PSA Autos: Isuzu (7202) – Slowdown in Japan, Growth in Asia
Isuzu (7202) – Slowdown in Japan, Growth in Asia
Isuzu is facing headwinds and tailwinds both on the sales side and the profit side. We believe that markets have already factored in the recovery in Asia, so that there is little room for upside surprises. Other positives are likely to be offset by negatives. These offsets are:
- While sales in Thailand and Indonesia are improving, Japan is likely to deteriorate in FY17 H2, with Isuzu set to lose out on absolute and relative levels;
- Higher than initially expected production cost savings, but an expected sharp rise in R&D;
- Steel prices coming down, but aluminium and copper prices increasing;
- North America performing well, but Middle East operations remaining weak;
- The Yen is weaker than expected, but Thai Baht appreciation against the USD is a negative.
- While Isuzu’s ‘expenses for future growth’ supported capacity expansion in Asia and should help Isuzu to increase sales and market share in the future, expenses for new projects, such as electrification of the line-up, investments in CNG and LNG power trains, and research into connectivity and autonomous drive, should continue to rise.
Overall, we think that Isuzu’s FY17 earnings forecast is too conservative, therefore we expect an upgrade either after Q2 or Q3 results. However, since FY17 earnings are not likely to exceed consensus estimates (which are at about the same level as our own estimates), we are not likely to see renewed interest in Isuzu during FY17 H2.
Positive triggers for a re-assessment would be a substantially stronger performance in Asia than factored in, or a strong turnaround in the Middle East.
Shares have risen by 29.4% in the last 12 months and by 23.2% since our July 2016 report. We believe there is now less excitement on the horizon than before. Based on our earnings estimates, Isuzu is trading on an FY17e EV/OP of 8.8x and a FY17e PE of 11.8x; above Isuzu’s historic averages of EV/OP of 6.0x and PE of 10x.
Isuzu Motors is engaged in the manufacture and sale of automobiles. Co. manufactures heavy/medium/light-duty trucks, buses, passenger vehicle engines and industrial-use diesel engines. Co.'s principal products include commercial vehicles including light, medium and heavy-duty trucks and buses; passenger cars including sport utility vehicles and pickup trucks under the name of "Isuzu D-MAX," "Isuzu mu-X" and "Panther;" diesel engines for construction machinery, freezer units and generators; diesel engines for passenger vehicles; and marine engines for commercial boats. In addition, Co.'s subsidiary provides commercial vehicle leasing and maintenance services.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
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