Honda reiterated FY26 profit guidance reflecting 300 bp YoY profit margin compression to below 3%, falling below downgrade triggers set by S&P and Fitch, both of which have negative outlooks. The weak profit outlook prompted management to initiate a fundamental review of its loss-making Automobile business, expected to complete in FY27. Management tapped CFO Eiji Fujimura as CEO of American Honda Motor to improve profitability. Honda notes currently trade flat to the IG Corporate index, which we view as rich given negative outlooks by two rating agencies. We reiterate our Underperform recommendation.

Management affirmed FY26 wholesale unit guidance for all segments. The Automobile guidance, previously reduced by 8%, reflects a 10% YoY decline driven by a 5% North America decrease (semiconductor supply shortage) and 22% Asia decline (Chinese OEM competition).

American Honda management announced a target of 4% US automotive retail sales growth in calendar year 2026 to 1.5 mn units, supported by recently redesigned models and lower-than-average inventory entering the year.

Management reiterated its FY26 consolidated operating profit forecast of ¥550 bn with an operating margin of 2.6%, down 300 bp YoY. Full-year tariff impacts are expected at ¥310 bn (~US$2.0 bn), down from the original ¥450 bn estimate.