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Thursday 15 January 2009
US Auto Sector
According to the sector report by GS, auto sector should be avoided. Neutral on Toyota and Honda but Suzuki may be a better performer given its higher growth potential, particularly in India.
According to the sector report by GS, auto sector should be avoided. Neutral on Toyota and Honda but Suzuki may be a better performer given its higher growth potential, particularly in India.
We remain underweight in the auto sector. Factors such as yen fall-back have fuelled a rally over the past couple weeks, but fundamentals are steadily deteriorating, and we think share price rises are unsustainable.
Stocks have priced in weak Oct.-Dec. results and large cuts to full-year guidance, but we maintain a cautious stance based on the following factors.
(1) We do not think even a 30% yoy fall in global production in Jan.-Mar. will signal an end to inventory adjustment. Given struggling sales, we do not expect production to recover in April-June: assembler domestic production plans call for a 38% yoy fall in Jan.-Mar.
(2) It was unclear when demand would bottom out, but concerns are fading now that US SAAR has trended at 10 mn units for three straight months. Meanwhile, conditions remain tough with incentives and fleet sales growing. Total demand could rise in Jan.-Mar. when GM begins to take government aid, but this could equally erode market share for Japanese automakers.
(3) We do not think quarterly earnings will turn positive until Jan.-Mar. 2010 and we believe it is too early for a sustained rise in share prices given the prospect of losses over the next 12 months.
Factoring in sharp production cut in Jan.-Mar. (-40% yoy in Japan)
We are cutting our forecasts for non-Big Three coverage companies, factoring in a sharp drop in production through January-March, mainly in Japan and the US. We revised our forecasts for Toyota, Honda, and Nissan on Dec. 26 and leave our FY3/09 and FY3/10 operating profit forecasts for these three unchanged. We maintain our target prices.
Best buy idea
We would not actively invest in the sector but believe the best of the bunch are Suzuki (Buy), with its high medium-term growth potential, and Toyota (Neutral), which is cutting production faster than peers such as Honda.
Best sell idea
Yen weakness and a potential bottom-out in US demand have boosted Nissan, Mitsubishi Motors, and Hino Motors over the past couple weeks, but fundamentals are actually worsening. Our price targets for both stocks represent over 20% downside potential. We maintain our Sell rating.
1 comment:
According to the sector report by GS, auto sector should be avoided. Neutral on Toyota and Honda but Suzuki may be a better performer given its higher growth potential, particularly in India.
We remain underweight in the auto sector. Factors such as yen fall-back have fuelled a rally over the past couple weeks, but fundamentals are steadily deteriorating, and we think share price rises are unsustainable.
Stocks have priced in weak Oct.-Dec. results and large cuts to full-year guidance, but we maintain a cautious stance based on the following factors.
(1) We do not think even a 30% yoy fall in global production in Jan.-Mar. will signal an end to inventory adjustment. Given struggling sales, we do not expect production to recover in April-June: assembler domestic production plans call for a 38% yoy fall in Jan.-Mar.
(2) It was unclear when demand would bottom out, but concerns are fading now that US SAAR has trended at 10 mn units for three straight months. Meanwhile, conditions remain tough with incentives and fleet sales growing. Total demand could rise in Jan.-Mar. when GM begins to take government aid, but this could equally erode market share for Japanese automakers.
(3) We do not think quarterly earnings will turn positive until Jan.-Mar. 2010 and we believe it is too early for a sustained rise in share prices given the prospect of losses over the next 12 months.
Factoring in sharp production cut in Jan.-Mar. (-40% yoy in Japan)
We are cutting our forecasts for non-Big Three coverage companies, factoring in a sharp drop in production through January-March, mainly in Japan and the US. We revised our forecasts for Toyota, Honda, and Nissan on Dec. 26 and leave our FY3/09 and FY3/10 operating profit forecasts for these three unchanged. We maintain our target prices.
Best buy idea
We would not actively invest in the sector but believe the best of the bunch are Suzuki (Buy), with its high medium-term growth potential, and Toyota (Neutral), which is cutting production faster than peers such as Honda.
Best sell idea
Yen weakness and a potential bottom-out in US demand have boosted Nissan, Mitsubishi Motors, and Hino Motors over the past couple weeks, but fundamentals are actually worsening. Our price targets for both stocks represent over 20% downside potential. We maintain our Sell rating.
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