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Fitch Affirms Toyota at 'A'; Outlook Stable
October 15, 2015 / 9:34 AM / 2 years ago

Fitch Affirms Toyota at 'A'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/SEOUL, October 15 (Fitch) Fitch Ratings has affirmed Japan-based Toyota Motor Corporation's (Toyota) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and senior unsecured debt rating at 'A'. The Outlook is Stable. Fitch has also affirmed the company's Short-Term Foreign- and Local-Currency IDRs at 'F1'. KEY RATING DRIVERS Leading Global Automaker: Toyota's ratings reflect its leading global market position, wide product range across the premium and mass-market segments, geographic diversity, economies of scale and leadership in hybrid vehicles. Robust Profitability: Fitch expects Toyota to maintain an EBIT margin (industrial operations) of around 9% in the financial year to March 2016 (FY16) as it benefits from continued cost-efficiency measures and a weak yen. Cost reduction and a favourable FX effect from a depreciating yen to the US dollar boosted operating profit in FY15 and 1QFY16, increasing EBIT margin to 9.3% (FY14: 8.2%) and 10.6% respectively (1QFY14: 10.1%). The company will launch a series of models in the next few years using new and common platforms and components, which should support Toyota's cost-efficiency targets. Toyota will roll out its new Prius hybrid later in 2015 under this project (Toyota New Global Architecture (TGNA)), increasing the proportion of TGNA vehicles to 50% of total new vehicles by 2020. Flat Auto Volume Growth: We expect Toyota's auto's volume growth in FY16 to be flat from FY15 (FY15: -1.6%), with continued robust volume growth in the US offsetting a decline in Japan and Asia, as well as volatility in the emerging markets. However, a weakening global economic outlook - precipitated by a structural slowdown in China and many emerging markets - and recession in Russia and Brazil, could slow volume growth and cause some margin erosion in FY17, particularly if it affects the currently buoyant US market, which is a key profit driver. Continued Benefits of Weak Yen: The weak yen to the US dollar benefits Toyota the most in terms of profitability among the three leading Japanese automakers, as it has the highest proportion of vehicles produced in Japan for export. Nevertheless, volatility in emerging-market currencies is likely to erode some of the positive effects of a weak yen to US dollar on group operating profit in FY16, which we have included in our base case scenario. Moderate Capex: We expect Toyota's capex to remain moderate with capex/revenue from industrial operations close to 5% (FY15: 5%) in FY16-17. We expect no further investments in new overseas production facilities, other than those announced earlier this year in Mexico and China. Strong Financial Profile, Liquidity: Toyota has one of the strongest balance sheets in the industry, which provides a considerable buffer against cyclical industry or exchange-rate fluctuations. We expect the company to maintain FFO gross-adjusted leverage on industrial operations at or below 0.5x (FY15: 0.4x), CFO/adjusted debt close to 200% (FY15: 216%), and a strong net cash position (FY15: JPY2,684bn). KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Sales volume growth in US offsetting decline in Japan and Asia in FY16; - EBIT margin on industrial operations of around 9% in FY16; - Capex/revenue of 5% in FY16 RATING SENSITIVITIES Negative: Future developments that may collectively or individually lead to negative rating actions include: - EBIT margin on industrial operations falling below 4% and FCF margin at below 1% (FY15: 4.1%) on a sustained basis; - Any erosion of Toyota's competitive strengths, such as large scale, breadth of product line-up and leadership in hybrid vehicles. Positive: A near-term upgrade of Toyota's ratings is unlikely as the inherent cyclicality and potential financial pressure of the auto manufacturing industry results in a soft cap on IDRs at the 'A' level. In rare cases, a manufacturer with a very strong business profile and unusually strong credit protection measures could be considered for the 'A+' level. FULL LIST OF RATING ACTIONS Toyota Motor Corporation Long-Term Foreign-Currency IDR affirmed at 'A', Outlook Stable Long-Term Local-Currency IDR affirmed at 'A', Outlook Stable Senior unsecured rating affirmed at 'A' Short-Term Foreign-Currency IDR affirmed at 'F1' Short-Term Local-Currency IDR affirmed at 'F1' Contact: Primary Analyst Isabelle Katsumata Director +65 6796 7226 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Jeong Min Pak Senior Director +82 2 3278 8360 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=992322 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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