On Dec 20, 2013, we reiterated our Neutral recommendation on Toyota Motor Corporation (TM).
Why the Reiteration?
We are reaffirming the Neutral recommendation on Toyota due to the absence of any estimate revision in the last 60 days. Furthermore, negative factors such as the challenging market conditions and multiple safety recalls have offset the positive drivers for the company.
Toyota posted earnings per share of ¥138.26 ($1.40) in second-quarter fiscal 2014 (ending Sep 30, 2013), reflecting a strong 69.8% year-over-year rise. The company gained heavily from higher revenues, favorable currency translation and strong cost-controlling measures. Consolidated net income too hiked 70% year over year to ¥438.4 billion ($4.4 billion).
Toyota increased its consolidated revenues guidance for fiscal 2014 (ending Mar 31, 2014) to ¥25,000 billion ($257.7 billion), a rise of 13.3% from fiscal 2013. Net earnings are expected to go up 73.6% to ¥1,670 billion ($17.2 billion).
Toyota is banking on the emerging markets, including Asia, for its sales growth. The company aims to boost its sales in the emerging markets to 50% of global sales from 45% in 2011 and 18.6% in 2000. This is part of its target to achieve annual sales of more than 1 million vehicles by 2015 in over 100 countries.
However, the past string of recalls has tarnished Toyota’s reputation, resulting in declining sales and lower vehicle resale value. Since Nov 2009, Toyota recalled more than 17.42 million vehicles globally through over 29 separate recalls.
Moreover, weakness in the Indian market and the expiration of the first-time car buyer tax rebate in Thailand is also hampering sales in Asia. Sluggish sales in Europe due to the economic crisis in the continent have been hampering the company as well.
Nevertheless, Toyota is one of the largest automobile producers in the world along with General Motors Company (GM), Honda Motor Co., Ltd. (HMC) and Ford Motor Co. (F). Thus, we maintain a Neutral recommendation.
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