A 10% rise in Honda Motors‘ (NYSE:HMC) unit sales was sufficient to double the automaker’s net income to 160 billion yen ($1.6 billion), as a weak yen lifted Honda’s profits. Total revenues for the quarter jumped 25% to 3,020 billion yen ($30 billion) while operating income swelled 73% to 228 billion yen ($2.3 billion). 
However, weak sales in Thailand caused the automaker to lower its full-year unit sales guidance. The political turmoil in Thailand is affecting the overall automotive market. As a result, Honda now expects to sell 4.385 million vehicles during fiscal 2014, about 1% lower than it its previous guidance. On the other hand, the automaker made no changes to its earnings guidance and still expects to earn 580 billion yen ($5.8 billion) during the fiscal year.
Ever since Mr. Shinzo Abe stepped into the PM’s office late in 2012, the yen has depreciated ~30% against the dollar. This has benefited the country’s automotive companies since overseas profits now translate back to more yen. For fiscal year 2014, Honda had earlier assumed an exchange rate of 97 yen to a dollar but now expects an exchange rate of 100 yen to a dollar. Thus, the slight dip in unit sales guidance is likely to be compensated by a weaker yen.
We have a $43 price estimate for Honda Motors, which is about 10% above the current market price. We are in the process of revising our estimates in order to incorporate the latest earnings.
Japanese Sales Soar While North America Could Improve
During the quarter, Honda’s sales jumped 57% to 0.2 million units in Japan, helped by the revamped version of the Fit. The automaker introduced the third generation Fit during the second quarter and received a staggering 62,000 orders within four weeks of its launch, almost four times the company’s expectations. Furthermore, it was the highest selling vehicle during the third quarter, overtaking Toyota’s Aqua.
The government of Japan is also raising the sales tax on automobiles in April, due to which customers are rushing to register their cars before the increased tax rate comes into effect.  As a result, the automotive market was unusually strong in the third quarter and is likely to remain buoyant in the January-March quarter as well.
The Fit was also showcased at the Detroit Auto Show in January and will debut in North America this year. Another vehicle that was displayed was the Vezel, the automaker’s first crossover SUV. The Vezel went on sale in Japan in the last week of December and will be eventually launched in the U.S. in the second half of 2014. 
North America is Honda’s biggest market and accounts for more than 40% of the unit sales. During the quarter, North American unit sales rose only 2.5%. However, with these high volume model introductions set to debut this year, Honda’s unit sales could easily accelerate in 2014.
Chinese Sales Rebound
After a difficult 12-15 month period starting September 2012, Honda is once again optimistic about China. Sales of Japanese automakers had tanked due to a wave of anti-Japan sentiment present across the general public, because of tensions between the two countries. As the sentiment gradually improved and Honda introduced two China-specific models, namely the Jade and the Crider, the automaker’s sales accelerated in the second half of the year. During the quarter ending December, Honda’s sales more than doubled on a year-over-year basis.
Furthermore, Honda plans to introduce nine more models within the next two years as it aims to gain back market share from its American and German rivals. Earlier in 2013, Honda even set up an R&D center in the world’s most populous nation to develop China-specific models. In 2014, Honda is targeting sales of 900,000 units, or 19% more than those sold in 2013. Overall, the Chinese automotive market continues to grow at an impressive rate. After crossing 22 million units in 2013, the Chinese automotive market is expected to rise more than 10% in 2014. Notes:
- Honda Motors Investor Relations [↩]
- Honda Profit Misses Estimates as Sales in Thailand Slump, January 31, 2014, bloomberg.com [↩] [↩]
- Honda’s new crossover launches in Japan, headed for US in 2014, hindustantimes.com [↩]