Yokohama Tires' New Growth Plan Focuses On Expanding Off-Road & Premium Segments

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/7528" target="_blank" data-smartkarma-citation="entities:7528:1">Yokohama Rubber Co Ltd (5101 JP)</a> has seen a surge in its share price in recent weeks on the back of a better than forecasted 1HFY2017. This rally has been further buoyed by the depreciation of the yen as a result of Abe-san's re-election. However, we think the market has now discounted the earnings potential of the company, making the stock price seem overvalued. We use our FY2018E EPS estimate of JPY 242 and a 2-year forward PE of 9.8x  to arrive at a TP of JPY 2,372, which is a downside of about 6-7% from the current market price. This is our medium-term view (3-6 months) for the stock. </p><ul class=""><li class="">We do, however, maintain a bullish view of the company over the long term as it expands capacity in key locations to meet local and international demand. </li><li class="">Acquiring ATG (Alliance Tire Group) has given the company much need inorganic growth in the high-margin commercial tire business. </li><li class="">While Yokohama tires are already a hit with high-end OEMs, the company is striving to onboard additional partners through aggressive marketing and technological advancements. </li></ul>

Yokohama Rubber Co Ltd (5101 JP) has seen a surge in its share price in recent weeks on the back of a better than forecasted 1HFY2017. This rally has been further buoyed by the depreciation of the yen as a result of Abe-san's re-election. However, we think the market has now discounted the earnings potential of the company, making the stock price seem overvalued. We use our FY2018E EPS estimate of JPY 242 and a 2-year forward PE of 9.8x  to arrive at a TP of JPY 2,372, which is a downside of about 6-7% from the current market price. This is our medium-term view (3-6 months) for the stock. We do, however, maintain a bullish view of the company over the long term as it expands capacity in key locations to meet local and international demand. Acquiring ATG (Alliance Tire Group) has given the company much need inorganic growth in the high-margin commercial tire business. While Yokohama tires are already a hit with high-end OEMs, the company is striving to onboard additional partners through aggressive marketing and technological advancements. 

Yokohama Tire To Focus on Onboarding New OEMs and Expanding Market Share in CV Tire Segment