PSA Autos: Toyota (7203) – Concerns over US and Expenses, but Positive Long-term Outlook
- In North America, despite the launch of the new Camry, Toyota does not expect to see a positive contribution from the model mix, incentives are expected to rise, and the financial services division remains under pressure. For FY17 Q1, NA OP fell 46% YoY. Toyota warns of further deterioration for the full year.
- Toyota expects flat total sales in Japan, with a slightly negative impact from the model mix, due to falling sales of the high-margin Prius.
- In Asia, Thailand is expected to improve, but visibility is poor in Indonesia and India. The pricing policy on the Hilux is an issue.
- While China’s overall profit contribution is only 10% of total Toyota profits, the company is outperforming in the region.
- Regarding the development of expenses and costs, Toyota identifies some challenges ahead, which include TNGA implementation, capex for new plants, and R&D for alternative powertrains and AI…
- …but on the positive side, the annual production cost-saving target remains ¥300bil.
- With changes in global regulations, Toyota is now also moving towards more electrified solutions – without neglecting hybrids, though; nevertheless, the optimal long-term solution, according to Toyota, remains fuel cell vehicles.
- Toyota claims that it covers all possible technologies in its portfolio for all cases.
- Long-term investors should be satisfied by Toyota’s wide-ranging efforts to reposition itself in a changing market environment. In the shorter term, however, earnings growth potential should be curtailed by rising expenses and a deteriorating outlook for the US. With an estimated EV/OP of 16.2x (FY18e), Toyota looks fairly valued.
Toyota Motor is an automobile manufacturer. Co. is primarily engaged in the design, manufacture, and sale of sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories throughout the world. Co. provides financing, vehicle and equipment leasing and certain other financial services primarily to its dealers and their customers to support the sales of vehicles and other products manufactured by Co. Co.'s principal business segments are automotive operations, financial services operations and other operations. Co. sells its vehicles in approximately 190 countries and regions, and markets for its automobiles in Japan, North America, Europe and Asia.
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.
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