Hot Features
Premium
Register for real-time alerts, custom portfolio, and market movers
FAT PROPHETS: Toyota (NYSE: TM, initial buy $94.45), once again the world’s biggest seller of autos (after Volkswagen hit the skids) and a Global Opportunities constituent yesterday reported its sales for the July to September period increased 8.4% year on year to ¥7.104 trillion.
This helped the company post a bumper record quarterly profit of ¥611.7 billion ($5.02b) for the period, representing a 13.5% increase year on year. The record profit was in large part due to a weaker yen, which continued to be a boon for one of Japan’s biggest exporters.
However, despite the wads of yen that Toyota is generating in profits these days that are some of the biggest in Japanese corporate history, management are still looking to pull in the belt on the expenses side. Cost reduction efforts over the reported three month period added to operating profit to the tune of ¥80 billion.
This reflects the more capital focused management style that Toyota has been employing over the past few years, which is paying dividends in the financial results. This year looks to be on track to be a third year of record profits for Toyota.
With Toyota New Global Architecture (TNGA) to roll out in earnest over the rest of the decade, we anticipate further unit cost savings going forward, despite some necessary upfront expenses – although we note new plant too will be lower than in the past under the manufacturing strategy.
For those unfamiliar with TNGA, it promises to be the biggest revolutionary change to Toyota’s manufacturing since Taiichi Ohno’s creation of the legendary Toyota Production System.
TNGA is a modular manufacturing system that is projected to cut unit costs by around 20% or more. Under TNGA the company is focusing on joint development of powertrains and platforms to create a lower centre of gravity for their cars, make components lighter and more compact, and applying unified design through modularization. By rethinking body structure, Toyota plans increase overall body (chassis) rigidity by as much as 30 to 65 percent.
Automation will play a key role in this of course, and although robots are already a common sight on Japanese factory floors, the level of automation stands to rise significantly in other parts of the world. We view FANUC (JP: 6954, initial buy ¥20,445) as being a best-in-breed robotics player and well placed to continue to ride this wave around the world in the years ahead and recently added it to the Global Opportunities Fund.
Back to yesterday’s news out of Toyota City, the forecast for consolidated unit sales has been trimmed from 8.95 million to 8.75 million for the full year, and the revenue outlook by 1% to ¥27.5 trillion. Toyota management tend to be pretty conservative and this seemingly reflects the softness in emerging markets. The full year profit forecast has been maintained at ¥2.25 trillion, which if hit would be a new record.
Positively for shareholders, Toyota announced a juicy buyback plan yesterday, saying it would repurchase up to ¥150 billion by value of shares between February and March next year. Oh, by the way that is on top of an earlier announced buyback plan of a whopping ¥300 billion, to be undertaken between November and January.
All up, Toyota will buy back as much as almost ¥800 billion this fiscal year (ending March 2016), which equates to around US$6.6 billion. That ain’t chump change folks…
For nearly 15 years, Fat Prophets remains UK’s premier equity research and funds management company. Register today to receive our special report Bargain Hunting, and a no obligation free trial to our popular email service
