JPMorgan: Japan’s Auto Makers Headed for Record Sales, Earnings

TOKYO – Japanese auto makers report big first-quarter gains in earnings, while sales are on track to post record results when fiscal 2013 ends in March.

A series of reports by JPMorgan Securities Japan details the industry’s reversal of fortune since the dark days following the Lehman Brothers bankruptcy and subsequent start of the global recession in fall 2008.

The investment house predicts Toyota will register record earnings of ¥2.7 trillion ($2.8 billion) on record sales of ¥27 trillion ($275.9 billion) in fiscal 2013, up from its previous highs of ¥2.3 trillion ($23.5 billion) and ¥26.3 trillion ($268.8 billion) in fiscal 2007.

Between April and June (fiscal first quarter), the auto maker’s operating profit margin rose to 10.5% with only a portion attributable to the weaker yen, which has fallen nearly 20% since November.

In addition to the weaker yen, which raises profit margins on exports, JPMorgan credits continued cost-cutting and sales growth in regions such as the Middle East and Africa for the auto maker’s improved financial outlook.

In the Japanese market, JPMorgan forecasts fiscal-2013 production of 4.25 million units of all Toyota brands – Toyota, Lexus, Daihatsu and Hino – and sales of 2.2 million.

Outside Japan, the investment house reports the leading markets for Toyota products will be North America with 2.53 million units; Asia (including China), 1.86 million; Europe, 804,000; and the Middle East, 790,000.

By fiscal 2015, JPMorgan expects Toyota profits to increase to ¥3.5 trillion ($35.8 billion) on sales of ¥30.5 trillion ($311.8 billion). A key assumption, however, is that the dollar and euro strengthen to $1:¥105 and €1:¥132 levels, respectively. Both currencies currently are holding firm at $1:¥97 and €1:¥130.

Nissan reports a ¥523.5 billion ($5.3 billion) operating profit in fiscal 2012 on sales of ¥9.6 trillion ($98.1 billion). Under a new equity accounting method, which excludes the auto maker’s Dongfeng joint venture in China, the JPMorgan forecast, while up by double digits, is lower than what it would have been in another year.

Sales and operating income are projected to grow 11.8% and 12.7% to ¥10.8 trillion ($110.4 billion) and ¥700 billion ($7.2 billion), respectively.

The investment house warns declining profitability in Nissan’s Russia operation could be a drag on earnings in the current fiscal year.

Honda is forecast to sell 3.68 million vehicles in fiscal 2013 of which half, 1.8 million, will be in North America. The resulting sales of ¥12.2 trillion ($124.8 billion) and operating income of ¥900 billion ($9.2 billion) are 15% above the auto maker’s forecast.

Sales and earnings would be even higher except that JPMorgan reports Honda’s product mix in North America and Japan, not enough fullsize trucks and too many 0.6L minicars, work against it.

In fiscal 2008, minis accounted for 32% of Honda sales in Japan. By fiscal 2012, that share had risen to 50% and, during the first three months of fiscal 2013, nearly 60%.

Coinciding with its fiscal first-quarter results announcement, Suzuki raised its full-year fiscal 2013 operating profit forecast to ¥165 billion ($1.7 billion) on projected sales of ¥2.8 trillion ($28.6 billion). JPMorgan is more bullish, projecting sales and earnings of ¥3.0 trillion ($30.6 billion) and ¥199 billion ($2.0 billion).

The investment house anticipates Suzuki sales growth of 3% to 2.67 million units, up from 2.59 million in fiscal 2012, including 1.55 million in Asia, mainly India and China.

Mazda will register a record ¥190 billion ($1.9 billion) operating profit in fiscal 2013 on sales of ¥2.6 trillion ($26.6 billion), according to JPMorgan’s forecast.

The investment house calls for ¥70 billion ($772 million) higher earnings than Mazda’s original projection based on stronger-than-expected earnings of ¥35 billion ($360 million) between April and June.

JPMorgan expects Mazda to realize a 7.3% operating margin for the full fiscal year, with models featuring full Skyactiv technology growing to 42% of total sales, up from 19% in fiscal 2012.

Skyactiv is the trade name for a series of technologies, mostly involving conventional powertrains, developed to boost fuel economy and engine output.

The investment house reports 70% of Skyactiv Atenzas sold in Japan since the model’s launch last November were equipped with diesel engines. Outside Japan, the model is sold as the Mazda6.

JPMorgan reports Mazda will roll out a fully redesigned Mazda3 in the U.S. in September and begin producing the model in Mexico in 2014, which, it expects, will improve earnings further.

The investment house projects 5.8% Mazda’s sales growth to 1.11 million units, with North America accounting for 37% of the total.

If Mazda achieves JPMorgan’s sales target, it would make fiscal 2013 the most profitable year in the auto maker’s history. The previous high was ¥162.1 billion ($1.7 billion) in fiscal 2007.

Fuji Heavy Industries, maker of Subaru cars, reported two consecutive quarters of record operating profits aided by the new Forester cross/utility vehicle launched last November and continued strong demand for the Impreza.

JPMorgan projects a ¥300 billion ($3.1 billion) operating profit for the fiscal year, ¥120 billion ($1.2 billion) above Subaru’s bullish fiscal-2013 forecast, on sales of ¥2.3 trillion ($23.5 billion). Both earnings and sales would be new highs.

In fiscal 2008 during the onset of the global recession, Subaru reported a ¥5.8 billion ($59 million) operating loss.

Between April and June 2013, North American Subaru sales rose 30% to a quarterly record 116,000 units and accounted for 60% of global sales.

In July, Subaru introduced its first hybrid, the Subaru XV, in the Japanese market.

Not included in JPMorgan’s survey is Mitsubishi, which is projecting fiscal-2013 earnings and sales of ¥100 billion ($1.0 billion) and ¥2.3 trillion ($23.5 billion), up 48% and 27%, respectively.

Powering sales, according to the auto maker, is the introduction of two new minicars in Japan, the eK Wagon and eK Custom, and the ramp-up of the new Mirage/Space Star and Outlander for sale outside Japan.

By market, Mitsubishi expects Southeast Asia to lead sales again in fiscal 2013 with volumes rising 16% to 331,000 units. The market will be followed by Europe (212,000), Japan (148,000) and North America (100,000).

If Mitsubishi achieves its ¥100 billion earnings target, it would be the second-largest profit in the auto maker’s history.