12 June 2013 Asia Pacific/Japan Equity Research Automobile Manufacturers (Auto (Japan)) / OVERWEIGHT Japan Auto Sector Research Analysts THEME Issei Takahashi 81 3 4550 7884 [email protected] “Big Four era” still a way off: Model mapping summer 2013 Figure 1: Little possibility of Mitsubishi/Nissan alliance becoming a force in the minicar market Source: Company data, JMVA, Credit Suisse estimates ■ Early summer 2013 domestic minicar model map: We have updated our mapping of the domestic minivehicle market. Key changes since September 2012 are: (1) improved fuel economy for the minivehicle market overall driven by Daihatsu and Suzuki’s OEM supply of high-mileage models; (2) a partial halt in Suzuki’s OEM supply to Nissan (Roox); and (3) the launch of vehicles jointly developed by Nissan and Mitsubishi (DAYZ, EK wagon). With all the Japanese OEMs strengthening their minivehicle operations, we look for minivehicles to continue accounting for an increasing share of Japan’s overall new-car market. We expect the minivehicle market to total more than 2.1mn units in 2013. ■ Big Four era remains a way off: We have three main views on minivehicle market share: (1) we expect the Daihatsu Group to account for around 40% of overall minivehicle production over the medium term on the back of its OEM strategy; (2) Suzuki looks poised for a cyclical rebound in own-brand share on strong demand for the Wagon R and Spacia, but declining OEM supply to Nissan remains a long-term bottleneck; (3) Honda could join Daihatsu and Suzuki as a third major player in minivehicles if it can come up with highly economical models, but we see little possibility for now of the Mitsubishi/Nissan alliance becoming a fourth. ■ Stock calls: We maintain our OUTPERFORM rating on Daihatsu Motor (7262, TP ¥2,640, potential return 37.3%). 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Key changes since September 2012 are: (1) improved fuel economy for the minivehicle market overall driven by Daihatsu and Suzuki’s OEM supply of high-mileage models; (2) a partial halt in Suzuki’s OEM supply to Nissan (Roox); and (3) the launch of vehicles jointly developed by Nissan and Mitsubishi (DAYZ, EK wagon). With all the Japanese OEMs strengthening their minivehicle operations, we look for minivehicles to continue accounting for an increasing share of Japan’s overall new-car market. We expect the minivehicle market to total more than 2.1mn units in 2013. Daihatsu group leads domestic minivehicle market; maintain OUTPERFORM As we indicated in our 24 May note, Daihatsu Motor (7262): Strong domestic sales offsetting LCGC delays, we think Daihatsu is on course to sell 700,000 minivehicles under its own brand in FY3/14 (guidance 630,000). We expect sales to remain firm for the time being, as the Move is in strong demand and we anticipate big minor changes for the Mira e:S and a full model change for the Tanto. OEM supply with Toyota and FHI is also one of their strengths when we consider shipment volume. In addition to its emphasis on price, fuel economy, and interior room, Daihatsu is also providing customers with added value in the form of safety via its Smart Assist technology. Given Subaru’s success in strengthening branding and sales with its similar EyeSight feature, we think Smart Assist could help Daihatsu protect and expand its market share. With Daihatsu’s strong product design capabilities looking set to support above-budget domestic sales, we forecast FY3/14 consolidated OP of ¥165bn versus the ¥142bn I/B/E/S consensus and ¥135bn guidance. The consensus outlook has profits remaining below year-earlier levels through 2Q, but we expect them to advance YoY for at least 1H. Assuming our forecasts are accurate, we also think the FY3/14 dividend could exceed ¥70/share, implying a current yield of 3.7–3.8% that we think limits share-price downside. We thus think the stock looks increasingly attractive from a risk-return perspective. Big Four era remains a way off We have three main views on minivehicle market share: (1) we expect the Daihatsu Group to account for around 40% of overall minivehicle production over the medium term on the back of its OEM strategy; (2) Suzuki looks poised for a cyclical rebound in own-brand share on strong demand for the Wagon R and Spacia, but declining OEM supply to Nissan remains a long-term bottleneck; (3) Honda could join Daihatsu and Suzuki as a third major player in minivehicles if it can come up with highly economical models, but we see little possibility for now of the Mitsubishi/Nissan alliance becoming a fourth. Figure 2: Domestic minicar market: Sales share by brand Figure 3: Domestic minicar market: Production share by OEM 50% 40% 45% 35% Daihatsu, 34% 40% Suzuki, 31% Daihatsu, 37% 30% 35% Suzuki, 37% 30% 25% 25% 20% Honda, 19% 20% Honda, 20% 15% 15% 10% 10% 5% MMC, 5% 5% Nissan, 5% Mazda, 3% 0% 2008 2008 1Q 2009 1Q 2010 1Q 2011 1Q 2012 1Q 2013 1Q 2001 1Q 2002 1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2000 1Q 0% 2008 2008 1Q 2009 1Q 2010 1Q 2011 1Q 2012 1Q 2013 1Q 2000 1Q 2001 1Q 2002 1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q Source: JAMA Source: JAMA Japan Auto Sector 2 12 June 2013 Summer 2013 domestic minicar model map Daihatsu and Suzuki remain minivehicle market’s Big Two Key changes since September 2012 are: (1) improved fuel economy for the minivehicle market overall driven by Daihatsu and Suzuki’s OEM supply of high-mileage models; (2) a partial halt in Suzuki’s OEM supply to Nissan (Roox); and (3) the launch of vehicles jointly developed by Nissan and Mitsubishi (DAYZ, EK wagon). However, we think there have been no new models over the past half year that are capable of rewriting the industry’s market-share map. As Figure 2 shows, 2012 market-share trends for minivehicles were marked by: (1) strong gains for Honda and (2) an increasing gap between the top- and bottom-ranked manufacturers. However, Honda’s share has stagnated since new-model effects from the N Box—which succeeded in differentiating Honda from Daihatsu and Suzuki—tapered off. Nissan/Mitsubishi alliance’s new models unlikely to sharply alter market shares As Figure 5 indicates, the Mitsubishi EK Wagon/Nissan DAYZ sister models lack specifications strong enough to take market share from Suzuki’s rival Wagon R and Daihatsu’s rival Move. In fact, just 20–30% of advance orders have been from consumers switching from another brand. We accordingly see little possibility at present of the Nissan/Mitsubishi alliance causing a major shakeup in minivehicle market shares. Honda, however, does have the potential to become a key player in our view. We expect the company to launch a fourth model in its N series this year as a successor to the Life. The N Box established the category for spacious and pricey minivehicles and helped Honda gain market share, but the company’s offerings clearly trail the Big Two in terms of economy. Our focus with regard to the upcoming model is thus on pricing strategy as well as fuel economy. Figure 4: DAYZ/New EK Wagon lack specifications strong enough to change minicar market share Note: Bubble size shows sales unit (in 2012 or CSE) Source: Company data, JMVA, Credit Suisse estimates Japan Auto Sector 3 12 June 2013 Figure 5: Each model’s price/fuel consumption and price/space scatter plot Source: Company data, JMVA, Credit Suisse estimates Figure 6: Each companies’ main model mapping by price and fuel consumption Note: Bubble size shows sales unit (in 2012 or CSE) Source: Company data, JMVA, Credit Suisse estimates Japan Auto Sector 4 12 June 2013 Figure 7: Each companies’ main model mapping by price and interior space Note: Bubble size shows sales unit (in 2012 or CSE) Source: Company data, JMVA, Credit Suisse estimates Figure 8: Sales ranking by minicar model/brand (2012) Ranking OEM Model Brand Name Jan-Aug Sales Unit % of Share 1 Honda N BOX 236,287 12% 2 Suzuki Wagon R 199,122 10% 3 Daihatsu Mira 190,490 10% 4 Daihatsu Tanto 162,782 8% 5 Daihatsu Move 160,397 8% 6 Suzuki Alto 108,872 6% 7 Nissan Moco 67,513 3% 8 Honda N ONE 55,309 3% 9 Suzuki Palette 51,822 3% 10 Nissan Roox 46,524 2% 11 Suzuki MR Wagon 39,601 2% 12 Toyota PIXIS 31,969 2% 13 Honda Life 29,576 1% 14 MMC EK Wagon 26,077 1% 15 Subaru Stella 22,129 1% Source: JMVA Nissan/Mitsubishi alliance could, however, lead to further growth in the minivehicle market We think the upshot of the Nissan/Mitsubishi alliance’s new models will be further growth in the minivehicle market.