Toyota Finds Silver Lining in Oily Cloud

Toyota TM has announced that, despite a lifted full-year net income forecast, it is expecting earnings to be at nearly half last year's level, and below the healthier projections of Honda HMC and Nissan. According to the Wall Street Journal, TM is citing faster-than-expected recovery in demand domestically and abroad, as well as cost cuts, as the reason for raising its net profit outlook for the fiscal year ending March to 200 billion yen ($2.61 billion), from an earlier forecast of 180 billion yen. However, that number is 51 percent lower than the previous year, something TM puts down to the natural disasters Japan has suffered, plus the yen's appreciation against the dollar and the euro. Toyota senior managing officer Takahiko Ijichi said at a news conference that, “Even at a level of ¥78 yen to the dollar, if not for the production disruptions ... we would have been on track to post a full-year profit of ¥540 billion. Inside the company, we view that as a truer reflection of our competitiveness." Last week, Barclays reported TM's announcement that it was raising its CY2012 domestic sales target and its CY2011 global sales volume figure, stating that, “The extent of the upward revision to its CY2012 domestic sales target (from 1.53mn vehicles previously to 1.63mn vehicles, a 100,000-vehicle increase) is in line with the Nikkei Shimbun's 21 January report and in line with market expectations. We are maintaining our 2-EW rating on Toyota (with a 12-month target price of JPY2,800 and risk factors including rapid forex changes).” Barclays added that, “Toyota gave the main factor behind the upward revisions as being the effect of Eco-Car subsidies. Based on Toyota's sales targets and our market forecasts (we project CY2012 domestic demand of 4.97mn vehicles, up 18% YoY), we calculate projected CY2012 domestic market share for Toyota + Lexus at about 32.8% (CY2011: 28.5%), which does not look out of place considering current strong orders for the new Aquos, and market share of 31.5% for Toyota + Lexus during the last period (April 2009-September 2010) to benefit from Eco-car subsidies. For FY3/13 we project volume of 1.57mn vehicles (up 15% YoY).” On Monday, DBRS confirmed the long and short term ratings of TM and its subsidiaries as AA (low) and R-1 (middle), saying in a report that, “The ratings continue to incorporate the Company's very strong business profile as a leading global auto manufacturer with highly efficient operations and a product line well positioned to benefit from the structural change in demand toward smaller and more fuel-efficient vehicles. The trend on the long-term ratings has been changed to Stable from Negative. DBRS recognizes that Toyota's results have been weak, most recently due to substantial production disruptions, attributable initially to the Great East Japan Earthquake and subsequently to the severe flooding in Thailand.” Talking numbers, DBRS said that, “The Company's industrial operating results improved moderately in fiscal 2011 (F2011, ending March 31, 2011) as a function of higher volumes and positive mix effects in line with industry growth in Asia's emerging markets and the ongoing (albeit moderate) recovery in the United States. However, performance in the first half of F2012 fell sharply, with the automotive segment incurring an operating loss for the period. The loss reflects significantly weaker volumes as a result of the above-cited production disruptions. Furthermore, Toyota was most adversely affected in the United States and Japan, which are the Company's two primary automotive markets, with Japan and North America typically accounting for close to 60% of total vehicle sales.”