Toyota nears record profit

Tokyo - Toyota Motor is closing in on a record income set before the Lehman Brothers crisis after topping up its annual net profit forecast by nearly $2 billion (R20.4bn) and outperforming Japanese rivals as its expansion plans bear fruit.

The top-selling car manufacturer is racking up strong sales in a healthy US market while keeping costs in check and taking a breather from building new facilities, in contrast to Nissan Motor and Honda Motor, which are grappling with heavy expansion costs.

Toyota, one of Japan’s most export-reliant car manufacturers, is also reaping the benefits of a weakening yen that has boosted its profit margins but acknowledged it will have to start spending more to maintain its advantage.

“Our basic stance of controlling fixed costs and improving gross profit will not change, but we do need aggressive investment in order to brush up on future technology,” managing officer Takuo Sasaki said yesterday.

Toyota credited its conservative strategy as a key factor when it raised its net profit forecast by ¥190bn (R20bn) to ¥1.67 trillion for the year to March 2014, just short of its record ¥1.72 trillion from six years ago.

A survey of 23 analysts forecast ¥1.79 trillion on average. Toyota’s annual operating profit rises by ¥40bn for every ¥1 rise in the value of the dollar.

Toyota, which went through a rapid expansion before booking huge losses in the year to March 2009, now appears to be in the sweet spot of industry and currency market trends, and is reaping the rewards of the company’s own investments in production.

But some analysts warned against complacency.

“There are clearly risks of Toyota starting to lag in growth pace to its peers,” said Takaki Nakanishi, a motor industry analyst and chief executive of Nakanishi Research Institute in Tokyo. “If the decisions [on future expansion] are too slow, that may cause slower growth and that could make Toyota’s earnings grow slower than its competitors.”

Market participants also worried that it might be too stingy with its cash.

“Toyota is representative of Japanese companies and even though it is generating so much profit its dividend yield of 2 percent is not enough,” said Shun Maruyama, the chief Japan equity strategist at BNP Paribas Securities.

For the quarter to September, Toyota said net profit rose 70 percent to ¥438.4bn, in line with the average estimate of ¥441bn in a survey of six analysts and outpacing growth at Nissan and Honda.

Last week, Nissan posted a meagre 2 percent quarterly net profit growth while Honda booked a 46 percent rise.

Nissan is aiming to raise its share of the global vehicle market to 8 percent from last year’s 6.2 percent and has been scrambling to build capacity worldwide. It is constructing eight new plants and expanding a factory in Russia.

Nissan plans capital expenditure equal to about 5 percent of revenue this financial year, compared with Toyota’s 4 percent. Yesterday, Toyota slightly raised its annual capital expenditure outlook by 2 percent to ¥940bn.

Nissan’s quick but messy expansion has left it underperforming Toyota in the US after running into product launch troubles and quality issues.

In the three months to September, Toyota’s US sales grew 12.2 percent year on year compared with Nissan’s 9.6 percent rise. Industry-wide sales grew about 9 percent year on year.

Toyota nudged up its North America sales forecast to 2.63 million vehicles from 2.61 million, helping to offset a drop in its Asia sales forecast to 1.64 million from 1.7 million.

Its shares are up nearly 60 percent this year, outpacing a 9 percent rise for Nissan, which was hit hard this week after cutting its full-year profit forecast on Friday, and Honda’s 25 percent rise. – Reuters