Company Reports

Honda’s fiscal 2024 third-quarter results gave us no reason to change our fair value estimate, but we slightly increase our fiscal 2024 profit forecast after management raised its operating income guidance by JPY 50 billion to JPY 1.25 trillion and EPS of JPY 195.83, up from JPY 189.64. The guidance increase comes mostly from an extra JPY 53-billion foreign currency benefit relative to prior guidance, with JPY 17.5 billion of that amount from a weaker yen against the U.S. dollar. We see good potential for Honda beating its guidance, given the yen remains at nearly JPY 150 to the dollar, which is weaker than management’s full-year assumption of JPY 142 (had been JPY 140), because U.S. demand for Honda’s vehicles remains very strong. Management is taking this extra JPY 50 billion of operating income to announce a new share repurchase program for March and April of up to JPY 50 billion and 34 million shares. The full-year fiscal 2024 split-adjusted dividend remains on track for JPY 58 per share.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's increased move to light trucks—where Honda's lineup is not as complete as competitors'—may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

We are not changing our Honda fair value estimates after the firm reported second-quarter fiscal 2024 results that saw significant growth in the auto business as it recovers from the chip shortage. The company also raised its fiscal 2024 full-year dividend expectation to a split adjusted JPY 58 per share from JPY 50 and raised fiscal 2024 guidance as the weak yen to the dollar continues to be a large profit contributor for Japanese automakers selling in the U.S. Total company operating profit increased 30.7% year over year while operating margin rose by 70 basis points to 6.1%. EPS grew 39.4% to JPY 51.49 but market expectations may have been too high going into earnings, as EPS still missed the Refinitiv consensus of JPY 53.36, sending the stock down by over 2% during Nov. 9 New York trading.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's increased move to light trucks—where Honda's lineup is not as complete as competitors'—may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

We are placing the fair value estimates for Honda's Tokyo Stock Exchange shares and its New York Stock Exchange American Depository Receipt shares under review due to the company's upcoming 3-1 stock split on the TSE. Honda has previously said the first day of trading with the split will be on Oct. 2, so we expect our TSE fair value estimate to change to JPY 1,700 per share from JPY 5,100 per share absent any additional impact of time value of money or other modeling adjustments. The ADR ratio will change to three TSE shares equal to one ADR from 1:1 currently. We plan to remove the under-review status on Oct. 2 after the NYSE opens that day.

Honda started fiscal 2024 with a strong first quarter aided by chip shortage recovery in the auto segment. We are raising our U.S. dollar fair value estimate by $2 to $36 per share and our yen per share fair value estimate by JPY 100 to JPY 5,100. The increase reflects the time value of money, higher revenue for fiscal 2024 than previously modeled, and modeling a slightly weaker yen against the dollar helping profits over our five-year explicit forecast period. Revenue increased year over year by 16.5% on a constant currency basis and by 20.8% factoring in a weaker yen against the dollar (JPY 137 versus JPY 130) and other major currencies. Motorcycles and autos both posted robust double-digit growth, but a 25.8% constant currency increase in autos led the way. Consolidated auto volume rose 19.7% to 633,000, while total auto volume, including joint ventures, grew 10.6% to 901,000. Motorcycle wholesales saw a pullback in India from scarcity of semiconductors and a recession in Vietnam, but Thailand and the key market of Indonesia performed well, with Indonesia's wholesale volume up 63% on better production.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's increased move to light trucks, where Honda's lineup is not as complete as competitors', may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's increased move to light trucks, where Honda's lineup is not as complete as competitors', may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

We are not changing our Honda fair value estimate following the firm reporting fiscal 2023 full-year and fourth-quarter results. We will revisit all modeling assumptions when we roll our model forward for the 20-F filing, which we expect in late June. Fourth-quarter EPS declined by 8.4% year over year to JPY 66.89 and missed the Refinitiv consensus of JPY 89.33. Operating income fell 47.2% despite revenue up 13.1%, primarily from JPY 66.9 billion of various expense increases, most notably JPY 51.8 billion in warranties. Research costs were up JPY 46.9 billion, nearly entirely offset by a JPY 42.1 billion foreign-exchange benefit that contained JPY 34 billion alone from the yen weakening against the dollar to an average fiscal fourth-quarter rate of JPY 132, versus JPY 116 a year ago. Honda’s full year currency benefit was JPY 295.9 billion, with JPY 233 billion from the yen to dollar. Fiscal fourth-quarter earnings also suffered from a JPY 76.9 billion equity-method income headwind due to impairments and weak Chinese automotive demand. Honda’s fiscal fourth quarter Chinese retail automotive unit sales fell year-over-year by nearly 40% to 220,000.

Honda's fiscal 2023 third quarter had revenue grow 20.3% year over year on strong motorcycle growth and favorable currency translation with the average yen-to-dollar rate for the quarter at JPY 142 versus JPY 114 in the prior year's quarter. Operating income rose by 22.2% with operating margin up 10 basis points to 6.3%, which outperformed Toyota's 30 basis point margin contraction. We think Honda's margin growth versus Toyota's decline is from the latter firm likely being more generous on reimbursing suppliers for high material and commodity costs than Honda. The much-weaker yen versus the dollar enabled the quarter's operating income growth. The JPY 100.5 billion currency tailwind contained an JPY 83 billion contribution from the yen-to-dollar change alone, with the remaining contribution from the yen against various Asian currencies such as from India, Thailand, and Vietnam. We calculate that without the currency benefit, Honda's 22% operating growth would have changed to a 21.6% decline.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors', may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

Honda’s fiscal 2023 second quarter benefited from the Japanese yen being at an over 30-year low against the U.S. dollar, but EPS growing 14.8% year over year to JPY 110.85 still missed Refinitiv consensus of JPY 122.71. The chip shortage also led Honda to reduce its full-year consolidated auto sales forecast by 100,000 units to 4.1 million.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising input costs for Honda and suppliers.

Honda’s first-quarter fiscal 2023 results saw the firm confirm full-year volume targets and also raise guidance mostly from expecting the yen to remain weak against the dollar. We see no reason to change our thesis and are leaving our fair value estimate in place. Operating profit fell 8.6% year over year and margin by 100 basis points to 5.8%. Honda is being hit hard by the chip shortage in calendar 2022. Lost volume and mix contributed to a JPY 89.4 billion negative variance in profit that was mostly offset by a JPY 64.2 billion foreign currency benefit, with JPY 51 billion of that benefit from the yen weakening against the dollar to about 20-year lows. A JPY 22.2 billion unfavorable cost variance from warranty negated the JPY 14.4 billion pricing benefit in the quarter from low inventory.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising steel prices.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising steel prices.

Honda reported fiscal 2022 fourth-quarter results that like the rest of the industry showed headwinds from rising materials cost but EPS of JPY 73.02 still beat the Refinitiv consensus of JPY 59.00. The yen has weakened against the dollar by about 14% since our last model update which creates favorable profit forecasts all else constant, but also causes a significant currency translation headwind for our U.S. dollar fair value estimate because our model is in yen. We are lowering our dollar fair value estimate for the dollar shares by 5.7% to $33 but we are raising our Tokyo exchange share fair value estimate by 7.5% to JPY 4,300.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising steel prices.

Honda’s fiscal 2022 third quarter saw the company’s EPS fall by 31.7% year over year to JPY 112.42. We are not changing our fair value estimate because factoring in an 18.6% increase in full year fiscal 2022 pretax income guidance to JPY 1.02 trillion was not quite enough to merit an increase. Honda appears to be having success in lowering warranty costs and is targeting even lower incentives than its already low levels to drive the guidance increase.

Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising steel prices.