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Fundamental View
AS OF 04 Mar 2024Honda continues to post impressive growth in its Automobile segment wholesale volumes and profitability following the normalization of its supply chain. Management expects to lean into the increasing demand for hybrid vehicles by introducing a Civic hybrid this year that it expects to account for about 40% of the models’ sales in the U.S. It is also introducing its first high volume electric vehicles in 2024 under the Honda and Acura brands, along with a fuel cell electric vehicle (FCEV). Like Toyota, Honda’s electrification strategy has been focused primarily on hybrid vehicles, although its introduction of electric and FCEVs is timely even if it lags most competitors.
For additional information on Honda Motor Corporation see Honda Motor.
Business Description
AS OF 04 Mar 2024- Honda Motor Co., Ltd. engages in the manufacture and sale of automobiles, motorcycles, and power products. It operates through the following segments: Automobile, Motorcycle, Financial Services, and Power Product and Other Businesses. The Automobile segment manufactures and sells automobiles and related accessories. The Motorcycle segment handles all-terrain vehicles, motorcycle business, and related parts. The Financial Services segment provides financial and insurance services. The Power Product and Other Businesses segment offers power products and relevant parts.
- American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Non-controlling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). Honda Motor Co. (HMC) maintains Keep Well (support) agreements with its North American finance subsidiaries, AHFC and HCFI. Under the Keep Well agreements, HMC agrees to (1) maintain at least 80% ownership in AHFC and HCFI, (2) ensure AHFC and HCFI maintain a positive net worth, and (3) ensure both AHFC and HCFI have sufficient liquidity to meet their debt payment obligations.
Risk & Catalysts
AS OF 04 Mar 2024AHFC profit and credit metrics stable in F3Q24. AHFC profit increased modestly YoY and sequentially on increased financing volumes owing to greater vehicle availability than the year-ago period. The 60+ days delinquency rate of 0.4% was flat both YoY and sequentially and remains elevated compared to pre-pandemic levels. Charge-offs increased 20 bp YoY and 10 bp sequentially. Credit metrics have stabilized at levels slightly higher than pre-pandemic levels owing to inflationary pressures and higher interest rates.
Key Metrics
AS OF 04 Mar 2024$ mn | FY20 | FY21 | FY22 | FY23 | F3Q24 |
---|---|---|---|---|---|
Total Company Earning Assets | 73,397 | 76,778 | 71,105 | 65,363 | 72,781 |
Cash and Investments | 1,503 | 1,870 | 2,607 | 1,544 | 1,439 |
Excess Liquidity | 8,503 | 8,870 | 9,607 | 8,544 | 8,439 |
Unsecured Debt | 40,399 | 43,037 | 38,026 | 33,410 | 39,182 |
Secured Debt | 9,748 | 8,890 | 8,888 | 6,927 | 8,722 |
Total Debt | 50,147 | 51,927 | 46,914 | 40,337 | 47,904 |
Allowance % Retail Rece. | 1.07% | 0.75% | 0.58% | 0.71% | 0.80% |
Allowance / Net Charge-offs | 1.68x | 2.41x | 3.75x | 2.41x | 2.10x |
Net Charge-offs % Avg. Receivable | 0.63% | 0.33% | 0.15% | 0.29% | 0.39% |
30+ Day Delinquency Rate | 1.2% | 0.7% | 1.1% | 1.2% | 1.5% |
CreditSights View
AS OF 11 Mar 2024We are maintaining our Underperform recommendations on Honda Motor Co. (HMC) and American Honda Finance Corporation (AHFC) based on relative value, the company’s dominant position and resilient performance within the Motorcycle segment, expected sustained improvement within its Automobile segment performance in FY24, its EV strategy that lags most peers, and its excellent liquidity and stable credit rating.
Recommendation Reviewed: March 11, 2024
Recommendation Changed: January 13, 2023