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Region: Japan
Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 08 Jun 2023MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography; it has also been the most acquisitive up until the recent couple of years.
Core profitability has been weak due to Japan’s ultra-low interest rates and growth; that has been improving post an efficiency drive (and a CEO change in April 2020) and the bank has committed to at least JPY 1 tn in net income going forward, which we see as achievable.
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 08 Jun 2023- The 2 main banks of MUFG are MUFG Bank (earlier the 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 joint ventures 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 has acquired control of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, and in 2020 it invested $700 mn in SE Asia's Grab.
Risk & Catalysts
AS OF 08 Jun 2023The group has a high cost-income ratio as it combines a much-delayed efficiency drive with new investments, and faces income challenges in its retail banking operations. However, it has finally moved decisively to improve its returns via the sale of MUFG Union Bank (MUB), its underperforming US retail and SME operations.
MUFG is exposed to Japanese equities through large unrealised gains but is in the process of reducing these shareholdings. It has taken actions to reduce the MTM impact of rising yields on its $ bond portfolio, as well as the potential impact on its JGB portfolio given likely modifications to yield curve controls.
MUFG had a good FY22 with impressive margin improvement, lower credit costs and the completion of the MUB sale. It has set a net income target of JPY 1.3 tn for FY23, by improving net operating profits in customer segments and expense control.
Key Metrics
AS OF 08 Jun 2023| ÂĄ bn | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.64% | 0.60% | 0.56% | 0.57% | 0.79% |
| Operating Income/Average Assets | 1.24% | 1.27% | 1.16% | 1.11% | 1.22% |
| Operating Expense/Operating Income | 71% | 70% | 68% | 69% | 65% |
| Pre-Impairment Operating Profit / Average Assets | 0.36% | 0.38% | 0.37% | 0.34% | 0.43% |
| Impairment charge/Average Loans | (0.01%) | (0.21%) | (0.48%) | (0.30%) | (0.61%) |
| ROAA | 0.29% | 0.17% | 0.23% | 0.32% | 0.30% |
| ROAE | 5.4% | 3.3% | 4.7% | 6.7% | 6.5% |
| CET1 Ratio excluding unrealised securities gains in AOCI | 10.0% | 9.8% | 9.7% | 9.5% | 9.8% |
CreditSights View
AS OF 16 May 2023MUFG is the largest of the megabanks with more diversified business lines and a larger proportion of business overseas. The bank has been acquisitive, taking large shareholdings in banks in South East Asia, and in the AM and aircraft leasing space. Digitalisation and operational efficiency improvements are underway and progress on making a more efficient institution has finally commenced with the sale of Union Bank in the US. Capital levels are adequate, $ liquidity is reasonable, and government support is assured. Lending discpline is helping lift international margins, which are still behind SMFG’s. Its ~20% shareholding in Morgan Stanley has been a boon for income. We see valuations as attractive for the name.
Recommendation Reviewed: May 16, 2023
Recommendation Changed: May 17, 2022
Who We Recommend
Bank Rakyat Indonesia
State Bank of India
Mizuho Financial Group
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Fundamental View
AS OF 08 Jun 2023Japanese banks are challenged to achieve stable and adequate returns and the problem is especially acute for Mizuho whose underlying profitability is low. In FY18 it undertook large restructuring charges to improve its weak returns. Its performance improved in FY20 and FY21, though a series of IT failures in its Japan IT system was a distraction. FY22 was a mixed year as revenue growth was challenged.
Mizuho’s CET1 ratio buffer is low, but acceptable given comfortable asset quality metrics.
As one of the three megabanks, Mizuho’s credit standing benefits from a strong expectation of government support, if needed.
Business Description
AS OF 08 Jun 2023- Mizuho is just about the third largest by asset size among Japan's three megabanks. It was formed in 2000 through the merger of the former "City" banks, Fuji and Dai-Ichi Kangyo and the Industrial Bank of Japan, a provider of long-term industrial credit financed by bond issues.
- Its main units are Mizuho Bank and Mizuho Trust & Banking (focusing on asset management and related services). The group's other main business is Mizuho Securities, a leading player in debt capital markets in Japan and the US.
- It expanded in North America in 2015 by acquiring assets and staff from RBS and has successfully captured more investment as well as commercial banking business in conjunction with its securities arm. It also acquired Greenhill, a boutique M&A firm, in 2023.
- Mizuho is less diversified than its peers geographically and by business line; It has a more corporate focus and a weaker retail/consumer franchise.
- To tackle its worsening cost/income ratio as well as Japan's poor demographics, it has been shrinking its domestic branch network and staff numbers over a multi-year plan.
Risk & Catalysts
AS OF 08 Jun 2023Asset quality has been benign and not much affected by COVID-19 up to and throughout FY21; credit costs in FY22 decreased to a low 8 bp of loans.
The CET1 ratio (fully Basel III compliant and ex-security gains) was 1.5% above the 8% regulatory minimum at FY22, which is fairly low level but acceptable for now given benign asset quality.
FY22 was a mixed year for Mizuho as the bottomline was propped up by reduced credit costs, while revenue growth continued to be anaemic as was the case over the past few years. It is finally showing some ambition for FY23, aiming for net business profit, credit cost, and net income growth of 10%, to set the group on a path towards a P/B ratio >1x from its 0.5-0.6x range currently.
Key Metrics
AS OF 08 Jun 2023| ÂĄ bn | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Net Interest Revenue/Ave Assets | 0.39% | 0.36% | 0.42% | 0.44% | 0.41% |
| Operating Income/Average Assets | 0.92% | 1.02% | 1.03% | 1.01% | 0.96% |
| Operating Expense/Operating Income | 79% | 67% | 64% | 62% | 63% |
| Pre-Impairment Operating Profit / Average Assets | 0.20% | 0.33% | 0.37% | 0.38% | 0.34% |
| Loan impairment (charge) or reversal/ave. loans | (0.02%) | (0.21%) | (0.25%) | (0.28%) | (0.10%) |
| ROAA | 0.05% | 0.22% | 0.22% | 0.24% | 0.23% |
| ROAE | 1.1% | 5.2% | 5.3% | 5.8% | 6.1% |
| CET1 Ratio excl. unrealised securities gains in AOCI | 10.8% | 11.0% | 10.5% | 11.5% | 11.3% |
CreditSights View
AS OF 23 May 2023Mizuho has historically trailed its peers on profitability and capital, as the merger that formed it included the former IBJ, a large wholesale bank with thin profit margins. Lower profitability and capital prevented investments in new business opportunities. FY20-21 saw good improvements in net interest income and mostly lower credit costs vs. peers. Credit costs related to Russia in 4Q21 and Japan corporates in 1Q22 affected results but this took a better turn in Q2. Previous issues with its Japan IT system have not resurfaced recently. CET1 capital has a ~1.5% buffer which is low but acceptable. Mizuho is the weakest of the megabanks, but also had improved most over FY20-21. FY22 net income declined with low credit costs. It trades ~20 bp behind MUFG which we see as fair.
Recommendation Reviewed: May 23, 2023
Recommendation Changed: December 05, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Fundamental View
AS OF 17 Mar 2023We continue to believe Nissan Motor Co. and Nissan Motor Acceptance Corporation (NMAC) notes should trade cheap for their rating owing to the company’s weak core automotive profitability, excluding currency, and credit ratings that remain on the brink of high yield. On February 7, 2023, S&P stated in a bulletin that it believes Nissan achieving EBITDA margins of 6% and positive free cash flow “remains challenging”. Although Nissan appeared to meet both performance thresholds in the most recent quarter, it was only with the benefit of favorable currency. Without the favorable currency, we believe automotive profitability would have remained negative in its two most recent quarters, EBITDA margin would have been below 6%, and free cash flow would have been much lower if not negative.
Business Description
AS OF 17 Mar 2023- 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 17 Mar 2023Management provides guidance for retail sales volumes but not for production volume or wholesales. It lowered its FY22 retail sales volume guidance for the second consecutive quarter to 3.4 mn units, down from a full-year target of 3.7 mn last quarter and its original target of 4.0 mn. Management indicated the lower target reflects continued industry headwinds from China COVID lockdowns, which have now largely ended, and semiconductor shortages, especially in North America.
The company reiterated its FY22 targets for revenue and operating profit based on modest changes in its currency outlook and the sustained strong pricing environment, partially offset by lower projected volumes. Management also highlighted improvement in raw material and logistics costs and noted it expects to offset the lower sales volume with improved productivity.
Management left its net income target unchanged. Net income is expected to decline sharply in FY22 owing to a Daimler share sale gain a year ago and a ÂĄ100 bn loss in the current fiscal year related to its exit from Russia. Absent these one-time items, management noted its FY22 net income would have significantly increased YoY.
Key Metrics
AS OF 17 Mar 2023| ÂĄ bn | FY18 | FY19 | FY20 | FY21 | LTM F3Q22 |
|---|---|---|---|---|---|
| Revenue | 10,377 | 8,716 | 6,843 | 7,393 | 8,750 |
| EBIT | 294 | (183) | (471) | (42) | 154 |
| EBIT Margin | 3% | (2%) | (7%) | (1%) | 4% |
| EBITDA | 667 | 183 | (199) | 252 | 498 |
| EBITDA Margin | 6.4% | 2.1% | (2.9%) | 3.4% | 8.0% |
| Total Liquidity | 1,595 | 2,795 | 4,096 | 3,601 | 3,289 |
| Net Debt | (1,600) | (1,065) | (636) | (728) | (1,094) |
| Total Debt | (290) | 430 | 1,260 | 973 | 495 |
| Gross Leverage | -0.4x | 2.3x | -6.3x | 3.9x | 1.0x |
| Net Leverage | -2.4x | -5.8x | 3.2x | -2.9x | -2.2x |
CreditSights View
AS OF 18 May 2023We maintain an Outperform recommendation on NSANY and NMAC notes based on the new Fitch rating that gives the entities two of three Investment Grade (IG) ratings, expected inclusion in the BofAML ICE IG index, near-term debt issuance expectations that we believe could provide an attractive entry point into the credit for IG investors, and relative value. While our primary credit concern for Nissan is its weak core automotive profitability, we expect this to improve in FY23 based on a 27% increase in retail sales (ex. China) despite headwinds from currency and lower sales financing profitability.
Recommendation Reviewed: May 18, 2023
Recommendation Changed: April 26, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Fundamental View
AS OF 17 Mar 2023Honda is unique among its Automotive peers owing to its global leadership position within the motorcycle market, in which it maintains a 25% global market share and consistent low-double-digit operating margins. The larger automotive business – which accounts for roughly two-thirds of Honda’s consolidated revenue – has seen its profitability decline since 2017 and remains in turnaround mode.
While we believe its credit rating has upside potential to mid-A over time – its longtime rating prior to the pandemic that would enable it to access the Tier 1 CP market – we do not expect positive rating momentum until the automotive supply chain normalizes and Honda improves the performance of its automotive segment.
Business Description
AS OF 17 Mar 2023- 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. The company was founded by Soichiro Honda on September 24, 1948, and is headquartered in Tokyo, Japan.
- 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. Noncontrolling 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 17 Mar 2023Management raised its FY23 guidance for Motorcycle unit wholesales, lowered its Automobile unit wholesales and net revenue, while reiterating its guidance for operating profit, and net income. Honda’s Motorcycle unit wholesales growth forecast was boosted by 2% and the new target now represents a 10% YoY increase. Its Automobile unit wholesale target was lowered 6%, with the reduction driven by lower expectations in most regions, especially Asia. The company’s new Automobile wholesale target represents a 5% YoY decline, although management expects to inflect to growth of 3% YoY in F4Q23.
Honda’s FY23 consolidated operating profit guidance of ¥870 bn is unchanged from its previous guidance, although it now expects the full-year contribution from currency to be slightly lower, offset by modestly improved price/cost impacts and lower warranty and R&D costs. We expect Automobile segment profit to improve sequentially and YoY in F4Q23 as wholesale volumes improve and the pricing environment remains relatively firm.
Key Metrics
AS OF 17 Mar 2023| ÂĄ bn | FY19 | FY20 | FY21 | FY22 | LTM F3Q23 |
|---|---|---|---|---|---|
| Revenue | 13,523 | 12,344 | 10,908 | 11,967 | 13,650 |
| EBIT | 719 | 578 | 576 | 741 | 832 |
| EBIT Margin | 5.3% | 4.7% | 5.3% | 6.2% | 7.4% |
| EBITDA | 1,403 | 1,216 | 1,175 | 1,334 | 1,487 |
| EBITDA Margin | 10.4% | 9.8% | 10.8% | 11.1% | 12.1% |
| Total Liquidity | 3,520 | 3,611 | 3,717 | 4,612 | 4,504 |
| Net Debt | (1,944) | (1,931) | (2,048) | (2,481) | (2,339) |
| Total Debt | 438 | 532 | 480 | 837 | 900 |
| Gross Leverage | 0.3x | 0.4x | 0.4x | 0.6x | 0.6x |
| Net Leverage | -1.4x | -1.6x | -1.7x | -1.9x | -1.6x |
CreditSights View
AS OF 18 May 2023Our Underperform recommendation on Honda Motor and American Honda Finance notes is based primarily on relative value as we expect relatively tight trading levels to offer limited opportunity for outperformance. Honda Motor has struggled with supply chain challenges more than some of its automotive peers such as Toyota and Hyundai, which has contributed to constrained production and lower wholesale and retail light vehicle sales. We expect Honda’s automotive business performance to improve in 2023 as volumes improve, while its motorcycle unit continues to drive the majority of the company’s industrial operating profit.
Recommendation Reviewed: May 18, 2023
Recommendation Changed: January 13, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Fundamental View
AS OF 17 Mar 2023Toyota and its subsidiary issuers are the highest quality Automotive sector issuers in the dollar market with A1/A+/A+ S/S/S ratings and outlooks by Moody’s, S&P, and Fitch, respectively. The company is the second-largest automotive issuer in the U.S. dollar market behind General Motors and accounts for 16% of automotive sector debt outstanding.
Toyota’s automotive credit metrics are strong with cash and cash equivalents roughly 1.7x its debt balance. We believe its credit rating is stable with potential upside by S&P over time as the rating agency had Toyota’s rating at AA- prior to the pandemic. However, management has not indicated it aspires to a higher rating, and we note it currently has access to the Tier 1 CP market, which provides it with short-term funding flexibility.
Business Description
AS OF 17 Mar 2023- 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. It 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 17 Mar 2023FY23 wholesales forecast reiterated at 8.8 mn units, up 7% YoY. Toyota trimmed its FY23 production target to 9.1 mn units from its previous target of 9.2 mn but maintained its projected wholesales at 8.8 mn units and its retail sales target at 10.4 mn units.
Wholesale shipments have shown steady improvement throughout FY23 and increased 9% sequentially and 16% YoY in F3Q23. Meeting its annual wholesale target requires 2.5 mn unit wholesales in F4Q23, or a 7% sequential increase, which seems achievable provided it increases production at a similar pace.
FY23 consolidated operating target unchanged but expected lower YoY. Management reiterated its FY23 consolidated revenue and operating income targets, with the revenue expected up 1% YoY and operating income down 6% YoY. Compared to last quarter, full year operating income is expected to benefit slightly less from currency and raw material cost moderation, but these negative variances are projected to be offset by lower marketing activities and slightly lower labor costs.
Key Metrics
AS OF 17 Mar 2023| ÂĄ bn | FY19 | FY20 | FY21 | FY22 | LTM 3Q22 |
|---|---|---|---|---|---|
| Automotive Revenue | 27,079 | 26,800 | 24,652 | 28,606 | 30,610 |
| EBIT | 2,039 | 2,124 | 1,778 | 2,519 | 2,135 |
| EBIT Margin | 7% | 7% | 7% | 8% | 6% |
| EBITDA | 3,036 | 2,946 | 2,654 | 3,526 | 3,245 |
| EBITDA Margin | 10.0% | 9.9% | 9.8% | 11.2% | 8.9% |
| Total Liquidity | 11,168 | 9,890 | 11,557 | 15,864 | n/m |
| Net Debt | (399) | (447) | 597 | (1,719) | (1,719) |
| Total Debt | 2,419 | 2,235 | 3,872 | 2,580 | 2,580 |
| Gross Leverage | 0.8x | 0.8x | 1.5x | 0.7x | 0.8x |
| Net Leverage | -0.1x | -0.2x | 0.2x | -0.5x | -0.5x |
CreditSights View
AS OF 18 May 2023Our Underperform recommendation on Toyota Motor Co. (TMC) and Toyota Motor Credit Corporation (TMCC) notes is based on relative value as tight trading levels offer little opportunity for outperformance. Toyota is the highest-rated global automaker that benefits from being the largest global automotive manufacturer, balanced geographic diversification, strong liquidity, consistent free cash flow generation, and solid credit metrics. The company has been hampered by supply chain challenges the past fiscal year, causing management to lower its production targets and dampening wholesale volumes and revenue. We expect global wholesale volumes to increase in 2023 as supply chain challenges ease and production schedules improve.Â
Recommendation Reviewed: May 18, 2023
Recommendation Changed: January 13, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Fundamental View
AS OF 17 Mar 2023We expect the ratings of Honda and AHFC should be supported by strong profit generation from the company’s Motorcycle segment, despite weak Automobile segment performance as it struggles with supply chain challenges. We believe Honda and AHFC notes are fairly valued at a discount to notes of higher-rated Toyota and at a premium to notes of lower-rated Hyundai.
For additional information on Honda Motor Corporation see Honda Motor.
Business Description
AS OF 17 Mar 2023- 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. The company was founded by Soichiro Honda on September 24, 1948 and is headquartered in Tokyo, Japan.
- 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. Noncontrolling 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 17 Mar 2023North American buyers of the company’s moderately priced vehicles could be more susceptible to an economic downturn in 2023, which could weigh on the credit quality of AHFC’s loan and lease portfolio.
EV sourcing requirements included in the Inflation Reduction Act (IRA) are more favorable to domestic automakers and could blunt EV sales growth beginning in 2023, although management is working to limit the impact.
Management has not provided guidance for FY23 profit (ended March 31, 2023), although Honda Motor management expects its Financial Services segment to post FY23 operating profit that is 20% lower YoY as revenues come off of historic highs.
Key Metrics
AS OF 17 Mar 2023| $ mn | FY19 | FY20 | FY21 | FY22 | F3Q23 |
|---|---|---|---|---|---|
| Total Company Earning Assets | 73,231 | 73,767 | 77,066 | 71,316 | 64,696 |
| Cash and Investments | 795 | 1,503 | 1,870 | 2,607 | 2,350 |
| Excess Liquidity | 7,795 | 8,503 | 8,870 | 9,607 | 9,350 |
| Unsecured Debt | 40,964 | 40,399 | 43,037 | 38,026 | 33,254 |
| Secured Debt | 8,790 | 9,748 | 8,890 | 8,888 | 6,467 |
| Total Debt | 49,754 | 50,147 | 51,927 | 46,914 | 39,721 |
| Allowance % Retail Rece. | 0.55% | 1.06% | 0.74% | 0.58% | 0.69% |
| Allowance / Net Charge-offs | 1.03x | 1.68x | 2.41x | 3.75x | 2.41x |
| Net Charge-offs % Avg. Receivable | 0.56% | 0.63% | 0.33% | 0.15% | 0.29% |
| Delinquency Rate | 0.18% | 0.24% | 0.14% | 0.25% | 1.48% |
CreditSights View
AS OF 11 May 2023Our Underperform recommendation on Honda Motor and American Honda Finance notes is based primarily on relative value as we expect relatively tight trading levels to offer limited opportunity for outperformance. Honda Motor has struggled with supply chain challenges more than some of its automotive peers such as Toyota and Hyundai, which has contributed to constrained production and lower wholesale and retail light vehicle sales. We expect Honda’s automotive business performance to improve in 2023 as volumes improve, while its motorcycle unit continues to drive the majority of the company’s industrial operating profit.
Recommendation Reviewed: May 11, 2023
Recommendation Changed: January 13, 2023
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India