- Vehicle Leases & Loans constitute 22% of the Trefis price estimate for Honda's stock.
- Automobiles constitute 16% of the Trefis price estimate for Honda's stock.
- Motorcycles constitute 5% of the Trefis price estimate for Honda's stock.
WHAT HAS CHANGED?
- Latest Earnings
Honda posted a relatively strong set of FY'22 results,
with net profit rising 7.6% to 707 billion yen ($5.5 billion) and revenue growing by around 10.5%, driven by strong motorcycle sales and a weakening yen. The company indicated that earnings for FY'23 were likely to remain roughly flat, despite the ongoing supply chain issues and semiconductor shortage.
Note: Honda's FY'22 ended on March 31, 2022
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Honda's Automobile Units Sold: Honda's auto sales have declined from almost 5 million units in FY'19 to just about 4 million in FY'22. Trefis expects the metric gradually recover to around 4.5 million units by FY'28. However, if volumes remain roughly flat at 4 million units, there could be a 5% downside to our price estimate.
Honda is one of the world’s ten largest automakers and the largest motorcycle producer. In addition to producing Honda branded vehicles (cars, vans, SUVs, trucks) and motorcycles, the company is also a leading producer of power sport vehicles (ATVs, watercrafts) as well as other motor-based products (generators, pumps). Honda also provides financing in the form of leases and loans for its products. Honda's financing business is a significant contributor to the company's profits. Honda is headquartered in Tokyo, Japan.
SOURCES OF VALUE
High gross margins for automobile business
According to our estimates, Honda's gross margin for its vehicle business is almost 19%. We expect this number to remain steady over our forecast period.
- Focus On Electric Vehicles
Honda Motors is taking concrete steps to build strong capabilities in the electric vehicles space. While the company has been investing in EV development for the last few years, in early 2022 it signed a collaboration agreement with General Motors to develop affordable electric vehicles based on a new global platform. The first vehicles are likely to roll out in 2027, with prices likely to start at below $30,000.
- Declining U.S. sales
Honda faces a challenging industry environment in the U.S. with consumer preferences shifting toward SUVs and crossovers leading to a decline in the sale of its sedan models. Over the first four months of 2022, the company's total volumes in the U.S. declined by about 28% year-over-year.