Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

SC Capital has over 20 years' experience covering the global automotive industry both on the Sell Side (UBS & Morgan Stanley) and Buy Side (Och-Ziff), along with a wealth of industry contacts. 

Current focus is on electric vehicle stocks & their supply chains. Aim is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well.  

From time to time. we cover opportunistic events with stocks in the manufacturing sector, food & beverage, healthcare and tech, where we also have coverage experience.

Global Automotive Stocks/EV Focus/Event Driven

Isuzu Motor--FY16 Results & FY17 Guidance Much Weaker Than Expected

Will India Be the Next Big Thing for Isuzu?

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

Equity Bottom-Up

Isuzu is scheduled to announce FY16 results and FY17 guidance on Friday, May 12th. Results might not be better than expected despite strong truck sales in Japan as currency hedging leads to a delayed impact on Isuzu's P&amp;L. On top of this, FY17 guidance may largely disappoint.Japanese automakers have been announcing quite bearish forecasts for FY17, some of them realistic and some highly conservative. Isuzu may fall into the “realistically bearish” camp with its FY17 guidance due to high exposure to Saudi Arabia—where demand for trucks continues to plummet—and higher raw material costs.  The Street has been bullish on Isuzu since it announced solid 3Q results, with year-on-year profit growth (+7.6%) for the first time in 5 quarters. However, we sense a bit of caution at Isuzu mainly because the Street has failed to factor in the negative impact of higher steel costs in FY17 and too many analysts are over-optimistic on Isuzu’s Thai operations, where local demand is recovering nicely, but exports are weak due to horrible demand conditions in the Middle East/Africa region (25% of Isuzu's global vehicle sales). Isuzu and rival truck maker Hino are great plays on the resurgent growth in Asian emerging markets, and much more interesting than their brethren automakers in Japan at this moment. Isuzu is a much more liquid stock and generates higher returns than Hino (see details below), but for FY17, it looks like the fundamentals are much better for Hino, which has less exposure to the Middle East/Africa and more of its profits based in Indonesia, where the recovery is stronger than Isuzu’s main Asian market in Thailand. Steel price hikes are also milder for Hino, as it enjoys the “Toyota Group discount” on bulk steel procurement.Isuzu should realistically make around Y168bn in FY17 OP at current exchange rates, versus consensus estimates of Y184bn (this has gone up from Y181bn just several weeks ago). This would yield an FY17 PER of 13x and an EV/EBITDA multiple of 5.5x, both of which have been the fiscal year-high multiples over the past 4 years. Hino’s PER and EV/EBITDA highs over the past 4 years have been around 15.5x and 7.8x, respectively. Based on Hino’s estimates—adjusted for current forex rates—the FY17 PER is 14.8x and the EV/EBITDA is 6.6x, which is still slightly below the average highs over the past 4 years.

Isuzu is scheduled to announce FY16 results and FY17 guidance on Friday, May 12th. Results might not be better than expected despite strong truck sales in Japan as currency hedging leads to a delayed impact on Isuzu's P&amp;L. On top of this, FY17 guidance may largely disappoint.Japanese automakers have been announcing quite bearish forecasts for FY17, some of them realistic and some highly conservative. Isuzu may fall into the “realistically bearish” camp with its FY17 guidance due to high exposure to Saudi Arabia—where demand for trucks continues to plummet—and higher raw material costs.  The Street has been bullish on Isuzu since it announced solid 3Q results, with year-on-year profit growth (+7.6%) for the first time in 5 quarters. However, we sense a bit of caution at Isuzu mainly because the Street has failed to factor in the negative impact of higher steel costs in FY17 and too many analysts are over-optimistic on Isuzu’s Thai operations, where local demand is recovering nicely, but exports are weak due to horrible demand conditions in the Middle East/Africa region (25% of Isuzu's global vehicle sales). Isuzu and rival truck maker Hino are great plays on the resurgent growth in Asian emerging markets, and much more interesting than their brethren automakers in Japan at this moment. Isuzu is a much more liquid stock and generates higher returns than Hino (see details below), but for FY17, it looks like the fundamentals are much better for Hino, which has less exposure to the Middle East/Africa and more of its profits based in Indonesia, where the recovery is stronger than Isuzu’s main Asian market in Thailand. Steel price hikes are also milder for Hino, as it enjoys the “Toyota Group discount” on bulk steel procurement.Isuzu should realistically make around Y168bn in FY17 OP at current exchange rates, versus consensus estimates of Y184bn (this has gone up from Y181bn just several weeks ago). This would yield an FY17 PER of 13x and an EV/EBITDA multiple of 5.5x, both of which have been the fiscal year-high multiples over the past 4 years. Hino’s PER and EV/EBITDA highs over the past 4 years have been around 15.5x and 7.8x, respectively. Based on Hino’s estimates—adjusted for current forex rates—the FY17 PER is 14.8x and the EV/EBITDA is 6.6x, which is still slightly below the average highs over the past 4 years.

Isuzu—FY17 Guidance May Disappoint as the Street Is Too Bullish

Isuzu Motors

Isuzu—FY17 Guidance May Disappoint as the Street Is Too Bullish