Japan/Korea automakers Fighting for the same pie ::Macquarie Research,

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Japan/Korea automakers
Fighting for the same pie
Comparative analysis
The Japanese and Korean automakers are increasingly going head-to-head for
the hearts and minds not only of car buyers but also of global equity investors.
We examine the strengths and weaknesses of the two groups of companies and
conclude that, despite the ultimately zero-sum nature of competition, both have
relatively bright long-term prospects. Our current stock preference is more
towards the Koreans, all of which we rate Outperform. However, we also view
Toyota, which remains the world‘s large auto stock by market cap, as attractive.
Japan vs Korea weigh-in
We look at the global industry dynamics and where the companies are
positioned. One relative source of strength for the Koreans is their higher relative
exposure to faster-growing markets. We also examine cost issues and the
contentious issue of currency, as well as balance sheet strength and valuations
comparisons. We also look at the implications of global macro risks, which lead
us to make further cuts to our Japanese earnings forecasts.
Relatively positive on Koreans, but J3 still in the game
We have a more postive bias towards Korean autos as they are enjoying
earnings due to solid earnings growths outlook from full utilization of global
plants and product mix. They also benefit from the fact that the won tends to fall
in times of financial stress, while the reverse is true for the Japanese. On the
other hand, the Japanese big 3 (J3) remain strongly cash generative and have
well-padded balance sheets to support future growth. Strong execution in the
past is not necessarily a guide to the future, but the Japanese majors are still
relatively well positioned for the long term.
Toyota the key Japanese auto stock
Toyota remains one of our top global names, because margins and returns should
recover at least to Japanese peer levels. A rising yen and poor global demand
dynamics lead us to a further round of sector estimates cuts, and we downgraded
two stocks that have recently performed well but which now face increased fx risks
in key emerging markets: Suzuki and Daihatsu on 7 October. Our only other
Outperform is FHI, which we believe will surprise in its volume recovery.
HMC top Korean pick
 Focus on three different kinds of product mix iprovement.
 Rising platform-integrated model mix: 2012E 84% (up 19ppt YoY).
 ASP will rise from the rising base model sales price of ―follow-up‖ models.
 Volume models sales are rising continually.
 We expect Won8.5tr (up 12% YoY) 2012 net profit which is conservative, in
our view.
 Our F/X assumption is Won1,050/US$. If F/X stays above Won1,150,
addional 12% net profit can be added.