Caution is advised for construction materials exporters dependent on the Chinese market.
- The short-term outlook for the Japanese construction sector remains positive, as the industry will benefit from increasing demand, triggered by a rebound in residential construction and projects related to the 2020 Tokyo Olympics. There are also some other major long-term projects such as the Maglev railway, upgrades to highway networks, and a new rail link to Haneda Airport in Tokyo.
- Profit margins of businesses have improved, as labour costs have not risen so far and material costs have remained stable. It is expected that the margins improve further in 2016.
- The general willingness of banks to lend to this sector means that there is additional financing easily available for companies that are not heavily indebted.
- Payment duration in the industry is 90-120 days on average. Payment experience has been good over the past two years.
- Construction insolvencies remained stable year-on-year in 2015 and are expected not to increase in 2016 due to increased building demand and the stabilisation of input prices.
- Our underwriting stance on construction is generally open. However, smaller businesses with weak financials could face some difficulties in 2016 due to the overwhelming dominance of four major construction firms and the potential increase in low-priced tenders.
- More caution is advised for construction materials exporters dependent on the Chinese market.
- A planned consumption tax hike to 10% in April 2017 could derail the positive outlook earlier than expected. Smaller players would also be less able to cope with a potential rise in labour costs due to a lack of workforce.