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Region: Japan
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Fundamental View
AS OF 11 Mar 2026Honda 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.
Business Description
AS OF 11 Mar 2026- 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 Products 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 11 Mar 2026Management 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.
Key Metric
AS OF 11 Mar 2026| JPY bn | FY22 | FY23 | FY24 | FY25 | LTM F3Q26 |
|---|---|---|---|---|---|
| Revenue | 11,967 | 14,167 | 17,434 | 18,509 | 18,261 |
| EBIT | 741 | 612 | 1,219 | 899 | 429 |
| EBIT Margin | 6.2% | 4.3% | 7.0% | 4.9% | 2.0% |
| EBITDA | 1,334 | 1,294 | 1,964 | 1,630 | 1,145 |
| EBITDA Margin | 11.1% | 9.1% | 11.3% | 8.8% | 5.8% |
| Total Liquidity | 4,612 | 4,926 | 6,150 | 5,368 | 5,809 |
| Net Debt | (2,481) | (2,751) | (3,762) | (3,216) | (3,171) |
| Total Debt | 837 | 803 | 863 | 646 | 1,132 |
| Gross Leverage | 0.6x | 0.6x | 0.4x | 0.4x | 1.0x |
| Net Leverage | -1.9x | -2.1x | -1.9x | -2.0x | -2.8x |
CreditSight View Comment
AS OF 13 Mar 2026We reiterate our Underperform recommendation on Honda Motor Co. and American Honda Finance Corporation notes based on relative value, its weak consolidated operating profit outlook, and concerns about restoring its automobile business to profitability over the intermediate term.
Recommendation Reviewed: March 13, 2026
Recommendation Changed: May 15, 2025
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Fundamental View
AS OF 11 Mar 2026While Toyota raised its FY26 operating profit guidance for the second straight quarter based primarily on a revised currency forecast along with lower material costs and expense/cost reduction initiatives, the margin forecast is well below its 10% FY25 result. Toyota’s lower profitability is primarily related to tariff impacts that are expected to be a 290 bp drag on its profit margin this year. While the FY26 operating margin forecast is also below Moody’s 10% downgrade trigger, we expect Moody’s and rating agencies to remain patient owing to the fact tariff mitigation initiatives take years to implement in the capital-intensive automotive industry.
Business Description
AS OF 11 Mar 2026- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. It operates through the following segments: Automotive, Financial Services, and All Other. The Automotive segment designs, manufactures, assembles and sells passenger cars, minivans, trucks, and related vehicle parts and accessories. Toyota is also involved in the development of intelligent transport systems. The Financial Services segment offers purchase or lease financing to Toyota vehicle dealers and customers. It also provides retail leasing through lease contracts purchased by dealers. The company was founded by Kiichiro Toyoda on August 28, 1937, and is headquartered in Toyota, Japan.
- Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary of TMC, oversees the management of Toyota's finance companies worldwide. Toyota Motor Credit Corporation (TMCC) is the company’s principal financial services subsidiary in the United States. Under terms of the credit support agreement between TFSC and TMCC, TFSC agrees to: (1) maintain 100% ownership of TMCC; (2) cause TMCC and its subsidiaries to have a tangible net worth of at least $100,000; (3) make sufficient funds available to TMCC so that it will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper. The terms of the credit support agreement between TMC and TFSC are very similar to the terms of the TFSC and TMCC credit support agreement.
Risk & Catalysts
AS OF 11 Mar 2026Toyota lowered its FY26 vehicle production and consolidated vehicle sales targets by 50k units (0.5%) each to 9.95 million, with lower production volumes anticipated in Japan because of delays in quality inspections, weather-related interruptions, and equipment challenges; targets still represent growth versus FY25 (+3% production, +4% sales).
Management boosted its FY26 sales revenue forecast by 2% to ¥50.0 tn and raised the FY26 operating income forecast by 12% to ¥3.8 tn based primarily on its revised currency forecast, along with cost reduction initiatives, lower material costs, and slightly lower costs for labor, R&D, and depreciation; FY26 operating income is still 21% lower than FY25.
Management maintained its FY26 tariff cost at ¥1.45 tn (the biggest driver of lower FY26 operating income) while currency is expected to represent a headwind; Effective April 1, 2026, CEO Koji Sato will assume the position of Vice Chairman and Chief Industry Officer, while CFO Kenta Kon will become President and CEO. We view these changes favorably as they reflect a recognition of the fast-changing competitive landscape of the global automotive industry.
Key Metric
AS OF 11 Mar 2026| JPY bn | FY22 | FY23 | FY24 | FY25 | LTM F3Q26 |
|---|---|---|---|---|---|
| Automotive Revenue | 28,606 | 33,777 | 41,081 | 42,996 | 44,828 |
| EBIT | 2,519 | 2,486 | 4,890 | 4,047 | 3,400 |
| EBIT Margin | 8.0% | 6.7% | 10.8% | 8.4% | 7.1% |
| EBITDA | 3,526 | 3,671 | 6,159 | 5,408 | 4,770 |
| EBITDA Margin | 11.2% | 9.9% | 13.7% | 11.3% | 9.8% |
| Total Liquidity | 15,864 | 10,090 | 12,401 | 11,595 | 11,595 |
| Net Debt | (1,719) | (2,825) | (4,025) | (3,355) | (3,355) |
| Total Debt | 2,580 | 2,724 | 2,868 | 2,736 | 2,736 |
| Gross Leverage | 0.7x | 0.7x | 0.5x | 0.5x | 0.6x |
| Net Leverage | -0.5x | -0.8x | -0.7x | -0.6x | -0.7x |
CreditSight View Comment
AS OF 11 Mar 2026We reiterate our Underperform recommendation on notes of Toyota Motor Co. and Toyota Motor Credit Corporation based primarily on relative value, although we consider the Toyota bond complex to be a relatively safe haven for long-term investors.
Recommendation Reviewed: March 11, 2026
Recommendation Changed: May 09, 2025
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Fundamental View
AS OF 11 Mar 2026Nissan trimmed FY25 guidance for Japan and Europe while maintaining North America forecasts and raising China projections. Operating profit outlook increased on stronger Re: Nissan cost savings and favorable currency revisions. Despite near-term automotive losses and negative F1H26 free cash flow, management targets sustainable automotive profit by FY27, supported by increased NEV mix in China and US hybrid launches.
Nissan’s bonds outperformed HY and BB indices by 18bp and 13bp respectively. Trading 30bp wide to BB but 70bp tight to HY, spreads could tighten towards BB on sustained momentum. We upgrade to Outperform on solid Re: Nissan execution, US reshoring, and improving fundamentals.
Business Description
AS OF 11 Mar 2026- 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 11 Mar 2026Management lowered FY25 retail sales and production volume outlooks by 1.5% and 3.0% due to weaker than expected performance in Japan and Europe, but maintained its North America forecast and raised its China forecast—its two biggest profit drivers.
Management initiated FY26 net loss guidance at ¥650 bn, predominantly from non-cash accounting changes, owing to the evolving tariff environment. Management expects positive automotive free cash flow in F4Q25 and F2H25, although full-year automotive free cash flow is expected negative.
Management raised its FY25 operating loss forecast from ¥(275) bn to ¥(60) bn driven by cost reduction actions and manufacturing efficiencies (¥105 bn improvement in Monozukuri initiatives), partially offset by weaker sales performance (-¥50 bn) and currency headwinds (¥80 bn).
Key Metric
AS OF 11 Mar 2026| JPY bn | FY21 | FY22 | FY23 | FY24 | LTM F3Q25 |
|---|---|---|---|---|---|
| Revenue | 7,393 | 9,573 | 11,524 | 11,371 | 10,776 |
| EBIT | (78) | 218 | 394 | (78) | (360) |
| EBIT Margin | (1%) | 2% | 3% | (1%) | (4%) |
| EBITDA | 211 | 535 | 745 | 286 | (77) |
| EBITDA Margin | 2.9% | 5.6% | 6.5% | 2.5% | (1.6%) |
| Total Liquidity | 3,601 | 3,658 | 4,196 | 4,272 | 2,749 |
| Net Debt | (728) | (1,213) | (1,546) | (1,498) | (959) |
| Total Debt | 973 | 687 | 468 | 661 | 1,191 |
| Gross Leverage | n/m | 1.3x | 0.6x | 2.3x | n/a |
| Net Leverage | -3.4x | -2.3x | -2.1x | -5.2x | 12.5x |
CreditSight View Comment
AS OF 11 Mar 2026We upgrade our recommendation on Nissan Motor and Nissan Motor Acceptance Co. notes from Market perform to Outperform based on relative value, the company’s weak but improving near-term automotive profit and free cash flow outlook, solid Re: Nissan cost savings execution, and improved retail sales trends in the US and China.
Recommendation Reviewed: March 11, 2026
Recommendation Changed: February 13, 2026
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Search topics about wealth insights and investments.Sumitomo Mitsui Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 26 Nov 2025After reorganising and building up capital for the full impact of Basel 3, SMFG has recently been acquisitive to develop its next phase of growth, and now has a lower capital buffer than Mizuho.
It has a strong retail, mid and large corporate franchise in Japan, but its securities arm SMBC Nikko punches below weight.
Given its size and systemic importance, SMFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 26 Nov 2025- The core unit of SMFG is Sumitomo Mitsui Banking Corp (SMBC), whose main predecessors were Sumitomo Bank and Mitsui Bank.
- SMFG's group companies include the securities firm SMBC Nikko, SMBC Trust Bank, SMBC Card Company, SMBC Consumer Finance, Sumitomo Mitsui Finance and Leasing, SMFG India Credit Company (SMICC), Sumitomo Mitsui DS Asset Management, and SMBC Aviation Capital.
- SMFG does not have a large trust business as Sumitomo Trust and Chuo Mitsui Trust chose not to join SMFG, but merged with each other to form the separate Sumitomo Mitsui Trust Holdings.
- It has been acquisitive over the years, particularly in emerging Asia and leasing assets. In 2021, the group took a 49% stake in Vietnam's FE Credit, 74.9% of Indian NBFI Fullerton Capital (now called SMICC), 4.99% of Philippines' RCBC, and 4.5% of US investment bank Jefferies. In 2022, it increased its stake in RCBC to 20%. In 2023, it acquired a 15% stake in Vietnam's VP Bank, and increased its stake in Jefferies from 4.5% to 15%, and in 2024 took its stake in SMICC to 100%. In 2025 it took a 24% stake in India's Yes Bank, and increased its Jefferies stake to 20%.
Risk & Catalysts
AS OF 26 Nov 2025SMFG has the strongest Japan retail franchise amongst its peers, and a very strong corporate banking franchise.
Similar to the other megabanks, SMFG aims to focus more on the US, and reduce low return RWAs in Europe and Asia ex-Japan.
SMFG has made a number of acquisitions and taken stakes in banks and NBFIs in Vietnam, the Philippines, India and Indonesia. The group took JPY 135 bn of goodwill impairments in FY24 on its Vietnam investments. RoE on these investments has been poor.
It has increased its 15% stake in Jefferies to 20%, to develop revenue opportunities for SMBC Nikko. Further investments in SMBC Nikko will be required.
Its CET1 ratio buffer is ~200 bp, which we would like to see maintained.
Key Metric
AS OF 26 Nov 2025| JPY bn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.64% | 0.68% | 0.70% | 0.82% | 0.88% |
| Operating Income/Average Assets | 1.23% | 1.26% | 1.39% | 1.44% | 1.58% |
| Operating Expense/Operating Income | 62% | 61% | 60% | 58% | 53% |
| Pre-Impairment Operating Profit / Average Assets | 0.48% | 0.51% | 0.58% | 0.60% | 0.79% |
| Impairment charge/Average Loans | (0.31%) | (0.22%) | (0.27%) | (0.32%) | (0.16%) |
| ROAA | 0.30% | 0.32% | 0.36% | 0.41% | 0.64% |
| ROAE | 5.9% | 6.5% | 7.0% | 8.0% | 12.5% |
CreditSight View Comment
AS OF 05 Mar 2026SMFG has a strong banking business but the performance of non-bank subsidiaries has been variable. Its markets business, particularly internationally, is sub scale. The group became acquisitive from 2021, taking a 49% stake in a leading Vietnamese NBFI and 15% of its parent (VP Bank), 20% of RCBC of the Philippines, 74.9% of NBFI Fullerton India (now 100%), 4.5% in US IB Jefferies (increasing to 20%), and 24% of India’s Yes Bank for the next stage of growth. Its high CET1 ratio has been whittled down by acquisitions. FY24 results were boosted by share sales and structured investment trusts, 9M25 showed a large jump on base effects. Govt. support is assured. We move it to O/P as we see 10 bp of upside. We see FV for its 6NC5 at 2 bp behind MUFG’s, which in turn should be flat to JPM.
Recommendation Reviewed: March 05, 2026
Recommendation Changed: March 05, 2026
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Search topics about wealth insights and investments.Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 26 Nov 2025MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It had also been the most acquisitive till the early 2020s.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020; the bank has improved international margins and fee income, and benefits from rising domestic interest rates.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 26 Nov 2025- The 2 main banks of MUFG are MUFG Bank (earlier Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB JVs with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and 100% of Indonesia's Bank Danamon.
- In 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link (an Australian pension fund administrator), auto loan companies in Indonesia, Albacore Capital, StanChart's Indonesian retail operations, and a stake in an Indian NBFI.
Risk & Catalysts
AS OF 26 Nov 2025Its recent divisional performance has been strong, with the domestic businesses benefiting from higher BOJ rates, and robust growth in fee income.
Credit costs have been rising because of increased exposure to personal unsecured loans in Japan and Southeast Asia, as well as higher-risk lending in Southeast Asia.
Its close relationship with Morgan Stanley has led it to take large positions in US corporate finance loans, which has been problematic on occasion.
We see limited risk from rising JGB yields as the large equity unrealised gains dwarf the unrealised losses on the bond portfolio.
Key Metric
AS OF 26 Nov 2025| JPY bn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.57% | 0.79% | 0.64% | 0.73% | 0.73% |
| Operating Income/Average Assets | 1.11% | 1.22% | 1.23% | 1.22% | 1.48% |
| Operating Expense/Operating Income | 69% | 65% | 61% | 67% | 56% |
| Pre-Impairment Operating Profit / Average Assets | 0.34% | 0.43% | 0.48% | 0.40% | 0.65% |
| Impairment charge/Average Loans | (0.30%) | (0.61%) | (0.36%) | 0.00% | (0.12%) |
| ROAA | 0.32% | 0.30% | 0.39% | 0.47% | 0.65% |
| ROAE | 6.7% | 6.5% | 8.1% | 9.3% | 12.5% |
| CET1 post Basel 3 reforms excl. secs gains | 10.4% | 10.3% | 10.1% | 10.8% | 10.5% |
CreditSight View Comment
AS OF 05 Mar 2026MUFG is the largest of the megabanks with more diversified business lines than its peers. Digitalisation and operational efficiency improvements, in addition to higher rates in Japan and the US, had led to much better results in FY24. Lending discipline has lifted international margins; domestic margins though lag its peers. Its ~20% shareholding in Morgan Stanley has been a boon. Its $ liquidity is the best amongst its peers, and government support is assured. Its CET1 ratio ratio has fallen to ~180 bp, which we see as low; pro-forma for the Shriram acquisition it will fall to a particularly low ~120 bp. We see current spreads as having ~14 bp of upside (to flat to JPM for 6NC5) and move it to Outperform.
Recommendation Reviewed: March 05, 2026
Recommendation Changed: March 05, 2026
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