Autos
Upgrade to Attractive: Even
Normal Recession Levels Not
Yet Discounted
What's Changed
Industry View: Autos In-Line to Attractive
Honda rating Overweight to Equal-weight
Upgrading industry view to Attractive: Anticipating
global auto demand in F3/10-3/11 to recover to normal
recession levels, we raise our view to Attractive. Our
target valuation is 6.0x EV/EBITDA on F3/11 forecasts,
referencing multiples in past earnings recovery. We are
much higher on F3/10 consolidated OP (¥102.9 bn) than
IFIS consensus (¥342.8 bn loss). Industry stocks price in
only for a return to breakeven earnings levels in F3/10.
Recovery in North America and growth in emerging
markets will allow auto market to bottom in 2009
and then pick up: We project the largest cumulative
growth in 2009-2011 for the North American market
(3.85mn units), as the sales rate ‘recovers’ to reflect a
standard recession rather than a doomsday scenario.
We expect growth to continue also in the BRIC markets
(810,000), especially China/India, and Asia (370,000).
Stagnation in Western Europe and Japan is a risk factor.
Investment basis is 'Long' firms tied to N. America
and China, 'Short' those to Europe and Japan: We
are OW on Toyota, Nissan and FHI in the passenger car
area, and on Isuzu in trucks. Honda also fits our regional
thesis, and we have raised our PT for the stock, but
downgraded to EW given the narrower upside. We are
UW on three stocks: Suzuki, Yamaha, and Mitsubishi.
PT changes: Revisions to our F3/10-3/11 forecasts
bring changes for PTs. We think the industry overall may
see stocks rise, but highlight the upside potential for four
especially: Nissan (PT from ¥640 to ¥920), Isuzu (¥185
to ¥240), Toyota (¥4,200 to ¥5,150), FHI (¥440 to ¥500).