August 27, 2013 / 8:48 AM / 4 years ago

RPT-Fitch affirms Toyota Motor at 'A'; outlook stable

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Aug 27 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Japan-based Toyota Motor Corporation’s (Toyota) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) and senior unsecured rating at ‘A’ and its Short-Term Foreign and Local Currency IDRs at ‘F1’ respectively. The Outlook is Stable.

Toyota’s ratings are supported by its economies of scale, wide product range, resources to invest in various areas, as well as leadership in hybrid vehicles. Toyota also has a strong balance sheet, which provides considerable buffer against cyclical or FX fluctuations.

Key Rating Drivers

Strong earnings growth: Robust sales and a weakening yen boosted the company’s operations in the financial year to March 2013. The company posted 19% growth in its industrial revenue and its EBIT surged to JPY1trn in FY13 from JPY61bn in FY12, recording a margin of 4.8%. For Q1FY14, the company’s operations improved further as the yen averaged 99 against the US dollar compared with 92 in Q4FY13 and 83 for FY13. As a result, the company posted industrial EBIT of JPY612bn for the quarter, more than double from the previous year, which is the highest level since the global financial crisis.

Weak yen, operational improvement: Fitch expects the weak yen to continue to boost Toyota’s profitability given that it exports more than 50% of its Japanese production. FX accounted for JPY260bn of the yoy JPY310bn consolidated EBIT improvement in Q1FY14. Excluding FX impact Toyota also improved profits through cost-cutting efforts. This is in contrast to its main Japanese competitors, which were affected by higher costs due to increased investments.

Industry environment benign: Globally, Fitch expects auto sales and production to rise in the low- to mid-single digit range for the rest of 2013, propelled by ongoing demand strength in the U.S. and, to a lesser extent, in emerging markets. Sales in the year to July sales in the US, a key market for Toyota, were up 8% yoy and Fitch expects light vehicle sales to reach 15.5 million units in 2013, a 7% increase from 2012. Growth in the larger emerging markets, such as China, India, and Brazil, is expected to be modestly positive. In China YTD sales for Japanese automakers, including Toyota, remain below pre Sino-Japanese tension levels but are showing improvement.

Rating Sensitivities

Negative: Future developments that may, individually or collectively, lead to negative rating action include-

-Ongoing weak profitability due to steeper-than-expected deterioration in industry fundamentals

-Negative free cash flow for more than two years

-Erosion in Toyota’s competitive strengths such as in its scale, breadth of product line-up, and hybrid vehicles

Positive: Future developments that may, individually or collectively, lead to positive rating action include-

-Positive rating actions are unlikely in the short- to medium-term given the company’s vulnerability to FX movements and the cyclicality of the automobile industry

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