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

Nissan Motor--Bullish FY17 Forecasts & Zero Buffers

Nissan Motor's Q1 Results Below Consensus on Bad Mix in Europe & US

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

Bottom-up Japan Equities Research

Equity Bottom-Up

On May 11th, Nissan should announce FY16 results and FY17 profit outlook that are both roughly 10% below consensus, if not lower. FY16 operating profit (OP) at Nissan should be around Y685bn (consensus is at Y721bn) and FY17 OP should be down -7% YoY to Y637bn (consensus is at Y772bn).Bullish FY17 outlook by Nissan would most likely be greeted with a sell-off in the stock, as rivals are being quite conservative with FY17 guidance so far and Nissan has one of the riskiest product portfolios at the moment, with 60% of its global vehicle sales coming from the exhausted US and Chinese auto markets. Worse than expected guidance may lead to a relief rally, which would most likely be short-lived given the risk profile of Nissan currently in the global auto market. Much of Japan's auto sector depends on currency, but relatively speaking, Nissan should underperform most rivals this year.The outlook in China (25% of Nissan’s net profit) is “probably ok for now” at best, depending on what the Chinese government does with car taxes this year (word is that they may hike it again). Another tax hike would be positive for Nissan’s sales in China, but this would amount to simply pulling future demand forward again, just like last year when car taxes scheduled to go from 5% to 7.5% by December-end caused a car-buying spree. Roughly flat car sales in China during 1Q of 2017 does not inspire confidence in Nissan being able to grow profits by that much more again this year.In the US, Nissan has the lowest new-model momentum in FY17, while paying the highest incentives (over $4,000/vehicle on average at the moment) among the major Japanese automakers in the US. Its Altima sedan model (nearly 20% of US sales volume) will come under a relentless attack by rival new models from Toyota and Honda over the next several months and, with residual value losses rising from lower used car prices in the US, Nissan faces serious headwinds in its most profitable market this year.Nissan also owns 34% of Mitsubishi Motors (MMC), which should lead to significant cost synergies four years from now, when platform sharing between the two commences. Until then, however, MMC poses a potential risk in the event that its sales in Asia and Europe--two key markets for MMC--stall. MMC does not have any major new model launches that will affect FY17 earnings. This too is a bit unsettling considering increasing competition globally.Valuations are cheap for Nissan, with its FY17 automotive EV/EBITDA of 2.5x and PER of 9.0x versus the Japanese rival average of 3.9x and 9.2x, respectively. In this sense, a bad year for Nissan in FY17 may already be factored in. However, with the US market gradually deteriorating over the past several months and car financing operations having yet to see the worst of spiraling used car prices, valuations could spike if further downside risk materializes. For long-term investors waiting to buy Nissan shares when things are at their worst, it may pay to wait and see what results are like at Nissan in 3Q (to be announced in February 2018), when the full negative impact from Toyota and Honda's new rival sedan models have emerged in Nissan's earnings.

On May 11th, Nissan should announce FY16 results and FY17 profit outlook that are both roughly 10% below consensus, if not lower. FY16 operating profit (OP) at Nissan should be around Y685bn (consensus is at Y721bn) and FY17 OP should be down -7% YoY to Y637bn (consensus is at Y772bn).Bullish FY17 outlook by Nissan would most likely be greeted with a sell-off in the stock, as rivals are being quite conservative with FY17 guidance so far and Nissan has one of the riskiest product portfolios at the moment, with 60% of its global vehicle sales coming from the exhausted US and Chinese auto markets. Worse than expected guidance may lead to a relief rally, which would most likely be short-lived given the risk profile of Nissan currently in the global auto market. Much of Japan's auto sector depends on currency, but relatively speaking, Nissan should underperform most rivals this year.The outlook in China (25% of Nissan’s net profit) is “probably ok for now” at best, depending on what the Chinese government does with car taxes this year (word is that they may hike it again). Another tax hike would be positive for Nissan’s sales in China, but this would amount to simply pulling future demand forward again, just like last year when car taxes scheduled to go from 5% to 7.5% by December-end caused a car-buying spree. Roughly flat car sales in China during 1Q of 2017 does not inspire confidence in Nissan being able to grow profits by that much more again this year.In the US, Nissan has the lowest new-model momentum in FY17, while paying the highest incentives (over $4,000/vehicle on average at the moment) among the major Japanese automakers in the US. Its Altima sedan model (nearly 20% of US sales volume) will come under a relentless attack by rival new models from Toyota and Honda over the next several months and, with residual value losses rising from lower used car prices in the US, Nissan faces serious headwinds in its most profitable market this year.Nissan also owns 34% of Mitsubishi Motors (MMC), which should lead to significant cost synergies four years from now, when platform sharing between the two commences. Until then, however, MMC poses a potential risk in the event that its sales in Asia and Europe--two key markets for MMC--stall. MMC does not have any major new model launches that will affect FY17 earnings. This too is a bit unsettling considering increasing competition globally.Valuations are cheap for Nissan, with its FY17 automotive EV/EBITDA of 2.5x and PER of 9.0x versus the Japanese rival average of 3.9x and 9.2x, respectively. In this sense, a bad year for Nissan in FY17 may already be factored in. However, with the US market gradually deteriorating over the past several months and car financing operations having yet to see the worst of spiraling used car prices, valuations could spike if further downside risk materializes. For long-term investors waiting to buy Nissan shares when things are at their worst, it may pay to wait and see what results are like at Nissan in 3Q (to be announced in February 2018), when the full negative impact from Toyota and Honda's new rival sedan models have emerged in Nissan's earnings.

Nissan Motor's FY17 Outlook--The Year of Living Dangerously