Sumitomo Corp raised its full-year profit forecast by 40 billion yen to 670 billion yen (about $4.2 billion) on Monday, after higher copper prices, a weak yen and busy gas trading desks pushed first-half earnings up 15.5%.

The Tokyo trading house also lifted its annual dividend forecast to 44 yen a share from 40 yen, according to a filing on Nov. 2. The new profit target for the year ending March 2027 is 6.3% above the May forecast and would beat the 600.3 billion yen it earned last year. For investors in Asia, Sumitomo's numbers give an early read on how commodity prices, the yen and the conflict in the Middle East are running through a group of stocks that sits in many regional portfolios.

Profit attributable to owners of the parent reached 347.9 billion yen in the six months to Sept. 30, up from 301.2 billion yen a year earlier, the company's results statement showed. Revenue rose 10.8% to 3.92 trillion yen. Profit before tax fell 7.4% to 345 billion yen, while profit for the period, which includes minority interests, rose 8.9% to 360.6 billion yen.

Underlying profit carries the half

The better measure of the half was underlying profit, which strips out asset sales and other one-off items. It rose 75 billion yen to 334 billion yen, while gains from asset replacement and extraordinary items shrank to 13 billion yen from 43 billion yen, according to the company's earnings presentation.

Sumitomo said about 37 billion yen of the improvement came from external factors: a weaker yen added roughly 17 billion yen and mineral resource prices about 20 billion yen. The yen averaged 159.49 to the dollar over the half, against 146.02 a year earlier, the presentation showed. The currency has stayed near those levels without help from Tokyo, as Japan spent nothing on intervention for a second month in October.

By segment, mineral resources posted the largest increase, with profit up 22.8 billion yen to 54.4 billion yen on higher copper prices, wider aluminum margins and strong precious metals trading. The company's copper price averaged $13,088 a metric ton in the half, compared with $9,429 a year before. Energy transformation, which houses the gas and power trading business and overseas power plants, rose 10 billion yen to 58.2 billion yen.

Reuters reported that natural gas and liquefied natural gas trading expanded in the U.S. and Europe as energy prices rose, and that the hit from the Middle East conflict had been smaller than the company expected.

Not every unit gained. Automotive profit fell to 23.5 billion yen from 53.4 billion yen, and diverse urban development, the real estate arm, dropped to 32 billion yen from 44.1 billion yen after the prior year included deliveries of large properties. Sumitomo said shipments of energy tubular steel to the Middle East declined.

Forecast keeps a 30 billion yen cushion

The revised outlook still carries a loss buffer of 30 billion yen for possible write-downs and losses on asset sales. Before that buffer, the company now expects 700 billion yen. It forecasts return on equity of around 14%, up from around 13% in May.

The biggest upgrades by segment were in energy transformation, raised by 18 billion yen to 133 billion yen on continued strength in global gas and power trading, and in automotive, raised by 14 billion yen to 48 billion yen on larger expected gains from asset replacement and a revised view of the Middle East impact. Mineral resources was lifted by 13 billion yen to 108 billion yen. The company trimmed lifestyle business by 2 billion yen, citing higher logistics costs and bad weather in its fresh produce operations in Europe and the Americas.

The second-half assumptions are cautious on currency. Sumitomo models the yen at 150 to the dollar for October to March, much stronger than the first-half average, and copper at $13,242 a ton.

Dividend and balance sheet

The interim dividend of 22 yen a share, half the new annual target, is payable Dec. 1. The company split its shares four for one on July 1, so the 44 yen figure is not directly comparable with last year's 150 yen. Sumitomo's policy is a total payout ratio of at least 40% with dividends held or raised each year.

It completed an 80 billion yen share buyback approved in May on Sept. 3, the presentation showed. Net debt to equity rose to 0.81 times at the end of September from 0.68 times in March, and the company expects it to fall to around 0.6 times by March through retained profit and faster asset sales. The equity ratio rose to 35.5% from 33.9%.

Sumitomo is scheduled to file its semi-annual securities report on Nov. 6. Results from rivals including Itochu, Mitsubishi Corp, Mitsui and Marubeni will show whether the gas trading and metals gains were specific to Sumitomo or shared across the sector.