore outsourcing continued to be strong. he says clients have respond favorably to a combination of the consulting services and offshore delivery. infosys hired about 2,280 employees in the third quarter which is less than half the 55,010 they had in the second quarter. back to you.
>> you bet. thank force that. airbus beat boeing again. the european plane maker says 2004 aircraft deliveries rose 5%. they’re counting on the super jumbo a-380 to help it maintain its number one position above boeing. the chief executive. hailed the a-380. this will greatly contribute to airbus financial reserve notice years to come.
>> stay tuned.
