Japan auto parts: Autos still looking better than industrials

by SR on October 31, 2012

Japan auto parts operating profit for 1H FY3/13 relative to most recent guidance

Second half unlikely to be as bad as guidance suggests

Conclusion: As we have been predicting for some time, the “machinery-related” auto parts companies (Toyota Industries, JTEKT, NSK) fared badly in the first half while “pure” auto parts suppliers (Denso, Aisin, Boshoku) performed well. First-half results for the pure auto parts suppliers were good, but both groups cut full-year forecasts on the assumption (pessimistic in some cases) that the second half of the year will be significantly weaker than the first half. These downward revisions to guidance should in most cases already be discounted, as suggested by solid increases in the share price of Denso and Aisin Seiki today after the results were announced.

Today (2012-10-31) five of the major Toyota group auto parts suppliers announced their results for the first half of the financial year ending 31 March 2013. They were: automotive air conditioning and electronics specialist Denso, transmission supplier Aisin Seiki, forklift and automotive compressor manufacturer Toyota Industries, seating and interior expert Toyota Boshoku and steering and auto bearing company JTEKT. Yesterday bearing and steering supplier NSK reported its results, although this is not a Toyota group company and thus is less tightly geared to auto parts in general and to Toyota in particular. We provide a summary of the main figures for each company after the bullet points below.

  • What we liked: strong first half results for auto parts. The three “pure” auto parts companies all beat their most recent guidance at the operating profit level, despite Denso and Toyota Boshoku falling slightly short in sales. Aisin exceeded its revenue guidance, albeit not by much. Even after revisions to guidance, Denso is predicting a 40% year-on-year increase in operating profit for FY3/13 and the revised guidance, while lower than the previous guidance issued in July 2012, is above the initial guidance from April 2012. Aisin Seiki is aiming at +14.9%, which is decent and will probably be exceeded, but this stock tends to outperform when China is doing well so I would avoid for now. Denso remains our top pick.

Denso revision to guidance for FY3/13

  • What we didn’t like: lack of consensus on second half. Denso is forecasting that sales will drop 3.2% in the final 6 months compared to the first half. Aisin Seiki is predicting a 6.5% decline; Toyota Industries an increase of 9.7% (seasonally typical, but a stretch I feel); Boshoku guidance is for a 16.8% decline (at first glance, pessimistic) and JTEKT is suggesting a fall of 0.5% (optimistic). Lots of confusion there. It’s certainly possible to have some variation due to company-specific factors but in my experience it shouldn’t be as large as this guidance implies.

  • What surprised us: significant deterioration at Toyota Boshoku. One that I did not expect was Toyota Boshoku’s weak performance in the Americas region, where it notched up an operating loss of 865 million yen in Q2 compared to a loss of 76 million yen in Q1. Granted, it’s not a huge figure but on sales of 40.65 billion yen in the region it should be breaking even, based on similar levels of quarterly sales in recent history. So something has changed there for the worse, perhaps costs related to new product ramps. In the same vein, Toyota Boshoku lost 1,542 million yen in Europe in Q2 on revenues of 14.3 billion yen, which is again a level of sales at which they have broken even in the past. That’s disturbing and suggests problems with the Toyota Yaris and the Corolla, which drive Toyota Boshoku’s sales in greater Europe. Maybe that explains why Boshoku is forecasting such a crunching decline in operating profit in the second half of FY3/13.

Denso – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

Aisin Seiki – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

Toyota Industries – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

Toyota Boshoku – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

JTEKT – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

NSK – summary figures

Sales and operating profit by quarter

Quarterly operating profit margin (%)

Quarterly operating profit margin (%)

Annual sales and operating profit (billion yen)

Annual operating profit margin (%)

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