Equity Analyst, LightStream Research

Aqila Ali

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

<ul class=""><li><a href="https://www.smartkarma.com/entities/4500" target="_blank" data-smartkarma-citation="entities:4500:1">Toyota Industries Corp (6201 JP)</a> is likely to reach nearly 97% of its revised full-year revenue target of JPY1,950bn in FY03/18E with almost 48% of it being achieved as at the end of 1H FY03/18. This is on the back of the recent consolidation of Bastian and Vanderlande in the Material Handling Equipment Segment and the positive impact of yen depreciation.</li><li>The Material Handling Segment is likely to drive performance in the company supported by the recent acquisitions in the segment (20.5% YoY growth in FY03/18E). The Automobile segment to drive revenue over the medium term with focus on Air Conditioning Compressor (forecast CAGR ~7%) and Engines (forecast CAGR ~8%).</li><li>The 1HFY03/18 operating margin of 8.2% was above the revised full-year estimate of 7.4% due to the positive impact of exchange rate fluctuations (5.7% of OP) and one-time effect of changes in the retirement benefit plan (13.0% of OP). We expect the company to maintain its initial direction, achieving an OPM in the range of 7.3-7.5% due to the increase in raw material cost and labour cost despite the strong performance in 1H.</li><li><p>Share prices have been on a continuous uptrend since September 2017 following the news of the Bastian and Vanderlande acquisition and the announcement of the strong 1H performance. It should be noted that, Toyota Industries, alongside its steady operating business also has a significant portion of financial assets (66% of EV as of 05/01/2018) which is likely to contribute to the overall value of the business. We believe that the company seems relatively undervalued trading at a FY1 PE of the stub of 10.7x, also considering the significant amount of investment in listed holdings (c. 15% 6-year CAGR). The improvement in profitability of the company’s operating business, and the better cash returns on its investments could reduce holding company discount and drive a rerating in the adjusted PE.    </p></li></ul>

Toyota Industries Corp (6201 JP) is likely to reach nearly 97% of its revised full-year revenue target of JPY1,950bn in FY03/18E with almost 48% of it being achieved as at the end of 1H FY03/18. This is on the back of the recent consolidation of Bastian and Vanderlande in the Material Handling Equipment Segment and the positive impact of yen depreciation.The Material Handling Segment is likely to drive performance in the company supported by the recent acquisitions in the segment (20.5% YoY growth in FY03/18E). The Automobile segment to drive revenue over the medium term with focus on Air Conditioning Compressor (forecast CAGR ~7%) and Engines (forecast CAGR ~8%).The 1HFY03/18 operating margin of 8.2% was above the revised full-year estimate of 7.4% due to the positive impact of exchange rate fluctuations (5.7% of OP) and one-time effect of changes in the retirement benefit plan (13.0% of OP). We expect the company to maintain its initial direction, achieving an OPM in the range of 7.3-7.5% due to the increase in raw material cost and labour cost despite the strong performance in 1H.Share prices have been on a continuous uptrend since September 2017 following the news of the Bastian and Vanderlande acquisition and the announcement of the strong 1H performance. It should be noted that, Toyota Industries, alongside its steady operating business also has a significant portion of financial assets (66% of EV as of 05/01/2018) which is likely to contribute to the overall value of the business. We believe that the company seems relatively undervalued trading at a FY1 PE of the stub of 10.7x, also considering the significant amount of investment in listed holdings (c. 15% 6-year CAGR). The improvement in profitability of the company’s operating business, and the better cash returns on its investments could reduce holding company discount and drive a rerating in the adjusted PE.    

TOYOTA INDUSTRIES: Recent Acquisitions Propel FY03/18 Rebound