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MITSUBISHI MOTORS CORPORATION

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Asia a bright spot for Japan carmakers facing sluggish U.S. sales, trade concerns

04/26/2018 | 12:03am EDT
FILE PHOTO: The 2019 Subaru Forester is unveiled at the New York Auto Show in New York

TOKYO (Reuters) - Japanese automakers that rely heavily on exports to sell their models in the United States would be hardest hit by trade restrictions the country is threatening to impose, as rivals with more limited exposure focus on growing, niche markets.

Many Japanese automakers count the United States as their biggest market, so would be impacted to a degree by any trade constraints put in place as a result of U.S. President Donald Trump's hard line on the issue.

Ahead of a flurry of Japanese automaker full-year results reports, analysts said Mazda Motor Corp is most exposed to any trade restrictions in the world's biggest car market after China, and their knock-on effects.

Mazda's operating profit could be cut by 8.5 percent in the year to March 2019 as it faces risks from a stronger yen if the trade uncertainties weaken the U.S. dollar, while any trade restrictions would raise the cost of imported cars from Japan, they said. Higher research and development costs and other capital spending could also weigh.

One of Japan's smaller brands, Mazda counts North America as a top market but does not produce any vehicles in the United States, making it vulnerable to currency swings and changes in trade rules.

Japan's "Big 3" carmakers - Toyota Motor Corp, Nissan Motor Co and Honda Motor Co - face risks if an updated North American Free Trade Agreement (NAFTA) raises tariffs on vehicles and parts made in Mexico, where all three operate plants, and Canada, where Toyota and Honda build vehicles.

But their relatively higher U.S. production levels than their smaller rivals and more diverse regional manufacturing and sales footprint could help to cushion any impact.

Analysts polled by Thomson Reuters I/B/E/S expect Toyota to see a 2.6 percent slide in operating profit in the year to March 2019, a smaller decline than the one expected in Mazda results.

Nissan and Honda, among the Japanese automakers with the most production in North America, could see profit rises of 9 percent and nearly 6 percent, respectively, they forecast.

Trump, who withdrew the United States from multi-lateral TPP trade talks, wants to negotiate a bilateral trade deal with Japan. He is also pushing for new terms for the NAFTA and has been considering tougher environmental rules for imported cars to protect U.S. automakers.

Japanese automakers are already struggling with sluggish sales in North America due to falling demand for sedans, a mainstay of their offering, and deeper discounts to shore up sales are hitting margins.

"(W)e see risks to the sustainability of export operations at Mazda Motor and Mitsubishi Motors, which are highly exposed to exports and have no production bases in the U.S. at present," Nomura analyst Masataka Kunugimoto said in a research note earlier this month.

While analysts expect Mazda to post a median fall in operating profit of 8.5 percent in the financial year underway, some forecasts are for a much steeper decline. A fall would reverse a 20 percent rise forecast for the year ended March 2018 as a weaker yen boosted its earnings.

Mazda sold roughly 1.6 million vehicles globally in the year to March 2017, nearly 20 percent of them - all imported - in the United States.

Both Mazda and bigger rival Toyota see roughly 30 percent of their global sales from the United States, Canada and Mexico, but around 70 percent of the nearly 3 million cars Toyota currently sells in North America are produced locally in North America.

Mazda, which operates a factory in Mexico, announced earlier this year that it and Toyota would jointly build a manufacturing plant in Alabama, although vehicle production will not begin until 2021.

Mitsubishi Motors Corp's plans to grow U.S. sales from low levels in the coming years but tighter trade rules could stymie those plans.

"I'd be surprised if we have a lot of companies forecasting significant growth," CLSA analyst Chris Richter said.

NICHE ASIA MARKETS

As U.S. sales growth stagnates, Japanese automakers are focussing more on Asia. Mazda has been growing sales in China, which is set to overtake the United States as its biggest market in the year just ended.

Nissan earlier this month launched its new Terra model, a crossover SUV designed specifically for the Asian market, while at the Beijing Motor Show this week, both Nissan and Honda showed new battery-electric models for the Chinese market which will go on sale later this year.

Nomura's Kunugimoto and other analysts see brighter earnings prospects for Suzuki Motor Corp given Japan's No. 4 automaker counts on India for roughly half its total global vehicle sales and production. Suzuki does not market cars in the U.S. market.

Suzuki is set to outperform most of Japan's major automakers, with a median consensus for a 6 percent rise in operating profit in the year to March 2019, following an expected 33 percent jump in the year just ended.

Mitsubishi Motors is also benefitting from a long-standing focus on Asian. This week, it launched exports of its Xpander multi-purpose vehicle across Southeast Asia following strong demand for the Asian model, which debuted in Indonesia last year.

Asia accounts for roughly a third of Mitsubishi Motor's global vehicle sales and the automaker has been increasing production capabilities in Indonesia.

(Reporting by Naomi Tajitsu; editing by Neil Fullick)

By Naomi Tajitsu


© Reuters 2018
Stocks mentioned in the article
ChangeLast1st jan.
HONDA MOTOR CO., LTD. 0.51% 3144 Delayed Quote.-2.66%
MAZDA MOTOR CORPORATION 0.36% 1105 Delayed Quote.24.86%
MITSUBISHI MOTORS CORPORATION 3.17% 390 Delayed Quote.21.50%
NISSAN MOTOR CO LTD 0.53% 490.2 Delayed Quote.-11.80%
SUZUKI CO.,LTD. 0.37% 809 Delayed Quote.-8.48%
SUZUKI MOTOR CORPORATION 1.28% 3718 Delayed Quote.-16.05%
TOYOTA MOTOR CORPORATION 0.10% 2084 Delayed Quote.-1.02%
US DOLLAR / JAPANESE YEN (USD/JPY) -0.01% 127.085 Delayed Quote.10.46%
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Financials
Sales 2022 2 021 B 15 900 M 15 900 M
Net income 2022 67 494 M 531 M 531 M
Net Debt 2022 1 556 M 12,2 M 12,2 M
P/E ratio 2022 9,04x
Yield 2022 -
Capitalization 580 B 4 566 M 4 566 M
EV / Sales 2022 0,29x
EV / Sales 2023 0,23x
Nbr of Employees 30 091
Free-Float 44,3%
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Mean consensus HOLD
Number of Analysts 13
Last Close Price 390,00 JPY
Average target price 368,46 JPY
Spread / Average Target -5,52%
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Managers and Directors
Takao Kato President, Chief Executive Officer & Director
Koji Ikeya CFO, Executive VP, Head-Finance & Accounting
Tomofumi Hiraku Chairman
Masao Kuruma Chief Information Officer & Executive Officer
Yosuke Wakabayashi GM-Administration & Head-Domestic Sales
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