UPDATE 3-Honda cautious on full year as competition heats up

* Q4 operating profit Y96.1 bln vs consensus Y94 bln

* Sees 2010/11 op profit at Y400 bln vs consensus Y500 bln

* Rise in US sales to outweigh weaker Japan, European mkts

* Hyundai, U.S. rivals a bigger threat in U.S. market –
exec

* Shares end down 1.5 percent before results
(Recasts throughout with details, executive and other
comments)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, April 28 (BestGrowthStock) – Honda Motor Co (7267.T: )
forecast a smaller-than-expected 10 percent rise in full year
operating profit and warned of stiffer competition as Korean
and U.S. automakers roll out models to rival its fuel-efficient
line-up.

Japan’s No.2 automaker is benefiting from a recovery in
U.S. sales with a fleet of gas-sipping models such as the Civic
sedan, which will be joined by the CR-Z sporty hybrid in North
America this summer.

But Executive Vice President Koichi Kondo said neighbouring
South Korea’s Hyundai Motor Co (005380.KS: ) was rapidly raising
its game, particularly in Honda’s most profitable U.S. market,
while the U.S. “Big Three” were also beefing up their
offerings.

“More and more, the passenger car segment, where we’ve
traditionally been strong, is becoming a fierce battlefield,”
Kondo told a news conference.

For the year to end-March 2011, Honda forecast an operating
profit of 400 billion yen ($4.3 billion), up from the 363.8
billion yen it made in the year to March 2010, but down on the
500 billion yen consensus forecast in a poll of 19 analysts by
Thomson Reuters I/B/E/S.

Honda sees net profit growing 27 percent to 340 billion yen
this year, after a near doubling last year.

It expects total sales to grow 6.6 percent to 3.6 million
vehicles this year, led by a 14.1 percent rise in the North
American market. Sales in Japan and Europe are expected to dip.

Naoki Fujiwara, a fund manager at Shinkin Asset Management
in Tokyo, said the profit outlook appeared conservative.

“It’s got environmentally friendly auto technology. It’s
got cost-consciousness. And it focuses on compact cars,”
Fujiwara said. “All of these are required of the auto industry
today. I don’t see Honda’s competitiveness eroding any time
soon.”
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HYBRID HURDLES

Others saw the competitive threat as more immediate.

“It may be running ahead of competition in environmentally
friendly cars, but this is the area all the world’s major
carmakers are focusing on,” said Takeshi Osawa, senior fund
manager at Norinchukin Zenkyoren Asset Management.

“It needs a convincing strategy to maintain and boost its
competitiveness in this field.”

Among rivals in the United States, Ford Motor Co (F.N: ) is
due to launch the Fiesta compact car and General Motors Co
[GM.UL] will roll out its much-hyped Chevy Volt plug-in hybrid.

CEO Takanobu Ito, a 32-year Honda veteran and former
chassis designer, has conceded that development of a new, more
fuel-efficient hybrid system to power its bigger vehicles was
an urgent task to compete with Toyota Motor Corp (7203.T: ) and a
growing number of automakers launching “full” hybrid cars.

Honda’s one-motor hybrid system has the advantage of being
simple and cheaper, but lacks the power to be mounted on
anything bigger than a CR-V crossover.

BENEFITING FROM U.S. RECOVERY

Honda, the first big Japanese automaker to report
fourth-quarter results, is expected to have booked the biggest
profits in 2009/10 among its peers, helped by a lucrative and
fast-growing motorcycle business.

Operating profit for the January-March quarter just ended
was 96.1 billion yen, compared with a loss of 272.1 billion yen
a year earlier, when it cut back production to reduce
inventory.

The result was slightly higher than the 94 billion yen
average estimate in a poll of 19 brokers according to Thomson
Reuters I/B/E/S.

Fourth-quarter net profit came to 72.2 billion yen versus a
loss of 180 billion yen a year ago.

Falling sales in Europe remain a drag, but analysts expect
strong growth in U.S. as well as China and other Asian markets
to keep Honda on track.

“Japanese carmakers are more oriented towards U.S. sales
and will likely benefit more from the U.S. market recovery than
Hyundai and Kia (000270.KS: ),” said Ahn Sang-Jun, an auto
analyst at Tong Yang Securities in Seoul.

“It looks right to buy Japanese carmakers now.”

Kondo said inventory levels in the United States had
normalised and would likely keep its spending on incentives per
car at the same level this year despite generous discounts from
Toyota and others.

Another threat for Honda and other Japanese automakers is a
strengthening yen, which hits repatriated profits and makes
their products less price competitive versus rivals’.

Honda forecast the yen to average 90 to the dollar and 120
to the euro, compared with current levels around 93 and 123.

Shares in Honda have gained 6.4 percent in the year to
date, outperforming a 1.2 percent rise in Tokyo’s transport
subindex. Before the results, Honda ended down 1.5 percent,
while the sector index fell 1.2 percent.

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(Additional reporting by Kim Yeon-hee in SEOUL, Kiyoshi
Takenaka, Chikafumi Hodo and Rika Otsuka in TOKYO; Editing by
Lincoln Feast)

UPDATE 3-Honda cautious on full year as competition heats up