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Fundamental View
AS OF 12 Dec 2022Nissan reported positive automotive operating profit in 2FQ22 for the first time in three years, with the profit improvement driven by a combination of strong net pricing, improved volume/mix, and favorable currency. Its automotive gross leverage improved to 1.4x at the end of 2FQ22 owing primarily to EBITDA growth, down from 5.5x a year earlier. Although management lowered its FY22 retail sales volume guidance for FY22, it raised its FY22 operating profit guidance on strong net pricing, favorable currency, and expected volume improvement trends. We expect automotive margins to remain healthy in F2H22, which we believe should be supportive of Nissan’s automotive leverage remaining at appropriate levels for its investment grade ratings in the near term.
Business Description
AS OF 12 Dec 2022- Nissan, with headquarters in Yokohama, Japan, is a leading global automotive manufacturer with a market presence in many countries around the globe. The company’s growth investments are focused primarily on Japan, North America, and China, core markets with large profit pools in which Nissan has a meaningful market share. The company’s business in China is conducted through a joint venture with Dongfeng Motor Corporation.
- Nissan’s Sales Financing segment supports the sale of its vehicles by providing financing solutions to its customers and dealers. To enhance their creditworthiness, Nissan maintains keepwell (support) agreements with its wholly owned financial subsidiaries including Nissan Motor Acceptance Corporation (NMAC) in the United States and Nissan Financial Services (NFS) in Japan.
- The Renault-Nissan-Mitsubishi Alliance was established in 1999 to enhance member company scale in product development and raw material purchasing. The alliance includes equity participation, which led to Nissan holding ownership stakes in Renault (15% non-voting) and Mitsubishi (34%) and Renault holding an ownership stake in Nissan (43%). The Alliance’s automobile production volume is the third largest globally behind Toyota and Volkswagen.
Risk & Catalysts
AS OF 12 Dec 2022In addition to improved automotive profitability and lower leverage, we expect Nissan’s decisions regarding the future of its alliance with Renault and Mitsubishi could be a potential catalyst to spreads in the near term. Management indicated discussions are ongoing and it plans to communicate its decisions regarding the alliance “in due course”. Please refer to Nissan: Alliance Discussions Reaching A Head for additional information.
Management lowered its FY22 retail sales volume target based on weak F1H22 volumes but expects 14% YoY volume growth in F2H22. It raised its FY22 revenue and operating income target on expected improvement in volumes, the strong pricing environment, and favorable currency.
Management expects further automotive free cash flow momentum in F2H22. Automotive free cash flow of ¥207 mn in F2Q22 improved sequentially and YoY and management expects continued improvement in F2H22.
Key Metrics
AS OF 12 Dec 2022| ¥ bn | FY18 | FY19 | FY20 | FY21 | LTM 3Q22 |
|---|---|---|---|---|---|
| Revenue | 10,377 | 8,716 | 6,843 | 7,393 | 8,121 |
| EBIT | 294 | (183) | (471) | (42) | 32 |
| EBIT Margin | 3% | (2%) | (7%) | (1%) | 1% |
| EBITDA | 667 | 183 | (199) | 252 | 354 |
| EBITDA Margin | 6.4% | 2.1% | (2.9%) | 3.4% | 5.0% |
| Total Liquidity | 1,595 | 2,795 | 4,096 | 3,601 | 3,642 |
| Net Debt | (1,600) | (1,065) | (636) | (728) | (1,043) |
| Total Debt | (290) | 430 | 1,260 | 973 | 499 |
| Gross Leverage | -0.4x | 2.3x | -6.3x | 3.9x | 1.4x |
| Net Leverage | -2.4x | -5.8x | 3.2x | -2.9x | -2.9x |
CreditSights View
AS OF 12 Dec 2022Our Outperform recommendation on Nissan and NMAC notes is based on continued weak core automotive profitability (absent currency) and increased potential for an S&P downgrade over the next year. Management has stated the only cure for improved automotive profitability is increased volumes, which it has struggled to deliver owing to semiconductor shortages and vehicle export logistics challenges. While we view these issues as temporary in nature, we could become more constructive on the name if we see evidence of sustainable improvement in volumes and core automotive profitability.
Recommendation Reviewed: February 28, 2023
Recommendation Changed: February 10, 2023
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