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Sector: Manufacturing
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Fundamental View
AS OF 25 Nov 2024While the company maintained its FY25 operating income forecast, it nearly doubled the magnitude of its projected equity income loss compared to last quarter related to its deteriorating business in China. In North America, the company’s profitability was impacted in the second quarter by higher incentive spending and an increase in warranty expense, tarnishing its steady HEV sales and nascent but growing EV sales momentum. Overall, we remain constructive on Honda’s strong global motorcycle business and its healthy HEV business, even as it succumbs to the intense competitive environment of the Chinese automotive industry.
Business Description
AS OF 25 Nov 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 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 25 Nov 2024Management raised its FY25 motorcycle wholesales forecast by 2% but lowered its automobile wholesales forecast for the second consecutive quarter, this time by 3% after a 5% decrease last quarter. Motorcycle wholesales are now projected to increase 7% YoY. The company’s lower automobile wholesale forecast, lower by 8% YoY, is driven by a further downward revision in Asia wholesales.
The company raised its FY25 revenue guidance but maintained its guidance for operating profit. Management expects automobile pricing to remain resilient owing to strong demand for its HEVs, which account for about 30% of its retail sales, partially offset by expectations for continued elevated North America incentive spending in 2H25. The company may also face further elevated warranty costs in 2H25 related to a recall on ~2 mn vehicles in North America over steering issues.
Consolidated operating profit margins are expected to be flat YoY at 6.8% in FY25 expand 20 bp to 7% in FY25 as the benefits of stronger pricing are expected to be nearly offset by increased warranty expense, greater R&D expenditures, currency headwinds. The company also expects lower profit from its business in China.
Key Metric
AS OF 25 Nov 2024| ¥ bn | FY21 | FY22 | FY23 | FY24 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 10,908 | 11,967 | 14,167 | 17,434 | 18,444 |
| EBIT | 576 | 741 | 612 | 1,219 | 1,152 |
| EBIT Margin | 5.3% | 6.2% | 4.3% | 7.0% | 3.4% |
| EBITDA | 1,175 | 1,334 | 1,294 | 1,964 | 1,889 |
| EBITDA Margin | 10.8% | 11.1% | 9.1% | 11.3% | 7.3% |
| Total Liquidity | 3,717 | 4,612 | 4,926 | 6,150 | 5,821 |
| Net Debt | (2,048) | (2,481) | (2,751) | (3,762) | (3,492) |
| Total Debt | 480 | 837 | 803 | 863 | 803 |
| Gross Leverage | 0.4x | 0.6x | 0.6x | 0.4x | 0.4x |
| Net Leverage | -1.7x | -1.9x | -2.1x | -1.9x | -1.8x |
CreditSight View Comment
AS OF 25 Nov 2024We are maintaining our Underperform recommendations on Honda Motor Co. (HMC: A3/A-/A; S/S/S) and American Honda Finance Corporation (AHFC: A3/A-/A; S/S/S) notes based on relative value, the company’s dominant position and resilient performance within the Motorcycle segment, solid Automobile wholesale trends temporarily marred by higher warranty and incentive expenses, its strong hybrid automobile lineup, and its excellent liquidity and stable credit rating.
Recommendation Reviewed: November 25, 2024
Recommendation Changed: January 13, 2023
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Fundamental View
AS OF 25 Nov 2024Toyota resolved its vehicle certification issue in Japan that led to temporary production halts for certain vehicles and lower YoY vehicle production in 1H25. Management expects to return its vehicle production to a 10 mn unit annualized pace in 2H25. HEV sales growth in North America was constrained by production disruption at its Indiana plant and dealer inventories that are half the level of conventional vehicles. The improved production volumes and its focus on lower sales incentive spending is expected to improve profitability in 2H25, which enabled the company to affirm its FY25 consolidated operating profit guidance for the full year. Although profit is expected to decline 20% YoY, the company’s consolidated operating margin is projected to come in at a respectable 9.3%.
Business Description
AS OF 25 Nov 2024- 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 25 Nov 2024Toyota affirmed its FY25 financial guidance despite the H125 vehicle production disruption stemming from its certification issues in Japan. FY25 financial guidance that contemplates lower wholesales, higher consolidated revenue, and a 20% decline in consolidated operating income.
Consolidated vehicle sales are now expected to decline by less than 1% YoY, a change from its previous expectation for sales to increase by less than 1%. The new forecast includes expected vehicle sales growth in Japan (+2%) and Asia (+3%), partially offset by lower sales in North America (-3%) and Europe (-4%).
Toyota maintained its FY25 consolidated operating income forecast of ¥4.3 tn, which represents a 20% decline from ¥5.3 tn in FY24. The lower operating income was originally driven by a more challenging automotive industry environment, increased investments in its employees and suppliers, and an acceleration of investments in growth technologies, each of which was expected to account for roughly one-third of the decline.
Key Metric
AS OF 25 Nov 2024| ¥ bn | FY21 | FY22 | FY23 | FY24 | LTM 3Q24 |
|---|---|---|---|---|---|
| Automotive Revenue | 24,652 | 28,606 | 33,777 | 41,081 | 41,902 |
| EBIT | 1,778 | 2,519 | 2,486 | 4,890 | 4,625 |
| EBIT Margin | 6.5% | 8.0% | 6.7% | 10.8% | 8.5% |
| EBITDA | 2,654 | 3,526 | 3,671 | 6,139 | 5,960 |
| EBITDA Margin | 9.8% | 11.2% | 9.9% | 13.6% | 11.4% |
| Total Liquidity | 11,557 | 15,864 | 10,090 | 12,401 | n/m |
| Net Debt | 597 | (1,719) | (2,825) | (4,025) | (4,025) |
| Total Debt | 3,872 | 2,580 | 2,724 | 2,868 | 2,868 |
| Gross Leverage | 1.5x | 0.7x | 0.7x | 0.5x | 0.5x |
| Net Leverage | 0.2x | -0.5x | -0.8x | -0.7x | -0.7x |
CreditSight View Comment
AS OF 25 Nov 2024We reiterate our Underperform recommendations on notes of Toyota Motor Co. (TOYOTA: A1/A+/A+; P/S/S) and Toyota Motor Credit Corporation (TMCC: A1/A+/A+; P/S/S) based primarily on relative value, the resolution of its vehicle certification challenges in Japan, and expected improving vehicle production and profit trends in 2H25. The Toyota bond complex trades tight to the broader market and the A-rated index primarily based on its high-A credit rating and short duration.
Recommendation Reviewed: November 25, 2024
Recommendation Changed: January 13, 2023
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Search topics about wealth insights and investments.Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
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Fundamental View
AS OF 15 Oct 2024- We are comfortable with Reliance’s large diversified scale of operations and dominant presence in various key sectors (refining, petrochemicals, retail and telecom), which allows for earnings resilience.
- We believe a lackluster oils-to-chemicals outlook is well mitigated by strong outlooks for telecom, retail, and upstream oil & gas.
- Plans to ramp up its renewable energy business could provide the next leg of growth and improve ESG perception.
- Reliance incurs significant capex that has weighed on free cash flow generation, though we acknowledge its historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 15 Oct 2024- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 20 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 18.8k stores (as of March 2024) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (482 mn as of March 2024) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 15 Oct 2024- Reliance’s O2C (oil-to chemicals) margins remain under pressure from high crude oil input costs and global growth slowdown concerns, though China’s recent stimulus measures could spur improvements.
- Reliance incurs significant capex at historically high levels, particularly from continued investments into its O2C, retail, and nascent renewables businesses. This has weighed on its free cash flow generation, though we take comfort in Reliance’s historically prudent financial management and robust credit metrics.
- Reliance faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of the company’s different business divisions to his children.
Key Metric
AS OF 15 Oct 2024| INR bn | FY22 | FY23 | FY24 | 1H24 | 1H25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 26.4% | 35.3% | 33.1% | 32.8% | 32.7% |
| Net Debt to Book Cap | 23.4% | 29.9% | 26.1% | 27.5% | 26.4% |
| Debt/Total Equity | 35.9% | 54.5% | 49.6% | 48.7% | 48.6% |
| Debt/Total Assets | 21.3% | 28.1% | 26.1% | 25.4% | 25.6% |
| Gross Leverage | 2.9x | 3.2x | 2.8x | 2.8x | 2.9x |
| Net Leverage | 2.6x | 2.7x | 2.2x | 2.4x | 2.3x |
| Interest Coverage | 5.7x | 7.3x | 7.0x | 6.7x | 6.9x |
| EBITDA Margin | 15.3% | 15.9% | 17.7% | 17.7% | 16.5% |
CreditSight View Comment
AS OF 15 Oct 2024We have a Market perform recommendation on Reliance (RIL), prefer its 2032, and dislike its 2045 and 2062. RIL’s shorter-dated bonds trade fairly to closely-rated Indian peers Bharti Airtel and BPCL. We like RIL’s large diversified operations and dominant market shares in key sectors (refining, retail and telecom) that boosts earnings resilience. Its growing renewable business could aid ESG investor sentiment too. While we remain aware of RIL’s elevated capex needs could persist over the next 5+ years, we think the impact is mitigated by RIL’s prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration. While key man risk remains a concern, we take comfort in gradually progressing succession plans.
Recommendation Reviewed: October 15, 2024
Recommendation Changed: June 30, 2021
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Search topics about wealth insights and investments.San Miguel Corporation
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: Philippines
- Region: Philippines
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Fundamental View
AS OF 20 Aug 2024- SMC’s FY23 and 1H24 credit metrics and EBITDA improved as we had expected from resilient broad demand recovery, lower power and O&G input costs, and good cost control measures.
- We are comfortable with SMC’s large diversified operations and dominant market share in key sectors, which could outweigh its high airport and infrastructure capex.
- We remain concerned about non-call risk for SMC GP’s c.2026 perps amid SMC GP’s firmly negative free cash flows and expectations that parental support could be unsustainable in the medium-to-long term. We see low non-call risk for the SMC c.2025 perp.
Business Description
AS OF 20 Aug 2024- SMC is a massive conglomerate in the Philippines with business interests across six business segments: Food & Beverage (F&B), fuel refining and retailing, power, packaging, infrastructure, and others.
- Its F&B business is operated through San Miguel Food & Beverage, the largest F&B company in the Philippines with three main divisions: Beer and Non-alcoholic Beverage (including beers and juices), Spirits (gin and Chinese wine), and Food (including packaged foods, animal feeds, poultry and fresh meats).
- SMC’s fuel refining and retailing business is operated through Petron Corporation (~68% stake), the largest oil refining and retailing company in the Philippines, and one of the largest in Malaysia. Petron has a total refining capacity of ~268k barrels/day.
- SMC’s power business is operated through SMC Global Power Holdings (SMC GP, 100% stake), one of the largest power generating companies in the Philippines. It maintains a diversified portfolio across coal (62%), natural gas (26%), and renewable energy (12%) sources.
- Through its packaging business, it manufactures glass containers, plastic crates, pellets, bottles and caps, aluminium cans, and other types of packaging products.
- It operates its Infrastructure business through San Miguel Holdings Corp (SMHC), in which it holds a 100% stake. It currently operates ~190 km of toll roads in the country, connecting high-traffic, arterial routes in Luzon.
Risk & Catalysts
AS OF 20 Aug 2024- SMC’s revenues are concentrated in the Philippines (~80%), which poses geographical concentration risk.
- SMC incurs significant capex, particularly in its power/energy and infrastructure businesses. In October 2020, SMC began construction of the mega New Manila International Airport (requires ~PHP 750 bn of capex spread over 5-7 years). This could keep SMC’s credit metrics elevated and free cash flows in negative territory.
- As a holding company, SMC is reliant on dividend upstreaming from its operating subsidiaries to service its debt, which can be difficult should the operating subsidiaries face cash flow difficulties. We are particularly concerned about SMC GP’s weak financial profile and extension/refinancing uncertainties of its $3.3 bn perpetuals that are first callable from 2024-2026.
- SMC operates in the businesses of thermal power generation and fuel refining, which may be looked at unfavourably by some ESG-focused investors.
Key Metric
AS OF 20 Aug 2024| PHP bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.4% | 72.3% | 71.6% | 72.1% | 72.7% |
| Net Debt to Book Cap | 51.7% | 58.5% | 60.4% | 60.6% | 62.1% |
| Debt/Total Equity | 197.9% | 261.3% | 251.9% | 258.6% | 266.5% |
| Debt/Total Assets | 65.7% | 69.8% | 68.1% | 69.2% | 68.3% |
| Gross Leverage | 8.1x | 9.1x | 8.4x | 8.7x | 8.0x |
| Net Leverage | 6.3x | 7.4x | 7.1x | 7.3x | 6.9x |
| Interest Coverage | 3.1x | 2.8x | 2.1x | 2.2x | 2.2x |
| EBITDA Margin | 17.6% | 12.2% | 13.8% | 12.4% | 12.9% |
CreditSight View Comment
AS OF 20 Aug 2024We have a Market perform recommendation on SMC and its sole c.Jul-25 $ perp; we see limited extension risk for SMC’s perp, yet we don’t see much price upside from current levels. SMC’s c.Jul-2025 trades 131 bp wider than Ayala Corp’s c.Sep-2026, which we think is fair given SMC’s worse liquidity position and persisting extension/refinancing risk of subsidiary SMC GP’s perps (notably the c.2026s) that negate SMC’s larger scale of EBITDA and stronger net leverage. We like SMC’s dominant market position in multiple sectors, long operating track record and diversified operations. Yet it incurs sizable airport and infrastructure capex that would likely keep its credit metrics elevated and free cash flows negative. Meanwhile, we remain watchful of SMC’s ability to support SMC GP past 2025.
Recommendation Reviewed: August 20, 2024
Recommendation Changed: April 05, 2023
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Search topics about wealth insights and investments.Hyundai Motor
- Sector: Manufacturing
- Sub Sector: Automotive
- Country: Korea
- Bond: HYNMTR 5.5 26
- Indicative Yield-to-Maturity (YTM): 4.60%
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Fundamental View
AS OF 15 Aug 2024- Hyundai and Kia posted solid 2Q24 results that were ahead of Bloomberg consensus estimates and left their FY24 financial guidance unchanged. Automotive operating profit margins remained double-digits at both companies, although Hyundai’s margins were adversely impacted in the quarter by higher warranty expenses. Eco-friendly vehicle sales accounted for a healthy share of total unit wholesales in 2Q24 for both Hyundai (18%) and Kia (21%), although sales of hybrids continued to grow for both companies during the quarter while Hyundai’s EV sales declined YoY. Management teams at both Hyundai and Kia have stated hybrid vehicles generate double-digit profit margins that are “not that different” from ICE vehicle margins, while its EVs are profitable but generate low-single-digit margins.
Business Description
AS OF 15 Aug 2024- Hyundai Motor Co., Ltd. engages in the manufacture and distribution of motor vehicles and parts. It operates through the following business areas: Vehicle, Financial and Others. The Vehicle division offers motor vehicles. The Financial division provides financing, leasing and credit cards. The Other division includes manufacture of railways. The company was founded on December 29, 1967, and is headquartered in Seoul, South Korea.
- Hyundai Capital America benefits from a support agreement with Hyundai Motor (HMC). HCA investor relations confirmed its support (keepwell) agreement contains a fixed charge coverage provision that it views as particularly strong compared to other peers.
Risk & Catalysts
AS OF 15 Aug 2024- FY24 guidance includes wholesale volume growth of less than 1% to 4.24 mn units. Revenue is projected to increase 4%-5% based primarily on growth in North American sales volumes and higher average selling prices (ASPs). Operating profit margins are expected to moderate based on limited industry demand growth, intensifying competition, higher sales incentives, and increased labor costs.
- For 2H24, management expects challenging market conditions will make it difficult to achieve sales growth in most markets except the U.S., which it expects to be characterized by continued strong performance and favorable exchange rates. Additional color will be provided during its 2024 CEO Investor Day at the end of August at which they will announce their short-term and long-term business strategies and financial goals.
Key Metric
AS OF 15 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | LTM 2Q24 |
|---|---|---|---|---|---|
| Revenue | 80,577 | 94,143 | 113,718 | 130,150 | 132,693 |
| EBIT | 890 | 5,459 | 8,950 | 15,440 | 15,628 |
| EBIT Margin | 1.1% | 5.8% | 7.9% | 11.9% | 13.8% |
| EBITDA | 5,076 | 10,015 | 13,998 | 20,387 | 15,615 |
| EBITDA Margin | 6.3% | 10.6% | 12.3% | 15.7% | 17.4% |
| Total Liquidity | 17,082 | 19,745 | 26,639 | 26,507 | 23,590 |
| Net Debt | (4,453) | (5,202) | (11,035) | (10,916) | (12,546) |
| Total Debt | 10,920 | 12,569 | 12,940 | 12,940 | 8,685 |
| Gross Leverage | 2.2x | 1.3x | 0.9x | 0.6x | 0.6x |
| Net Leverage | -0.9x | -0.5x | -0.8x | -0.5x | -0.8x |
CreditSight View Comment
AS OF 15 Nov 2024We maintain Outperform recommendations on notes of Hyundai Capital America (HYNMTR), Hyundai Capital Services (HYUCAP), and Kia Corp. (KIA) notes based on relative value, expectations of stable to growing market share in developed markets, sustained strong automotive profitability and margins, its innovative hybrid vehicle and EV product offerings that we believe should fuel further share gains, and solid free cash flow generation.
Recommendation Reviewed: November 15, 2024
Recommendation Changed: December 20, 2023
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Fundamental View
AS OF 15 Aug 2024- The company experienced model year changeover issues in North America and Japan. These issues were exacerbated in the U.S. by excess inventories of 2023 model year Rogue vehicles and the company has increased sales incentives to reduce inventories by the end of F2Q24 to make way for 2024 model year vehicles at higher prices. Management raised its FY24 revenue guidance on projected incremental currency benefits but lowered its production and sales volume targets along with its profit guidance. It now expects FY24 consolidated operating profit to decline YoY compared to its previous expectation for profit growth. The company’s lowered production volume and sales targets further delay its goal of improving fixed cost absorption, a key component to improving its automotive operating margins.
Business Description
AS OF 15 Aug 2024- 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 15 Aug 2024- Based on the challenges the company experienced in F1Q24, management lowered its targets for FY24 production volume and retail sales. It now expects FY24 production growth of 1%, down from 2% previously, while it lowered its target for FY24 retail sales growth to 6% from 7% previously. Sales excluding China are projected to increase 9% YoY, while sales in China are projected to decline 3%. The company continues to target North America as its highest retail sales growth market in FY24, with projected growth of 12%, down from its previous target of 13%.
- Nissan raised its FY24 guidance for revenue but lowered its outlook for consolidated operating profit and net income. Management now expects FY24 revenue growth of 10%, up from 7% previously, based on incremental currency tailwinds related primarily to a strong dollar. Consolidated operating profit is now forecast to decline 12% YoY, down from its previous expectation for 6% YoY growth, owing primarily to pricing and sales incentive actions taken in the first quarter to clear inventory along with 2024 model year changeover delays.
Key Metric
AS OF 15 Aug 2024| ? bn | FY20 | FY21 | FY22 | FY23 | LTM F1Q24 |
|---|---|---|---|---|---|
| Revenue | 6,843 | 7,393 | 9,573 | 11,524 | 11,570 |
| EBIT | (471) | (42) | 242 | 409 | 331 |
| EBIT Margin | (7%) | (1%) | 3% | 4% | (0%) |
| EBITDA | (201) | 247 | 559 | 760 | 692 |
| EBITDA Margin | (2.9%) | 3.3% | 5.8% | 6.6% | 3.4% |
| Total Liquidity | 4,096 | 3,601 | 3,658 | 4,196 | 3,696 |
| Net Debt | (636) | (728) | (1,213) | (1,546) | (1,404) |
| Total Debt | 1,260 | 973 | 687 | 468 | 191 |
| Gross Leverage | 8.3x | 3.9x | 1.2x | 0.6x | 0.3x |
| Net Leverage | -1.2x | -2.9x | -2.2x | -2.0x | -2.0x |
CreditSight View Comment
AS OF 07 Oct 2024We maintain our Market perform recommendation on notes of Nissan (NSANY: Baa3/BB+/BBB-; S/S/S) and Nissan Motor Acceptance Corp. (NMAC) based on recent weak operating performance, a challenging second quarter outlook, and our view its credit rating will not likely be upgrade by S&P in the near term, partially offset by relative value.
Recommendation Reviewed: October 07, 2024
Recommendation Changed: May 10, 2024
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Fundamental View
AS OF 29 Feb 2024Toyota’s slower ramp of battery electric vehicle (BEV) production and sales relative to its peers was a common investor concern a year ago. However, with the recent slowdown in consumer adoption of BEVs in North America and Europe and Toyota’s dominance in the hybrid electric vehicle (HEV) market, those concerns have abated, at least for the time being. Importantly, Toyota management has indicated its profitability of its HEV portfolio is on par with its ICE portfolio profitability. We continue to believe that Toyota’s market leading position in HEVs provides consumers with a more eco-friendly option than traditional ICE vehicles that can serve as a bridge to EVs while the charging infrastructure is built out and the cost of producing EVs is reduced.
Business Description
AS OF 29 Feb 2024- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. 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. In July 2000, the company established Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary, to oversee the management of its finance companies worldwide.
- 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 and is an indirect wholly owned subsidiary. 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 29 Feb 2024Toyota Motor Credit Corporation (TMCC) credit metrics stable. TMCC F3Q24 earnings before taxes increased 50% YoY and 3x sequentially. At F3Q24 the delinquency rate expanded 10 bp YoY to 0.9%, nearly double pre-pandemic levels, while the retail charge-off rate expanded 10bp YoY to 0.7%. The company notes that changes in interest rates or unemployment could increase credit losses and additional provisioning. Additionally, elevated prices and high borrowing costs have impacted some consumers’ ability to make scheduled payments resulting in an increase in consumer delinquencies and charge-offs.
Key Metric
AS OF 29 Feb 2024| ¥ bn | FY20 | FY21 | FY22 | FY23 | F3Q24 |
|---|---|---|---|---|---|
| Total Company Earning Assets | 110,621 | 116,546 | 117,659 | 120,018 | 129,320 |
| Cash and Investments | 6,790 | 8,195 | 7,670 | 6,398 | 6,458 |
| Total Liquidity | 31,390 | 35,895 | 36,070 | 33,498 | 35,058 |
| Unsecured Debt | 83,172 | 85,513 | 82,288 | 78,949 | 85,744 |
| Secured Debt | 14,568 | 24,212 | 26,864 | 32,736 | 33,262 |
| Total Debt | 97,740 | 109,725 | 109,152 | 111,685 | 119,006 |
| Allowance % Retail Rece. | 0.86% | 1.64% | 1.66% | 1.83% | 1.81% |
| Allowance / Net Charge-offs | 1.58x | 4.50x | 6.68x | 3.03x | 2.56x |
| Net Charge-offs % Avg. Receivable | 0.56% | 0.39% | 0.26% | 0.63% | 0.72% |
| 30+ Day Delinquency Rate | 1.8% | 1.2% | 1.8% | 2.3% | 3.1% |
CreditSight View Comment
AS OF 13 May 2024We reiterate our Underperform recommendations on notes of Toyota Motor Co. (TOYOTA: A1/A+/A+; S/S/S) and Toyota Motor Credit Corporation (TMCC: A1/A+/A+; S/S/S) based primarily on relative value. Toyota reported record profit in FY24 and announced increased investments in labor, suppliers, and BEVs in FY25 that it expects to reduce operating profit 20%. We applaud the investments that we believe should further its new energy vehicle offerings well beyond its hybrid electric vehicles (HEVs), which account for more than one-third of its sales. We believe the Toyota bond complex is fairly valued at current levels but will continue to underperform the broader market and the A-rated index owing to its high-A credit rating and short duration.
Recommendation Reviewed: May 13, 2024
Recommendation Changed: January 13, 2023
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