Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/15064" target="_blank" data-smartkarma-citation="entities:15064:1">Toyo Tire &amp; Rubber Co Ltd (5105 JP)</a> saw its revenue growth decline in FY2016 as it tried to navigate through the scandals that plagued its construction materials department. The extraordinary loss of JPY 111b that it booked resulted in a net loss for the year and saw its stock price fall by over 50%. But with the worst of it behind, the company decided to unload its non-automotive business to focus on its flagship tire business. This news along with the strong growth strategies put forth by the company for the next four years saw its stock price rally about 75% in the last seven months. </p><ul><li>Toyo Tires plans to expand its plants in Malaysia and the USA to add 7.2m tires to its total capacity. This comes at a time when the company's SUV tires are gaining traction in the USA among OEM partners like Ford, Toyota and Audi. </li><li>While we think raw material prices are likely to stabilise over the next six months, any increase in the same is unlikely to affect the company as it operates primarily in the high-end product segment of utility vehicle tires.</li><li>The depreciation of the JPY against the USD is likely to boost revenue and margins as the company strives to make the USA segment account for a larger share of its revenue. </li></ul><p>Using our FY2018E EPS of JPY 270 and a 2-year forward PE of 9x we arrive at a TP of JPY 2,430. While the current market price is about 7% above our TP, it was lower than our estimate in September when elections were called, resulting in a rally in the broader market. In the short-term, we think a correction is likely to bring the price to our estimated TP or even lower, making the stock seem fairly valued or even undervalued. We also feel inclined to add that our earnings estimate could edge higher in the coming weeks as the weak JPY is likely to prop up revenues and margins above our forecast. Any such revision would cement our view of the stock being undervalued. </p>

Toyo Tire &amp; Rubber Co Ltd (5105 JP) saw its revenue growth decline in FY2016 as it tried to navigate through the scandals that plagued its construction materials department. The extraordinary loss of JPY 111b that it booked resulted in a net loss for the year and saw its stock price fall by over 50%. But with the worst of it behind, the company decided to unload its non-automotive business to focus on its flagship tire business. This news along with the strong growth strategies put forth by the company for the next four years saw its stock price rally about 75% in the last seven months. Toyo Tires plans to expand its plants in Malaysia and the USA to add 7.2m tires to its total capacity. This comes at a time when the company's SUV tires are gaining traction in the USA among OEM partners like Ford, Toyota and Audi. While we think raw material prices are likely to stabilise over the next six months, any increase in the same is unlikely to affect the company as it operates primarily in the high-end product segment of utility vehicle tires.The depreciation of the JPY against the USD is likely to boost revenue and margins as the company strives to make the USA segment account for a larger share of its revenue. Using our FY2018E EPS of JPY 270 and a 2-year forward PE of 9x we arrive at a TP of JPY 2,430. While the current market price is about 7% above our TP, it was lower than our estimate in September when elections were called, resulting in a rally in the broader market. In the short-term, we think a correction is likely to bring the price to our estimated TP or even lower, making the stock seem fairly valued or even undervalued. We also feel inclined to add that our earnings estimate could edge higher in the coming weeks as the weak JPY is likely to prop up revenues and margins above our forecast. Any such revision would cement our view of the stock being undervalued. 

Comeback Kid Toyo Tires Lays Groundwork To Make Up for Lost Time and Growth

Toyo Tire Corporation

Comeback Kid Toyo Tires Lays Groundwork To Make Up for Lost Time and Growth