Mazda Motor: Q4 May Reflect Earthquake Issues, But Also Benefits Of A Still-Cheap Yen

seekingalpha2024-05-05

Mazda's Q3 earnings have shown significant volume growth and market share gains, leading to double operating profits.While China sales have begun a rebound, Australia is showing signs of peaking, and ...

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Benefits Of A Still-Cheap Yen\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-05 13:51 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4689547-mazda-motor-q4-may-reflect-earthquake-issues-but-also-benefits-of-a-still-cheap-yen><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Mazda's Q3 earnings have shown significant volume growth and market share gains, leading to double operating profits.While China sales have begun a rebound, Australia is showing signs of peaking, and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4689547-mazda-motor-q4-may-reflect-earthquake-issues-but-also-benefits-of-a-still-cheap-yen\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1435385759.SGD","symbol_name":"Natixis Loomis Sayles US Growth Equity RA 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ACC"},"translate_title":"马自达汽车：第四季度可能反映了地震问题，但也反映了日元仍然便宜的好处","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TM":1,"RS1.SI":1,"MZDAY":1,"MZDAF":1,"XKO.AU":0.9,"XJO.AU":0.9,"XAO.AU":0.9,"03160":0.6},"content_text":"Mazda's Q3 earnings have shown significant volume growth and market share gains, leading to double operating profits.While China sales have begun a rebound, Australia is showing signs of peaking, and there may be potential challenges eventually in other markets as well on macro worries.The Yen continued to weaken since the Q3 earnings, which will be good for the FY and Q4 results, but there are also potential earthquake procurement inflation effects.We think an earnings beat is possible, which may be a reason to pick Mazda up, but the languishing price despite the trailing valuation may mean things are baked in.   jetcityimageMazda Motor (OTCPK:MZDAF)(OTCPK:MZDAY) earnings are coming on the 10th of May. With a look at the Q1 now, let's try to set the stage for what we might see next quarter. To start, the Yen continues to weaken, which as discussed in our previous coverage means a profit wedge and a share gain. This improves the outlook for Mazda, particularly in the US market. There may be some incremental cost effects from the earthquake earlier this year in Japan which affected some vendors, but we believe that there will be continued volume growth and profit wedging to keep operating income momentum from falling much towards the FY. We think FY forecasts may be a little pessimistic in this regard, as Yen outlook was probably different at the time of the last earnings. However, while an earnings surprise is a possible angle, we note that Mazda is expecting some peaking in key markets like Australia on macro issues, and in principle we could see similar effects eventually in the US as well. Q3 Earnings Headline Earnings Evolutions (Q3 Pres)New SUV launches in the US have done wonders, in addition to a weak Japanese Yen. On the back of significant volume growth and market share gains against UAW embattled US competitors and with the help of more competitive Yen-cost-based pricing, operating profits closed to double for the 9m cumulatives. Volume growth was strong YoY and kept momentum sequentially as well compared to Q1 followed by Q2. Cost improvement programmes eliminated negative effects from higher costs. Relative to realised prices, costs did not come up a lot because a larger proportion of Mazda's cost structure is in Japan compared to their end-markets. The CX-50 line is apparently is close to full production now, and the plan is to produce more of this model as well as the hybrid version meaning there is still scope for economies of scale here as well as learning economies. China is important to call out. The beginning of 2023 was still affected by COVID-zero and related stagnation in mobility, followed by the economic aftermath of those policies in combination with a major deleveraging in the Chinese real estate markets. However, in Q3 China sales were up 19%, finally benefiting from the end of COVID-zero in earnest, where the Chinese lockdowns were the biggest headwind. Volumes by Geography (Q3 Pres)On the other hand, Australia is apparently showing peaking. While sales were still strong as of the Q3, semiconductor shortages and other congestion have been worked through, and the impacts of higher rates and inflation for leveraged Australian households is beginning to have an impact. At a little less than 10% of the total volumes, it's an important indicator for what might happen with a typical automotive markets for Mazda. Looking Forward Q4 and FY earnings are next week. What can we expect from them given the expectations set by the company in Q3? Forecasts (Mazda Q3 Pres)Sequential deceleration is expected, which is not too unusual given that volumes tend to peak in spring and before winter, in other words given typical seasonality in automotive markets. However, the tone around the Yen situation was quite different some months ago. There was a lot of speculation around the BoJ rate pivot and expectations that the Yen would grow. We were even beginning to prepare for the eventuality that either from lower rates in the US or higher rates in Japan, the Yen would appreciate. That didn't happen, the Yen has continued to depreciate considerably, and we believe that it should impact results positive in a real way. We think further share gains in the US, which has a pretty unperturbed end market demand on the back of strong economic conditions, could be reasonably expected as the Japanese car makers continue to be able to outcompete locals on price. Moreover, we are somewhat optimistic about continued Chinese recovery given the trends - not because we have much belief in the Chinese economy but just because of the weak comps of COVID-zero. There was an earthquake in Japan that had a significant impact on many of the company's vendors who are clustered in the affected areas. While there wasn't an impact in February production, there may be issues in March production depending on how those vendors fared. Any changes to the supply chain in order to keep volumes up will be met with higher procurement prices. That may not be reflected in the raw material and logistic cost incremental acceleration in the forecasted results compared to the 9m cumulatives. These higher costs likely reflect the issue of militant groups in the Middle East harassing trade routes. Insufficient accounting for the earthquake could counter some of the benefits in operating income momentum from a weaker Yen that might have contributed to an earnings surprise. Although, maybe Mazda management were being conservative on this point, and that the vendor factories will deal with the issue easily. Then there's also the matter of Australia, and the reminder that of course after all the pent-up demand is spent that macro does matter for automotive. In all, Mazda has languished since our last coverage. Results are phenomenal, and they will be strong for the FY. There is even the chance of a beat, depending on volumes. They remain in excellent health for the major North American market as of January. Indeed, that market shows no signs of stopping even if Australia does show signs of a slowdown. Of course, we have to mention the maturity wall risk in the US. This could catch automotive investors by surprise. Also, markets seem to already be pricing in a lot of the performance as it is, although a beat would help. China recovery is nice, but it may come to a stop on their own economic woes. While the US levitates, other markets may also start to falter in automotive given economic conditions. The performance has already been great, we think that there is the risk here of expecting too much more of price action, even in spite of its valuation which with the Toyota (TM) stake is around 4x EV/EBITDA, around half of what peers trade at given Seeking Alpha peer group valuations, minus Tesla (TSLA) and some other outliers. We like the valuation, we still see earnings catalysts, but forecasts already have phenomenal growth baked in, the next earnings are a little ambiguous and markets seem to be making a bit of a statement with the stock price languishing in USD terms YTD. Valuation gaps don't just close like that between Japan and the US peers. We're ambivalent here.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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