Toyota April-June 2012 Q1 results: it’s the rate of change innit?

by SR on August 6, 2012

Toyota quarterly sales and operating profit (billion yen) up to April-June 2012

Conclusion: stick with the winners

A colleague queried the lack of a comment from me on Toyota’s “stellar” results for Q1 FY3/13, which came out on Friday 3 August. A couple of dozen analysts have already given their opinion so here’s my mercifully brief take: Toyota’s Q1 results were good. Yes, Q1 operating profit was a bit ahead of most people’s expectations and yes, the operating profit margin did recover to 6.4%, which is easily the best since the beginning of the global financial crisis (see below). But surely investors can’t have felt either surprise or (much) delight at these figures which, in absolute terms, weren’t all that special? After all, operating profit in April-June 2012 was only 52% of the peak quarterly OP recorded in the same quarter of 2008. “Ah but”, said my colleague with an air of mature wisdom, “it’s the rate of change innit?”.

Toyota's quarterly operating profit margin (%) to April-June 2012

For my part, while I agree (see here for example) that Toyota is getting its mojo back at last after two terrible years, it’s hard not to look at group firms like Denso or Daihatsu and see how much better these companies are doing than Toyota. The conventional wisdom is “buy the rumour and sell the fact”, so in theory one should be off-loading the shares of these two companies based on the concrete fact of Denso and Daihatsu’s excellent Q1 performances. In these very nervous markets, with investors unwilling/unable to look very far ahead, I’m not so sure it makes sense to dump the best performers in fundamental terms and rotate into the fundamental laggards as it would in a more traditional market rally.

However, maybe my esteemed colleague is onto something, because despite its far better fundamental performance Daihatsu’s stock has lagged dramatically that of Toyota (and Denso) so far this year, as shown in the graphic below (click on the chart for a larger image). My interpretation is that the market is understandably worried about Daihatsu’s Indonesian exposure – but that’s a story I’ll return to another day.

Toyota and other stocks, share price performance year-to-date (%)

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