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Global Auto Horizons
August 2011
This month, we have cut our European and Japanese earnings estimates to
reflect lower top-down assumptions, and we lower our ratings on Daimler and
Honda, from Outperform to Neutral in both cases. Given heightened macro risks,
we are not bullish on global autos as a group. However, we find value in a
number of names that have recently fallen in price, as long as our base-case
scenario holds that the US downturn doesn’t evolve into a deep and prolonged
recession and emerging markets remain robust.
Unfolding debt crisis in Europe and recession risks in US
Due to rising macro uncertainty and the unfolding of the debt crisis in Europe
and the US, we cut our developed-world volume forecasts. For 2011, we cut our
forecasts for Western Europe and US by 3% apiece. In Japan, we raise our
assumption by 12% due to a faster-than-expected recovery from the earthquakerelated
production disruption. For 2012, we reduce our volume expectations for
Western Europe, USA and Japan by 6%, 4% and 5%, respectively.
We also took a more cautious stance on commercial vehicles in Western Europe
and the US. Our 2011 estimates are unchanged, but we lower our forecasts by
8% and 13% for 2012, respectively, and by 19% and 16% for 2013, respectively.
Among emerging markets, we cut our 2011 and 2012 Brazilian assumptions by
2% and 4%, respectively. But we leave our assumptions unchanged for other
markets, having reduced our Indian and Chinese forecasts a month ago.
Earnings estimates coming down in Europe and Japan
More cautious volume and pricing assumptions as well as less favourable FX
assumptions (especially the strong yen) had a negative impact on the earnings
estimates for our European and Japanese coverage. On average, we reduce our
EBIT estimates for the European auto sector by 10% for 2012 and by 14% for
2013, while the expected operating profitability for the Japanese OEMs and
suppliers came down by 9% for FY3/12 and by 18% for FY3/13.
This month’s highlighted stocks
Stocks we like: BMW is attractive due to its strong product pipeline and cost
savings momentum until 2013. We believe consensus is underestimating an
operating leverage-driven margin recovery at Toyota, while Aisin Seiki is
expected to benefit from a significant recovery in Toyota’s global production this
quarter as supplier production leads final sales by 6-8 weeks. Hyundai Mobis
has strong defensive characteristics due to its after-parts business. Mahindra &
Mahindra has a robust product pipeline and exposure to rural Indian markets
where demand remains resilient. Great Wall remains the local-brand leader in
China’s booming SUV market, leading to estimated 2011 volume growth of 37%.
Stocks we don’t like: Fiat faces weakness in core markets Italy and Brazil, and
we expect a rising Fiat-Chrysler conglomerate discount as macro uncertainty
increases. Risks on Mazda have risen, as we forecast a slide back into losses
and balance-sheet strain. We’re reviewing our estimates and target price on
BYD following disappointing 1H numbers that confirm our negative view. Maruti
Suzuki EBITDA margins remain pressured by rising interest rates, fuel prices
and competition squeezing volumes while materials and R&D costs rise.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Auto Horizons
August 2011
This month, we have cut our European and Japanese earnings estimates to
reflect lower top-down assumptions, and we lower our ratings on Daimler and
Honda, from Outperform to Neutral in both cases. Given heightened macro risks,
we are not bullish on global autos as a group. However, we find value in a
number of names that have recently fallen in price, as long as our base-case
scenario holds that the US downturn doesn’t evolve into a deep and prolonged
recession and emerging markets remain robust.
Unfolding debt crisis in Europe and recession risks in US
Due to rising macro uncertainty and the unfolding of the debt crisis in Europe
and the US, we cut our developed-world volume forecasts. For 2011, we cut our
forecasts for Western Europe and US by 3% apiece. In Japan, we raise our
assumption by 12% due to a faster-than-expected recovery from the earthquakerelated
production disruption. For 2012, we reduce our volume expectations for
Western Europe, USA and Japan by 6%, 4% and 5%, respectively.
We also took a more cautious stance on commercial vehicles in Western Europe
and the US. Our 2011 estimates are unchanged, but we lower our forecasts by
8% and 13% for 2012, respectively, and by 19% and 16% for 2013, respectively.
Among emerging markets, we cut our 2011 and 2012 Brazilian assumptions by
2% and 4%, respectively. But we leave our assumptions unchanged for other
markets, having reduced our Indian and Chinese forecasts a month ago.
Earnings estimates coming down in Europe and Japan
More cautious volume and pricing assumptions as well as less favourable FX
assumptions (especially the strong yen) had a negative impact on the earnings
estimates for our European and Japanese coverage. On average, we reduce our
EBIT estimates for the European auto sector by 10% for 2012 and by 14% for
2013, while the expected operating profitability for the Japanese OEMs and
suppliers came down by 9% for FY3/12 and by 18% for FY3/13.
This month’s highlighted stocks
Stocks we like: BMW is attractive due to its strong product pipeline and cost
savings momentum until 2013. We believe consensus is underestimating an
operating leverage-driven margin recovery at Toyota, while Aisin Seiki is
expected to benefit from a significant recovery in Toyota’s global production this
quarter as supplier production leads final sales by 6-8 weeks. Hyundai Mobis
has strong defensive characteristics due to its after-parts business. Mahindra &
Mahindra has a robust product pipeline and exposure to rural Indian markets
where demand remains resilient. Great Wall remains the local-brand leader in
China’s booming SUV market, leading to estimated 2011 volume growth of 37%.
Stocks we don’t like: Fiat faces weakness in core markets Italy and Brazil, and
we expect a rising Fiat-Chrysler conglomerate discount as macro uncertainty
increases. Risks on Mazda have risen, as we forecast a slide back into losses
and balance-sheet strain. We’re reviewing our estimates and target price on
BYD following disappointing 1H numbers that confirm our negative view. Maruti
Suzuki EBITDA margins remain pressured by rising interest rates, fuel prices
and competition squeezing volumes while materials and R&D costs rise.
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