Toyota Motor Corporation (7203.T)

Equity
Japan
Consumer Cyclical

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Undervalued vs peers

Good growth

Decent dividends

Company profileToyota Motor Corporation designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. It operates in Automotive, Financial Services, and All Other segments. The company offers hybrid cars under the Prius name, fuel cell vehicles under the MIRAI name; and conventional engine vehicles, including subcompact and compact cars under the Corolla and Raize names. It also provides mini-vehicles, passenger vehicles, commercial vehicles, and auto parts under the Toyota name; mid-size cars; luxury cars; sports cars under the GR Yaris, Corolla Sport, Corolla Cross, and Supra names; and recreational and sport-utility vehicles under the Highlander name. In addition, the company offers pickup trucks under the Tacoma name; minivans; and trucks and buses. Further, it provides financial services, such as retail financing and leasing, wholesale financing, insurance, and credit cards; and designs, manufactures, and sells prefabricated housing. Additionally, the company operates GAZOO.com, a web portal for automobile information. It operates in Japan, North America, Europe, Asia, Central and South America, Oceania, Africa, and the Middle East. The company was founded in 1933 and is headquartered in Toyota, Japan.

Valuation: Undervalued

Multiple

TTM

NTM

P/E

9.20

8.50

PEG

0.80

P/B

1.30

1.00

P/S

0.90

P/FCF

-50.10

-52.00

EV/EBITDA

8.10

9.50

Based on key historical and expected multiples, the stock is undervalued relative to its peers. In particular, the stock is undepriced on P/E, of fair value on EV/EBITDA, and

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 22ppts over past six months and grown 6ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 3636 and suggests 7% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 4300.0. This translates into 27% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 2300.0. This is equivalent to 32% downside potential in the worst case.

Profitability: Good

RoE

Toyota Motor Corporation reported a return on equity (RoE) of 14.8% in the last 12 months, down from 15.0% in FY23. The market consensus projects an RoE of 25.9% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 5.7% in the last 12 months, a decrease from 5.8% in FY23. The market analysts predict that RoA will be 10.1% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 8.4%, below the peers. The consensus estimate for FY24 for RoCE is 19.5%, however, this time ahead of the peers.

Net margin

EBITDA margin

Historically, 7203.T has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 11.0%, a growth from 10.3% in FY23. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 19.0% in the last 12 months, up from 18.9% in FY23.

RoIC / WACC = 1.7(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.7 in the past several years. This ratio implies a good shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

7203.T reported revenue of JPY 45 095 325mn in the last 12 months, up 3% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 10% from FY23 to JPY 365.89. Market expects EPS to reach JPY 365.94305 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). At the same time, free cash flow has been growing poorly in recent years. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF. On the positive side, revenue dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends twice a year.

Default risk: Moderate

The risk of default is moderate. We note strong positions in its industry and adequate interest coverage, among the positive credit factors. Among the negative credit factors, we point to poor working capital management.

Volatility: Negligible

In normal market circumstances, 7203.T is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, 7203.T is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

7203.T boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is somewhat unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.