Japan Tobacco profits likely to rise next FY

President Hiroshi Kimura also told Reuters in an interview the company may issue a limited amount of debt to help fund a buyback of government-owned shares.

JT on Monday lifted its operating profit forecast for the year to March to 365 billion yen ($4.75 billion), a 9.5 percent year-on-year rise, partly as sales picked up following domestic cigarette shipment suspensions on a shortage of materials such as filters and paper after the March 11 earthquake and tsunami.

Profits next year "won't be lower than this year," said Kimura, 58.

"As long the excessively strong yen does not advance further, upside factors such as the rebound from the disasters and momentum overseas will support the outlook," Kimura said, declining to give a figure for the expected increase.

Eleven analysts polled by Thomson Reuters I/B/E/S projected an average annual operating profit of 406 billion yen for the fiscal year that starts in April.

Kimura, himself a two pack-a-day smoker, said JT is aiming to achieve a domestic tobacco market share of more than 60 percent in its next business year, but it would be hard to return to the 64 percent share it had before the disasters struck.

JT, which ranks behind Philip Morris International (PM.N) and British American Tobacco (BATS.L) in sales volume worldwide, had a 59.1 percent share of Japan's tobacco market in December.

The Japanese government, which owns half the tobacco maker, plans next financial year to sell about 1.7 million shares, or about 17 percent of outstanding stock, to help with reconstruction efforts after the quake and tsunami.

The Mild Seven maker has been lobbying the government to cut its stake for years in hopes a gaining a freer hand in making decisions and is interested in buying back some of the shares held by the Ministry of Finance.

Talks of a share buyback have raised investor hopes that the former state monopoly would take action to boost shareholder returns closer to industry norms, lifting its share price.

Shares have risen nearly 25 percent over the last 12 months, versus about a 15 percent fall in the benchmark Nikkei average .N225.

JT, which is looking to increase its earnings per share, will have to see the schedule and the scheme for the government's stake sale before giving specific EPS growth goals, Kimura said.

An EPS of 18,788 yen is projected for its business year which ends in March, according to a poll of 11 analysts by Thomson Reuters I/B/E/S.

On Wednesday, shares of JT settled 1.9 percent higher, beating a 1.1 percent gain in the Nikkei 225.

Kimura declined to comment on media reports that said JT was a possible bidder for U.S.-based Lorillard (LO.N) and Britain's Imperial Tobacco Group (IMT.L), but said his bigger priority currently was on organic growth.

He added that he was not interested at present in the American market since he believed the risk of litigation for tobacco companies there was still high.

Earlier mega-deals reshaped the global tobacco industry, leaving scant major acquisition opportunities.

JT was part of that realignment by purchasing the international tobacco business of R.J. Reynolds in 1999 and buying Britain's Gallaher for $19 billion, in one of Japan's richest outbound M&A deals on record, in 2007.