Mitsubishi Motors (7211): FY17 Guidance – Too Early to Cheer?
Mitsubishi Motors (MMC) will be happy to leave FY16 behind it, given earnings were hurt by extraordinary costs from the emission data scandal and by weak sales on a lack of new products, as well as by quality-related expenses and forex losses. MMC still managed to avoid an operating loss, with OP of ¥5.1bil, thanks to cost reduction efforts on the back of joining the Renault-Nissan alliance. After Nissan (7201) acquired a controlling stake (34%) in MMC last October, MMC said it expected to be able to save ¥25bil a year in costs from synergies with the alliance. In FY16, cost reduction efforts raised OP by ¥22bil. This included lower raw material costs (no net numbers available).
For investors interested in a recovery story, MMC’s FY17 forecasts give an indication of how quickly the automaker hopes to achieve a turnaround. With an expected OP of ¥70bil for FY17CE, MMC would still lag its normalised operating profit levels of the last three years (FY13 to FY15), which oscillated between ¥120bil and ¥140bil. Even excluding MMC’s predicted forex losses of ¥5bil, the result is far off levels seen before the emission scandal. This is despite an expected improvement on quality-related costs (adding ¥39bil to CE OP) and despite production costs savings (adding ¥37bil to CE OP).
We discuss MMC’s product portfolio and whether it can take advantage of its positioning in FY17.
Mitsubishi Motors and its affiliates are mainly engaged in the manufacture and sale of motor vehicles including passenger cars as well as component parts. Co. is engaged in the development, design, manufacture, assembly, sale and purchase, import and other transactions relating to automobiles, component parts and replacement parts, agricultural machinery and industrial engines; the sale and purchase of used automobiles; the sale of measuring equipment; and acting as insurance agents in accordance with laws relating to property damage insurance and to automobile damage indemnity insurance. In addition, Co. is involved in the provision of automobile leasing and sales finance 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.
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